Increasing demand from investors is driving a recent rise in attention to ESG principles as Brazilian companies wrestle with issues of the Amazon deforestation, social inequality, and corruption. Notable market activity includes:
- Sustainable and green bonds are trending in Latin America in Q1 2021
- International bonds tied to ESG projects are growing vigorously in Latin America. Bloomberg reported that the volume of sustainable debt sales through March 2021 has been the highest ever, $8.7 billion, corresponding to almost the total volume in 2020 ($10.8 billion).
- Specifically, sustainable bonds are gaining popularity in Brazil
- In December 2020, Banco de Desenvolvimento de Minas (BESG TraDMG) made the first sustainable bond issue by a development bank in Brazil. The proceeds will support green and social projects such as renewable energy, water and sanitation, health, and education.
- After raising US$ 500 million in green bonds sold internationally in January 2021, BTG Pactual became the first bank in Latin America to join the Nasdaq Sustainable Bond Network. The proceeds will target renewable energy, energy efficiency, sustainable water and wastewater management, clean transportation and green buildings.
- Other companies in Brazil have recently issued sustainable bonds:
- Suzano, Brazilian pulp and paper producer company, was the first Latin America business to offer sustainable bonds internationally. Suzano raised US$ 750 million in two sustainability-linked offerings in September and November 2020. Suzano’s sustainability-linked bond has a sustainability performance target that will result in a one-time coupon step-up of 25 bps if the company’s performance does not achieve GHG emissions intensity reduction.
- The Brazilian paper producer company, Klabin, raised US$ 500 million with a sustainability-linked bond in January 2021. Klabin’s bond aimed to achieve three targets, two of them directly related to the company’s industrial production: (1) Reducing the consumption of natural resources, (2) increasing the recycling of both water and solid waste in the company’s industrial production, and (3) reintroducing two extinct or endangered species in the company’s forest areas. If the company does not achieve the set targets, the transaction fees will increase.
Sources: Bloomberg, Latin America Sustainable Debt Sales Surge Amid Global Boom (March 9, 2021), https://www.bloomberg.com/news/articles/2021-03-09/latin-america-sustainable-debt-sales-surge-amid-global-boom; Latin Lawyer, Minas Gerais Development Bank makes first sustainable bond issue (January 28, 2021); BTG Pactual taps international markets with sustainable bonds (January 27, 2021); PR News Wire, BTG Pactual joins the Nasdaq Sustainable Bond Network (February 22, 2021), https://www.prnewswire.com/news-releases/btg-pactual-joins-the-nasdaq-sustainable-bond-network-301232217.html Latin Lawyer, Brazil’s Klabin follows Suzano with sustainability-linked bond offering (January 21, 2021); Suzano, Sustainability-Linked 2020, available at https://s1.q4cdn.com/987436133/files/doc_downloads/sustainability_reports/InformativoSuzano_eng4-1207.pdf; Klabin, Klabin issues 10-year sustainability-linked bond for US$ 500 million, https://klabin.com.br/en/newsroom/press-release/klabin-issues-10-year-sustainability-linked-bond-for-us-500-million/.
- Brazilian Securities and Exchange Commission proposed new ESG-related Disclosures
- Following the trend initiated by other countries, the Brazilian Securities and Exchange Commission (CVM) has proposed new disclosure requirements aiming to give more transparency to the growing demand of investors interested in ESG information, although CVM’s proposal does cover all aspects of ESG as the field continues to be in flux both in Brazil and worldwide. CVM’s goal is also to reduce compliance costs by establishing rules in line with other developed markets. The proposed disclosure changes include, among others:
Requiring companies to report on the adoption of a materiality matrix and key performance indicators (KPIs) for environmental and social matters;
Adopting the “Comply or Explain” approach, which requires that companies that do not release sustainability reports or do not adopt KPIs for environmental and social matters explain why they do not;
Reporting on diversity in the management and workforce;
Explaining whether the company has any channels through which critical environmental and social matters can be communicated to the Board of Directors;
- Reporting on pay gaps and whether environmental and social indicators affect executive compensation.
The period for submission of comments closed on March 8, 2021, and the CVM is currently analyzing the proposed changes.
Source: CVM, Public Consultation Notice No. 9/20 (December 2020). The proposed changes are available at: http://conteudo.cvm.gov.br/export/sites/cvm/audiencias_publicas/ap_sdm/anexos/2020/sdm0920_notice.pdf.
Under pressure, Brazilian meatpackers have announced monitoring of deforestation through their supply chain
- Last year, JBS, the largest global meatpacker, announced their intention to monitor all stages of its supply chain, including indirect suppliers, by 2025 in order to review any connections to deforestation of the Amazon jungle. JBS announced this decision in response to significant pressure from environmentalist groups and investors such as Nordea Asset Management (Nordea) and KLP, Norway’s largest pension fund. Both Nordea and KLP have excluded JBS from its portfolio on ESG grounds.
- Two other Brazilian meatpackers, Marfrig and Minerva, have also announced plans monitor their suppliers by 2025, with a stated aim to reduce the deforestation of the Amazon.
- Although only time will tell whether these companies’ plans will translate into effective deforestation actions, investors are clearly increasing pressure on and scrutiny of Brazilian meat producers due to the industry’s alleged connection with deforestation of the Amazon.
Sources: The Guardian, Brazil meat giant JBS pledges to axe suppliers linked to deforestation (Sept. 23, 2020), available at https://www.theguardian.com/environment/2020/sep/23/brazil-meat-giant-jbs-pledges-to-axe-suppliers-linked-to-deforestation; BNN Bloomberg, In ESG era, meat boon can't save JBS from worst year in a decade (Oct. 1, 2020), available at https://www.bnnbloomberg.ca/being-the-meat-industry-s-top-cash-cow-isn-t-enough-in-esg-era-1.1502040; Reuters, Brazil's JBS vows to monitor deforestation through whole cattle supply chain (Sept. 23, 2020), available at https://www.reuters.com/article/us-jbs-amazon/brazils-jbs-vows-to-monitor-deforestation-through-whole-cattle-supply-chain-idUSKCN26E20I.