ANNUAL
REPORT
2018

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

FEBRABAN contributes to the Country’s sustainable development while continuously fostering the improvement of the financial system and its relations with society

FEBRABAN promotes initiatives and conducts studies aimed at integrating business and sustainability, while also contributing to the sector’s compliance with the social and environmental regulations and legislation.

In this context, it is worth mentioning the guidelines for recording losses arising from social and environmental damages, material prepared by a working group (WG) consisting of 15 banks, to meet the requirements of Resolution 4,327/2014 and SARB 14/201.

From November 2017 to November 2018, four models were developed to collect and identify losses related to social and environmental damages in loan transactions. WG banks participated in a test conducted for each model.

In 2019, the working group will apply the new guidelines to check the feasibility of the scoring system.

Fostering sustainable development is directly related to the management of risks and opportunities involving environmental and social issues by the agents in the economy.

The financial sector is a key player in this context, as the transition to the green economy is likely to mobilize a large volume of resources.

Since 2014, FEBRABAN has established an agenda to leverage the transition to the green economy in Brazil through the allocation of resources intermediated by the National Financial System (SFN).

The banking sector has adopted measures in this regard, focusing on strengthening social and environmental risk management, fostering businesses that have a positive impact, as well as contributing to the achievement of the targets endorsed by Brazil in the Paris Agreement while supporting the Sustainable Development Objectives (SDO).

  • Ícone representando setores bancarios.
    The banking sector has moved to strengthen the management of social and environmental risks, in addition to promoting business that has a positive impact

FEBRABAN has also jointly developed with SITAWI – Finance For Good, and with the banks engaged in this issue, an action plan to guide the banking sector in implementing the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) of the Financial Stability Board (FSB), which addresses the impacts of climate change on business.

Among the activities carried out under this project, the following are worthy of note.

  • Evaluation of adherence to the reporting initiatives commonly adopted by Brazilian banks (e.g. Global Reporting Initiative/GRI, CDP and Dow Jones Sustainability Index) with TCFD recommendations. The tool, whose purpose is the detailed verification of this adherence, has been made available to the member banks.
  • Diagnosis, by means of a questionnaire, of the practices adopted by the banking sector associated with the recommendations of the TCFD. Twenty-eight banks responded to the questionnaire, representing 91% of the active loan portfolio of the associates (the sample represents R$2.2 trillion).
  • Preparation of a “ruler” for assessing the sensitivity/exposure of banks/transaction portfolios to climate risks. The tool has been tested by banks participating in the Climate Risks Working Group, and will be made available to all members.
  • Identifying the main challenges involving the implementation of recommended measures and establishing the course of action to be adopted by FEBRABAN and the banks to overcome such challenges.
  • Drafting of the report TCFD/FSB recommendations on the disclosure of financial information related to climate change – an analysis of the context of the Brazilian banking sector and proposed course of action, sing the results of the analysis and a roadmap prioritizing the steps to be taken in the next three years, available on the website portal.febraban.org.br  in Sustainability, Sustainability Studies.

For 2019, some actions are expected to be implemented according to the recommendations of the FSB Task Force, among which are the identification of suitable climate scenarios for Brazil and the curatorship of restrictive and open tools to cover client analyses.

Green bonds are used to raise funding for implementing or refinancing projects that have positive environmental and/or climatic attributes and impacts.

In addition to the usual participants, the Brazilian green bonds market also relies on external valuation agents who compile an independent opinion on a project to rate its positive environmental attributes.

  • The guide for issuing green bonds in Brazil , developed in 2016 by FEBRABAN and by the Brazilian Business Council for Sustainable Development (CEBDS), provides recommendations and guidelines for market agents, including potential issuers, coordinators, investors, and external valuation agents, as well as other participants

FEBRABAN is a member of the Working Group on Green Bonds of the Laboratory for Financial Innovation, an initiative of the Brazilian Development Association (ABDE), the Inter-American Development Bank (IDB) and the Brazilian Securities and Exchange Commission (CVM), which develops and evaluates intervention proposals in the Brazilian market to encourage the issuance of green bonds by companies operating in the Country.

In 2018, LAB published the Report on the survey undertaken with issuers and investors on green bonds in Brazil , prepared by consultants SITAWI – Finanças do Bem (Finance for Good), covering the opportunities and obstacles of this market. Part of the recommendations of this study will be discussed and addressed throughout 2019.

