The president of the Central Bank, Roberto Campos Neto, said this Wednesday (3) that this is the time to move towards a point in which Brazil has been blocking climate negotiations: the so-called article 6 of the Paris Agreement, which establishes rules for the carbon market.
“I’m going to take a little risk and go out of my way to say that this is the great opportunity to close article 6. It is very important to develop carbon pricing,” said the economist, in a virtual lecture shown at the Brazilian stand at COP26, conference which takes place in Glasgow (Scotland) until 12 November.
The statement is yet another indication that Brazil is determined to erase the image of “climate villain” with which it left the last COP, when the then Minister of the Environment, Ricardo Salles, was one of the main people responsible for preventing an agreement on this theme.
According to Campos Neto, enabling sustainable financing is increasingly relevant, because environmental concern has “strongly” reached the financial sector, after passing through energy and food.
According to him, investors and investment, private equity (direct investment in companies), infrastructure and construction funds demand ESG (social, environmental and governance responsibility) products.
“Why is this third wave so powerful? Because it is actually preventing some countries and some companies from receiving foreign investments,” said the BC president.
An example of this obstacle was announced this Wednesday, at COP26: more than 450 financial institutions from 45 countries, with assets of US$130 trillion (almost R$730), committed to reaching 2050 with all their investments aligned with the goal of zero net greenhouse gas emissions.
Because of this trend, the BC should tighten its analysis of climate and social risks, according to Campos. By December, data collection will increase on how much of the investments made by Brazilian banks have the potential to cause environmental or social damage.
Control will also be greater over investments in activities that could be affected by the climate crisis or the energy transition — the reduction of coal and oil-based generation and the increase in renewable sources such as hydroelectric, wind and solar generation.
By April of next year, he also wants to include these environmental and social risks in the stress tests, by which the Central Bank assesses the financial health of banks. “There are countries in the world that have made this mandatory, and we want quick results,” he said.
Campos Neto stated that the climate crisis directly affects the two responsibilities of the Central Bank: maintaining price stability and the financial system.
“The weather affects monetary policy very strongly. We are seeing this in Brazil this year, with the heat wave, then frosts and disruptions in supply chains, which have pushed up food and commodity prices.”
As a result, this year’s inflation may reach close to 10%, according to economists’ forecast, which has led the BC to raise interest rates.
On the bank stability side, Campos Neto stated that weather events can increase defaults, which affects banks’ balance sheets.
The BC wants to accelerate a sustainable finance agenda, which, according to the organization’s president, includes a partnership with the Climate Bonds Initiative to design a market for green bonds (sustainable enterprise papers). “We want to be in tune with global rules, to guarantee the issuance of bonds and allow the money to flow.”
Campos Neto also said that by December he should implement a sustainable financial liquidity mechanism, in which banks will be able to obtain loans using green bonds as collateral, which should speed up the issuance of these papers.
The other way to mobilize global financial flows is the carbon market, according to the BC president, for whom “the climate transition will impose increasing costs and challenges for the economy and society”.
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