Sustainable Finance

The Brazilian Perspective

Written by Rafael Lages Lobato and Leticia Mariz, Associates at Drummond Advisors


Sustainable investment principles have been regarded as the evolution of traditional investment practices. By virtue of a globalized economy and substantially integrated financial markets, ESG standards have been disseminated swiftly around the world: investing within an ESG framework is now the fastest-growing segment of the asset management industry. Such principles have been more frequently fostered by private actors than by the public sector, Brazil being a good example of such dynamics especially when it comes to climate change and sustainable finance.

As of June 2021, the Brazilian private sector had issued up to U$10.4 billion in green bonds, approximately 34% of Latin America’s total, only behind Chile (U$11.9 billion)[1] in the region. Following this trend, more than U$3 billion in sustainable bonds were issued only in the first four months of the current year[2], indicating that ESG standards are becoming increasingly relevant amidst Brazilian corporations and financial markets.

Sure enough, the Brazilian government is aware of the green market’s potential as a relevant source of foreign capital which would be decidedly useful in public investment projects and particularly in dealing with post-pandemic economic challenges. Bearing this in mind, and responsive to investors’ demand, the federal government expressly contemplated the issuance of green bonds in its 2021 Annual Financing Plan, aiming to finance public projects and social programs.

By doing so, it hoped to capitalize on favorable and idiosyncratic environmental characteristics, such as harboring the largest rainforest on earth and having one of the world’s cleanest energy systems: in 2020, 48,4% of the Brazilian energy system was composed by renewable sources, whereas the world average amounted to only 14%. When it comes to the electrical system, the disparity is even more astonishing at the ratio of 82,9% (Brazil) to 27% (World).

Such impressive data would surely make one wonder why Brazil didn’t follow through with the intended issuance of green bonds. Among many justifications, the most probable reason is that although the country has historically been able to take a relatively responsible advantage of its natural resources, it has never strived to revamp and improve what has been done unsatisfactorily, mainly a long due preservation plan of its large portions of rainforest.

In this context, another important element to consider is the relevant part played by the agricultural sector in the Brazilian economy, which has consistently amounted to a fourth of its GDP. If on one hand such activity in Brazil has developed and adopted cutting edge practices and high-end technology, on the other it is naturally entangled with some adverse environmental effects. The agricultural sector has successfully conveyed its influence on the political scenario, both in the Senate and House of Representatives, and has been recognized as one of President Bolsonaro’s most reliable supporters.

Considering these factors, there is an understandable hesitation on the part of foreign investors that the Brazilian government, especially its executive power, would be capable of, or even willing to, stop playing a “smoke and mirrors” game and actually enforce modern environmental policy standards consistent with its intention of issuing green bonds.

Brazil’s green agenda timeline is quite illustrative of such scenario. In 2015, the country joined the Paris Climate Agreement stating, among other intentions, that it would decrease deforestation, forest fire, and restore 12 million hectares of the Amazon rainforest. Fast forward, in the 2021 Leader’s Summit on Climate Brazil’s President Jair Bolsonaro publicly committed to neutralize 100% of the greenhouse gas emissions on or before 2050. Such pledge has been ratified by the Brazilian Senate and its enaction into law is dependent on similar ratification of the House of Representatives (bicameral legislature).

However, the Brazilian government’s environmental policies course of action has been a myriad of contradictions. In fact, it has not conceived, let alone adopted, any comprehensive plan to accomplish such goals. The rainforest’s deforestation metrics might be the brightest example of such inconsistencies: only in 2020, it lost 8,058 km²of green area, according to Imazon, an environmental think tank. Researchers have highlighted the federal government mishandle of the situation, pointing out that Brazil has allegedly been undergoing a continuous process of dismantling public policies aimed at preserving the environment, leading to decrease in inspection and disarticulation of environmental agencies that works in the fight against environmental illegalities.

On the other hand, the country has recently taken a significant step towards a more consistent sustainable investing framework by issuing an executive decree with the purpose of regulating and fostering the creation of a national carbon market (Decree n. 11.075 of May 19, 2022). Although the efficiency of such endeavor is still dependent on a more detailed and comprehensive federal legislation, the decree has been regarded as the “birth certificate” of such market. Among other relevant provisions, the decree has stated that players of substantial economic sectors (agricultural included) must establish consistent plans to achieve carbon neutrality and submit them to public authority specialized offices.

Politics aside, the Brazilian green bonds market current reality is that the public sector has lagged private actors when it comes to take a responsible advantage on the sustainable investment world trend. Whether or not the Brazilian public institutions will manage to narrow such disparity will depend on whether it will actually “go green” or only pretend to do so.


Brazil has neither conceived a consistent ESG framework nor enacted a comprehensive taxonomy regulation regarding sustainable investment and green bonds. However, the private sector has stepped in and partially filled such void by means of its (Brazilian) Federation of Banks – FEBRABAN. Such initiative is considerably relevant since the Brazilian economy is highly dependent on its banking system, one of the safest and most technological and capitalized in the world.

Proclaiming its commitment with the country’s economy sustainable and responsible growth, in 2020 FEBRABAN launched its “green taxonomy” with the purpose of better controlling and identifying the sustainability degree of businesses financed by loans from its banks. Such framework would increase the banking system’s capability of creating new lending strategies and recognize sustainable projects (renewable energy and sustainable cattle raising, for instance).