The following tables show the issuance of green bonds in Brazil up to December 2018.

NATIONAL ISSUES
IssuerIssue dateAmountUse of funds
CPFL RenováveisOctober 2016R$200 millionConstruction of wind farms (Campos do Ventos and São Benedito) in the state of Rio Grande do Norte, with nominal capacity of 231 MW.
Suzano Papel
& Celulose
November 2016R$1 billionSustainable forest stewardship to maintain certified areas or expand the certified forestry base, which comply with local and international standards.
Ômega EnergiaJuly 2017R$42 millionThe Porto do Delta, Testa Branca I and III wind farms.
Rio EnergyApril 2017R$112 millionThe Itarema I, II, III, IV, V, VI, VII, VIII, and IX wind farms in Ceará, through the holding company, Itarema Geração de Energia S.A.
Ômega EnergiaSeptember 2017R$220 millionThe Delta III wind farm complex located in Paulino Neves and Barreirinhas in the state of Maranhão.
PEC EnergiaNovember 2017R$48 millionThe Serra das Vacas wind farm complex, with a 50.6 MW nominal capacity, located in the city of Paranatama, in the state of Pernambuco.
Enel Green PowerDecember 2017R$22 millionThe Damascena and Maniçoba wind farms in the state of Bahia.
ISA CTEEPApril 2018R$621 millionRenewable energy transmission.
Rio EnergyAugust 2018R$127 millionWind energy.
INTERNATIONAL ISSUES
IssuerIssue dateAmountUse of funds
BRFMay 2016€500 millionEnergy efficiency, renewable resources, water and waste management, sustainable forest stewardship, reduced use of raw materials.
Suzano Papel
& Celulose
June 2016US$500 million + US$200 million*Sustainable management, restoration of degraded areas with native forests, conservation, water management, energy efficiency and renewable energy.
FibriaJanuary 2017US$750 millionSustainable forest stewardship, restoration of native forests and conservation of biodiversity, water and waste management, power generation from renewable sources.
BNDESMay 2017US$1 billionRenewable energies, development, construction or expansion of facilities for new or existing solar and wind energy projects.
KlabinSeptember 2017US$500 millionEnergy, energy efficiency, forestry, agriculture, transport and adaptation.
Faro EnergyJuly 2018ConfidentialDistributed solar energy projects.
* Supplementary issue.

The Sustainable Banking Network (SBN), an initiative of the International Finance Corporation (IFC), has set up a working group on green bonds, of which FEBRABAN is a member, to discuss and expand the level of knowledge on the subject. GRI 102-12 | 203-1 | 103-2 | 103-3: Indirect economic impacts

With regard to market standardization initiatives, FEBRABAN continues to monitor the development of international rules on green bonds, the future ISO 14030, coordinated by ISO’s Technical Committee referred to as TC 207/SC04, set up in July 2017.

In Brazil, the Brazilian Association of Technical Standards (ABNT) is the ISO-accredited organization responsible for drafting this project. FEBRABAN, in partnership with ABNT, is accompanying the process and collaborating as a member of the Brazilian Research Commission set up by the association.

The ISO 14030 series will consist of four parts (three initially planned and the fourth approved in 2018, on green loans):

  • ISO 14030-1 – Process for Issuance of Green Bonds
  • ISO 14030-2 – Process for Green Loans
  • ISO 14030-3 – Taxonomy
  • ISO 14030-4 – Verification

Publication of parts 1, 3 and 4 is expected to occur in October 2020. Part 2 is only expected be completed in March 2021.

  • Ícone representando cédulas.
    Green bonds in Brazil up to 2018:
    • R$2.4 billion in local issues
    • US$3.6 billion in international issues

The purpose of this initiative is to measure bank financing and/or loans for the Green Economy and sectors that may have a social or environmental impact.

The calculation is based on an annual survey of financial institutions that adhere voluntarily. The first edition, published in 2015, shows retroactive data from 2013 and 2014.

With the involvement of the Brazilian Association of Financial and Capital Market Entities (Anbima), the issuance of Brazilian capital market bonds is also being assessed using a methodology similar to that used to measure bank credit.

The aim for 2019 is to expand the scope of the publication and include new sectors (for example, sectors exposed to climate change), in addition to collecting information on corporate financing directly from official sources, in accordance with the methodology and without requiring the banks to report it.

