The financing deficit for infrastructure in Brazil is approximately US$ 49.5 billion per year. Data from the G20 Global Infrastructure Hub indicate that US$ 1.2 trillion would be needed by 2040 to supply the country’s infrastructure demand. Today, less than 2% of GDP is invested in the sector.
A solution to this challenge is the incorporation of sustainability criteria in the project cycle and infrastructure assets, that is, from its design, financing, construction, operation and decommissioning. To facilitate the design of sustainable infrastructure projects, the IDB published the Sustainable Infrastructure Framework. The document proposes sustainability in four dimensions: economic and financial, environmental, social, and institutional.
- Economic and financial: considers the cost-benefit of the project and, in order to do so, analyzes profitability, productivity, job creation and access to infrastructure services (location, quality and price).
- Environmental: analyzes aspects such as mitigation and resilience, preservation and restoration of the environment, reduction of pollutants, efficient use of resources, minimization, and proper waste management.
- Social: the requirements are given in relation to impacts on the community, combating poverty, respect for human and labor rights, and cultural and historical preservation.
- Institutional: requires alignment with national strategies and international commitments, adequate governance structures, management and accountability systems, and the development of institutional capacities.
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Better foundations for development and more access to investors
Such a model of planning and executing infrastructure inserts, in the foundations of the country’s development, a high potential for transformational change, adding layers of security, longevity and robustness to the country’s economic growth path. It is not by chance that it is a model that helps Brazil to be able to access sustainable sources of financing, which are becoming increasingly important in the face of options for global financing sources. The systematic consideration of ESG elements (environmental, social and governance) has become a central element in the analysis of investments and risk management of creditors, investors and insurers all over the planet.
The movement to incorporate ESG criteria in the practices of the global financial system began a long time ago, however, in recent years, it has reached dimensions and speed that allow us to state that the financing that takes ESG issues into consideration will become the denominator rule of the global financial market.
In 2020, the CEO of BlackRock, the largest fund manager on the planet, made a commitment to make sustainability an integral part of building your company’s portfolio and risk management and, referring to the risks that climate change bring to invested assets, he said that “we are on the verge of a fundamental reformulation of finance”. Fink emphasizes that climate risk is an investment risk; that is, investing in sustainable infrastructure not only generates resilience, but also profitability in the long run. Not surprisingly, regulators from Europe and the United States are creating working groups and setting targets to demand that financial market actors be accountable for the management of climate risks in their businesses.
Infrastructure investments have an immediate effect on the resumption of economic growth due to the improvement in productivity and competitiveness in the country. In addition to the positive multiplier effects, it is also essential to think about risk management. Infrastructure decisions made today will have an impact on the return of long-term investment portfolios, given that infrastructure assets have long life cycles.
It is essential, therefore, that managers avoid making decisions that generate idle assets before the end of their useful lives, as they are not aligned with national and global targets for reducing greenhouse gas emissions, in accordance with the objectives assumed in the Paris Agreement. In addition to mitigation aspects, infrastructure projects must also consider resilience to climate change, such as increased temperature and variation in precipitation levels, thus avoiding the interruption of services to the population, as well as the flow of revenue collection related to such services.
The country’s potential
Brazil has an estimated green investment potential of US$ 1.3 trillion, considering the sectors of energy, transport, buildings, waste management and industrial energy efficiency, demonstrating that there are projects that can benefit from this form of financing.
InfraInvest: Sustainable Infrastructure for Brazil
An IDB project in partnership with SDI/Ministry of Economy aimed at creating solutions to help reduce the infrastructure investment deficit in the country through sustainable solutions and improvements in the business environment. The project provided valuable inputs for the consolidation of the sustainable infrastructure agenda in the country and for verticalization of the theme to subnational entities.
The Climate Policy Initiative (CPI) report “More Sustainable Economic Growth for Brazil” highlights that it is possible to promote economic growth and fulfill Brazil’s climate commitments. The document identifies the opportunities to achieve the Nationally Determined Contribution (NDC).
The first report developed by the Climate Bonds Initiative (CBI) “Investment Opportunities in Sustainable Infrastructure at the Municipal Level in Brazil”, identifies green financing opportunities at the municipal level.
The second CBI study, “Investment Opportunities in Green Infrastructure – Brazil” analyzes the Brazilian green finance market and maps a pipeline of green projects, presenting recommendations for leveraging institutional investments. Download here
The results of these studies served as input for engagement with local governments and investors. CBI organized roundtables in Florianópolis, Salvador and São Paulo, to discuss opportunities and challenges for sustainable infrastructure with participants from the government, the private sector, financial institutions, operators and concessionaires.
In 2020, the IDB promoted the results of these studies in a webinar with CBI and SDI/Ministry of Economy, which had more than 200 participants. This engagement highlights the interest in the infrastructure and sustainable investment agenda.
To bring practical information on the issuance of green bonds and thematic bonds, the CBI prepared the infographic “How to Issue Thematic Titles”. CBI also provided training on sustainable finance for Ministries of Economy and Infrastructure, governments and state agencies, regional banks and other interested government entities. Download the guide for issuing thematic bonds here
This year we published the latest report of the project, produced by CBI, “Financial Modeling of Consortium Management: Opportunity for Brazil to Finance Sustainable Subnational Infrastructure” that explores how municipalities can access consortium mechanisms to finance sustainable infrastructure.
In the clip below you can follow the main results of InfraInvest:
Infraestrutura Sustentável: a chave para impulsionar investimentos municipais brasileiros
Originally published in Ideaçao.
(Available in Portuguese and English) Como emitir títulos temáticos
Oportunidades de Investimento em Infraestrutura Verde – BRASIL 2019
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Photo: Thomas Richter – Unsplashed.com
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