By Marc Jones, Simon Jessop, Jake Spring and Marcela Ayres
LONDON/SAO PAULO (Reuters) – The political push to promote the first “Amazonia Bond” has intensified during talks to agree a “roadmap”, but the possibility of a deal this year faces technical hurdles and skepticism from part of some of them. in charge of managing the debt, sources told Reuters.
Brazil, Colombia and Ecuador are among a group of nations in talks with development banks to launch a specially supported framework to raise billions of dollars in low-cost financing to protect the world’s largest rainforest.
Proposed last year by the Inter-American Development Bank and the World Bank, Reuters reports for the first time the progress made, the bond structures and timelines under discussion, but also some resistance from officials at two of the region’s largest financial institutions . Villages.
Covering more than 6 million square kilometers, the Amazon (NASDAQ:) absorbs large amounts of greenhouse gases that contribute to climate warming and is home to more than 10% of all known animals and plants, the highest density of species anywhere on earth.
“It would be a landmark transaction for nature-related securities,” said Arend Kulenkampff, director of the sustainability-linked Sovereign Debt Hub, a nonprofit initiative aimed at coordinating green financing, referring to the effort’s potential impact.
COST OF MANAGEMENT
Politically, Amazon bonds are in line with calls from the presidents of Brazil, Colombia and other Amazon basin countries for rich countries to do more to protect the rainforest.
A member of Brazil’s climate delegation told Reuters that increasing Multilateral Development Bank (MDB) financing is one of the main demands of the G20 presidency this year and ahead of the UN climate summits in Azerbaijan in November and in the Amazonian city of Belem in 2025.
Only MDBs can raise climate finance to the extent needed in large developing countries such as Brazil, Mexico and India, the person said. “Credit guarantees,” for example, can dramatically reduce financing costs that can typically be in the double digits for countries.
How much money MDBs can provide and how quickly is an open question, as officials say there is no time to waste in tackling climate change.
But while politically Brazil and Colombia, which will host the UN COP16 talks on biodiversity in October, are both keen to have a historic deal to show for their efforts, some officials are skeptical about the need to rush a new debt instrument .
“Colombia, like the other eight Amazon countries, could launch an ‘Amazon bond,’ but has insisted on considering the Amazon not as a source of debt but as a source of income,” said Jose Roberto Acosta, director of the Department public of Colombia. credit from the Ministry of Finance.
Emerging economies are increasingly pushing for the world to help add value to the management of such shared resources, for example by generating biodiversity credits that could be sold to other countries or companies to raise funds.
“For this reason, it is unlikely to be achieved before COP16,” Acosta said.
Two sources with direct knowledge of the matter told Reuters that discussions within the Brazilian government were still at a preliminary stage and that any progress, if confirmed, would not come this year.
Brazil’s Finance Ministry said it was not “so far” aware of any discussions and had not yet received a formal proposal for an Amazon bond.
The ministry also highlighted strong demand last year for Brazil’s first international green bond which raised $2 billion and was sold at a lower-than-normal interest rate of 6%. It plans to issue more in the future, he added, although banking sources suggest that an MDB-backed Amazon bond might command only half that interest rate.
And it is necessary to keep borrowing rates as low as possible. The cost of reaching Brazil’s self-set climate goals – which aims to more than halve its greenhouse gas emissions by 2030 and reach net zero emissions by 2050 – has been estimated at $100 billion a year, equal to to 7% of its economic production.
Other countries and development banks involved in the plans did not comment on the status of the talks when asked by Reuters.
THE MARCH TALKS
In the March talks, a number of issues were discussed that will need to be agreed before the launch of the first bond.
Among these was what to include in the “menu” of bond options open to issuing countries under the framework, with the aim of launching both “use of proceeds” bonds – where the money is earmarked for specific projects – and sustainability-linked bonds” (SLB), linked to more general objectives such as reducing deforestation rates.
Given that most countries in the region have not yet incorporated SLB frameworks into national regulations, using bond proceeds is a more likely option for the first issuance, three sources said. In the future, businesses and local development banks may also be issued.
International interest is strong, with individual governments including Sweden, Italy and Spain already providing support, three sources said. In the future, other multilateral bodies such as the Development Bank of Latin America and the Caribbean (CAF) are likely to be involved, a source added.
Other issues to be resolved include defining what should be considered a legitimate use of the new bond proceeds, including whether to allow spending in cities, given that 80% of those living in the Amazon are in urbanized.
While the first bonds are likely to be issued by individual countries, the hope is that they could eventually be jointly implemented under the IDB’s “Amazonia Forever” framework to enable effective, large-scale transboundary conservation efforts.
The aim of the program is to finance sustainable development and help reduce deforestation: according to EU statistics, the equivalent of around four football pitches are cut down every minute.
Although Brazil, Colombia, Ecuador, Guyana, Peru, Bolivia and Suriname have already signed up, jointly issuing bonds is no easy feat given the different financial health of each state.
It follows a push by Brazil’s leftist President Luiz Inacio Lula da Silva to unite his neighbors to push richer nations to help pay for forest protection. Since 1970, Latin America has lost 94% of monitored populations of mammals, birds, fish, reptiles and amphibians, an analysis by WWF and ZSL has shown.