The report Measuring financial resources allocated to the green economy, published in August 2018, shows a summary of the results from 2013 to 2017, as well as the volume of bond issues in the two groups of sectors monitored. It is available at portal.febraban.org.br, under Sustainability, Sustainability Studies.

Financing and/or loans to sectors of the green economy
(R$ million)

Grafico
GraficoSurvey sample – corporate share of loan portfolio (R$ billion)Source: data from supervised entities (IF.data) of the Central Bank of Brazil.

Financing and/or loans to sectors that have a potential social and environmental impact
(R$ million)

Grafico
GraficoParticipation of the sample in the portfolio of loans to businesses (billion)Source: data from supervised entities (IF.data) of the Central Bank of Brazil.

Volume of the capital markets for sectors of the Green Economy (R$ million)

Grafico

Volume of the capital markets in sectors with a potential socio-environmental impact (R$ million)

Grafico

The study on financing for photovoltaic solar energy in distributed generation – arried out by FEBRABAN in partnership with the Sustainability Studies Center at Fundação Getulio Vargas (GVces), the institutional support from the Brazilian Solar Photovoltaic Energy Association (Absolar) and the Inter-American development Bank (IDB), and the collaboration of ABNT – analyzed the economic and financial viability of adopting photovoltaic solar energy systems in distributed micro-generation and mini-generation in Brazil, with a view to examining the scalability of bank financing for these projects.

The study also proposed an innovative analysis model that makes it possible to integrate the customer’s credit risk with the project risk and, accordingly, analyze the risk of the operation as a whole.

The project’s risk classification consists of a score consisting of the return on the project and a score resulting from the technical and financial guarantees offered to the financial institutions.

Under BID coordination, eight financial institutions analyzed this model and found it to be viable, as well as the possibility that implementing it would increase the number of transactions while reducing the need for guarantees (one of the challenges of the sector).

  • Ícone representando cédulas.

The objective of the Coffee with Sustainability program is to discuss relevant aspects related to social and environmental responsibility and its impacts on business and, above all, on society and the environment, as well as contributing to the development of issues involving day-to-day operations of banks and their stakeholders.

In 2018, three editions of Coffee with Sustainability were held, in which the following topics were addressed: Carbon management and pricing, forest restoration and Financing for photovoltaic solar energy projects. Approximately 230 people attended the events, among them representatives of the financial system, class associations, NGOs, academic and business leaders.

All editions are available at cafecomsustentabilidade.febraban.org.br.

Following a request by the Ministry of Mines and Energy, FEBRABAN entered into an agreement with Anbima and B3 – Brasil, Bolsa, Balcão S.A. on a draft proposal for regulating Decarbonization Credits (CBIOs), an instrument of the National Biofuel Policy (RenovaBio – Law 13,576/2017, Article 17).

This agreement resulted in a partnership with Instituto Escolhas, Prospectiva, Veirano Advogados, Green Domus and CO2 Consulting to carry out a study whose results were presented to the Ministry of Mines and Energy, the Central Bank of Brazil, the Securities and Exchange Commission and the Ministry of Economic Affairs.

The main points arising from this study are highlighted below:

  • Assessment of the general aspects of RenovaBio, including its effective contribution to emission reduction (targets established by law for fuel distributors) and the conditions necessary for CBIOs to be traded on the organized market.
  • Draft of the proposal to be submitted to the Central Bank, indicating that CBIO should be classified as a financial asset registered by a financial institution authorized by the Central Bank of Brazil (Resolution 4,593/2017).
  • Draft of the proposal to be submitted to the National Petroleum Agency (ANP) to protect the bookrunner (financial institution) and ensure the underlying environmental and commercial assets of the CBIO, bearing in mind that the law and the decree on RenovaBio do not provide for such responsibilities.
  • Discussing the complex pricing of CBIOs, as this is directly affected by petroleum and sugarcane prices, and the penalties established by law. The proposal stipulates that the penalty should not exempt the distributor from meeting the target.
  • Evaluating that, at least during its early years, the CBIO market will predominantly consist of producers of biofuels (primary CBIO issuers) and distributors (buyers of CBIOs to meet the targets), and a secondary market is unlikely in the short term.
  • Conclusion that the fungibility of CBIOs with credits from existing and future carbon markets will require adaptations in the technical architecture currently proposed in the as-yet inconclusive regulation of RenovaBio.
Pricing of CBIOs
is complex because
it is conditional on oil
and sugarcane prices