However, the gist of such initiative is not purely to reward and promote sustainable investment practices but mainly to balance the bank’s lending portfolio more efficiently, favoring economic sectors less subjected to climate change’s adverse effects in detriment of those more exposed to unpredictable natural events. FEBRABAN’S green taxonomy is divided by three core classifications:

In order to identify the economic sector of any particular activity, FEBRABAN’S taxonomy is based on the National Classification of Economic Activities – CNAE code, what has implicated in shortcomings since a number of activities clearly supportive of green agenda are not listed in such classification[3]. FEBRABAN is aware of such issue and has declared that it is working on improving its classification methods.

Similarly, bearing in mind the advancement of the sustainability agenda within the scope of the global financial markets, the Brazilian Association of Financial and Capital Market Institutions (ANBIMA) has recently established “sustainable investing” as a new form of private equity fund. As defined by its revised asset management code of conduct, an investment is considered sustainable when it has a clear goal of protecting and contributing, causing no harm or degradation, generating a positive impact and/or ensuring environmental, social and/or governance rights with no intention of compromising the financial performance of the Fund.

Such regulation has been in effect since January 3, 2022, and its goal is to establish criteria, requirements and the standards that must be followed by investment fund’s management in order to be formally recognized as a “IS Fund” (sustainable investment fund) within the Brazilian capital market.

In accordance with the methodology adopted by other countries, Anbima’s regulation avoided to impose strict provisions (fixed investment percentage or a particular corporate structure, for instance), electing to prescribe an “ongoing framework” designed to foster better governance, fund’s self-assessments and investor’s awareness, in addition to Anbima’s oversight regarding the effectiveness of such tools (framework).

Having said that, “Sustainable Investment Funds” are subject to the following framework:

Beyond the Sustainable Investment Fund’s realm, Anbima also observed the adoption of ESG principles by non-IS Fund’s management and acknowledged the importance of fostering such trend. Thus, investment funds that are not entirely focused on sustainability, but nevertheless have incorporated ESG guidelines in its management and even partially on its investment thesis, are entitled to distinguish itself from traditional funds and are allowed to advertise its ESG characteristics in its securities offering materials, subject to the following framework:

Bearing in mind the number of different framework strategies that has been adopted by world capital markets and focusing on this early stage of sustainable investments regulation, Anbima’s framework opted to propose a comprehensive governance scheme for the achievement of ESG credentials instead of imposing strict rules for that purpose. At this point, such framework is only applicable to private equity and fixed income funds, but Anbima has already declared its intention to extend it to all other types of investment funds.


The European Union adopted the Directive 2014/95/EU on the disclosure of non-financial and diversity information (NFRD) with the purpose to foster greater business transparency and accountability on social and environmental issues, ultimately as a strategy to strengthen the foundations for sustainable investment[4].

By doing so, the NFRD is expected to raise social and environmental information transparency similarly not only amongst economic sectors but also across all EU’s member states. Under NFRD’s provisions, listed companies, banks and insurance companies (‘public interest entities’) with more than 500 employees are required to publish reports on policies that have been implemented regarding employment relations, human rights, social responsibility, anti-corruption and bribery, and diversity on company boards.

Reaffirming its leadership and pioneering regarding sustainable investment practices, the European Union updated the NFRD broadening its scope: the new Corporate Sustainability Reporting Directive (CSRD). The CSRD is designed to cover all European-based companies with more than 250 employees.

The Brazilian government has not enacted similar legislation, but there are some interesting initiatives arising from the private sector by means of autoregulatory legislation, especially from the Brazilian Stock Exchange (B3 S.A. – Brasil, Bolsa, Balcão).

In 2006, B3 created a Corporate Sustainability Index (ISE B3) as a pioneer tool designed to subsidize a comparative analysis of listed companies under the optics of economic efficiency, environmental balance, social justice, and corporate governance. The index is composed by companies genuinely committed to ESG standards and is highly useful not only to investors when choosing target companies but also to the corporations themselves since those practices surely contribute to business perpetuity. Since then, B3 is always reviewing the metrics of the Index and publishing the portfolio of companies that are part of the index.

In addition, the Brazilian stock exchange has dedicated some time and effort to more focused address corporate social and environmental responsibilities. In partnership with the Global Reporting Initiative (GRI), B3 enacted in the end of 2011 the “report or explain” initiative where listed companies are encouraged to publicize sustainability reports guided by the seventeen sustainable development global goals established by the United Nations (UN). The initiative’s main purpose is to foster company’s voluntary adoption of those objectives and, although not mandatory, it has been considerably adhered by listed companies.

Finally, besides B3’s efforts in favor of transparency, CVM (Comissão de Valores Mobiliários), the Brazilian Securities Exchange Commission, has also joined with the approval of ESG regulation.

In the end of 2021, CVM amended Resolution 80 – which regulates the disclosure of information by issuers of securities admitted in regulated markets – to include express items of ESG in the “Formulário de Referência”, a form that such companies must annually release to the market. Example of information requested are:

  • If the company released ESG information in an annual report or other document.
  • If such report considers the Sustainable Development Objectives established by the UN.
  • If the company developed greenhouse gas emission inventories.
  • If the answers are in the negative, the issuer must explain why.


Although the Brazilian Government has been moving slowly with the green agenda, private sector and autoregulatory institutions are acting. Brazil is a powerful economy and a country full of natural resources, capable of being not only a source of financial investment vehicles and businesses for foreign investors, but also a source of investors, especially when Brazilians seek for alternative investments in response to exceptionally depressed interest rates. Also, Brazil is a country of young people, a new generation that seems to be more concerned about investments that reach further than solely individual financial gain.  



[3] Analogous issue is noted in EU’s taxonomy regulation where “manufacture of low carbon technologies” is not an activity listed under NACE.


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