After Investor Warnings on Amazon, Brazil Eyes Green Bonds

Faced with growing global outcry over its environmental policies, Brazil is now inviting foreign investors to help the country to preserve the Amazon and other endangered areas of conservation.

President Jair Bolsonaro announced that Brazil will soon launch a sustainable development fund in partnership with the Inter-American Development Bank, calling it “an innovative financial mechanism for countries in the region and investors willing to promote the bioeconomy with respect for our standards” during a speech at the 2nd Presidential Summit of the Leticia Pact, which brought together leaders of countries with Amazon forest within their borders.

He also said, though, that the Amazon region countries should “resist” unfair criticism from abroad. “Our union is proof that we value this area,” Bolsonaro said.

The approach marks a substantial departure from the combative style adopted in the past by Bolsonaro with regards to the environment. Last year the president skipped the Leticia meeting, refused help from international organizations to battle the Amazon fires, and even blamed some of them -- without presenting evidence -- for setting the forest ablaze.

After Investor Warnings on Amazon, Brazil Eyes Green Bonds

Brazil is changing its strategy as the government increasingly relies on market financing for its infrastructure projects, many of which require environmental licensing. Those involving the Amazon will have an environmental seal from the get-go so that they can be financed with the sale of green bonds, according to Infrastructure Minister Tarcisio de Freitas.

Freitas, who has been struggling to find funds to build the infrastructure works Brazil will need in the post-pandemic period, said in an interview that the government’s 250 billion real ($46 billion) program for the concession of roads, ports and airports is on track, despite widespread investor criticism of growing deforestation in the Amazon.

The government has faced mounting international and domestic pressure to do more to protect the environment. In June, institutional investors managing about $3.7 trillion in assets asked Brazil to abandon a proposal they say will add to deforestation and violate the rights of indigenous groups in the Amazon. In July, a group of 61 companies including pulp maker Suzano SA, meatpacker Marfrig Global Foods SA and agribusiness giant Cargill Inc. sent a letter to authorities stating that the negative perceptions are potentially damaging to both reputation and business prospects.

That pressure has also been seen on the ground.

“Environmental concern has appeared at roadshows, but we were already prepared,” Freitas said. “It is clear that the flow of private investments will be increasingly linked to environmental standards.”

Amazon Railroad

After Investor Warnings on Amazon, Brazil Eyes Green Bonds

One of the first such big-ticket projects will be a railway crossing through a portion of the Amazon, connecting a grain-producing region in the country’s center-west to a port on its north coast. Ferrograo, as it is known, is expected to have its license auctioned in the first half of next year and has had a successful road show, the minister said.

The government is also working with the Climate Bonds Initiative to get credentials that will allow private companies to fund their investments through the sale of green debt. Supporting Ferrograo’s green credentials is an expected reduction in the number of trucks moving grains through the region, which would lower carbon emissions and reduce the need for land development, Freitas said.

Another Brazilian initiative, as reported by Folha de S.Paulo newspaper, is to recover the country’s leadership in a multilateral organization of countries that have part of their territories in the Amazon region.

Some members of Brazil’s administration continue to use a combative tone in regards to the country’s environmental policies -- just last week Economy Minister Paulo Guedes rebuked criticism of the government’s track record in the Amazon by saying developed countries have already destroyed their forests and decimated their indigenous populations. And in the Leticia meeting Tuesday Bolsonaro again pointed out that the interest by foreign investors in the Amazon is because it is one of the only biodiverse areas left in the world. But that kind of language isn’t a concern for Freitas.

“Investors are very pragmatic, they don’t care what one person said today. They think about concessions that will last for the next 70 years,” he said.

Despite the tone, the government has been trying to improve the country’s image abroad. Bolsonaro may extend a decree that keeps military troops in the Amazon until the end of 2022 to monitor deforestation more effectively, Vice President Hamilton Mourão said at an event on Monday.

There are investors interested in exploring the Amazon in a sustainable way and it is necessary to set a regulatory framework for that, Mourao added.

©2020 Bloomberg L.P.

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