Development banks lead the creation of green financial products within the region

In ALIDE 40, the new Environmental Financing Technical Committee had its first official meeting and emphasized the need to create new financial products that encourage a more ecosystem responsible industry and projects that fight against climate change effects.

Created in March during the Seminar on Financing against Climate Change that was carried out in the Honduran city of Tegulcigalpa, the main topic of ALIDE’s environmental committee was “Development Banking and Environmental Sustainability Support: Challenges and Opportunities in the Present Day Context”, which was used by the manager of Environmental Policies and Studies of Banco Nacional de Desenvolvimiento Economico e Social (BNDES), institution that chairs this committee, to present the document “The Green Protocol” that governs Brazilian development banking.

One of the main conclusions of the meeting is that, besides complying with the environmental rules in their credit processes for the project they finance, national development banks must be engaged in the production of environmental or “green” financial products and lead the creation of an environmental culture in their countries, acting proactively, and advice their government in fostering environmental and climate financing.

On the other hand, one of the critical aspects in this effort is the financial feasibility of projects resulting from the evaluation of environmental risk, for which it is necessary to have supporting funds and schemes; but, mainly, the production of financial “engineering” or “transformation” of current environmental instruments such as the CDM (Clean Development Mechanism) to turn them into effective financial tools.

In the process of this type of instruments, it was mentioned, for example, that approximately 75% of CDM projects are formulated around only one evaluation methodology even though there are many others. Therefore, it was recommended to prepare a taxonomy of those executed or effectively financed, as a useful reference in order to facilitate the formulation of CDM projects around proven schemes.

One of the ideas agreed in this meeting was it was possible for development banking to coordinate the support to public policy in environmental diffusion, as it is proved in the “Green Protocol”, a initiative within the framework of the Brazilian governmental strategies in order to introduce an environmental variable as a relevant criterion in financing projects; with which private financing agents are also expected to adjust to the system and to consolidate it.

The Protocol is aimed at defining previous, multiplying and exemplary banking policies and practices in terms of social and environmental responsibility. Banco do Brasil, Caixa Econímica Federal, Banco da Amazonia and Banco do Nordeste signed the BNDES Protocol.

The BNDES has promoted initiatives in the following fields:
• Financing: “BNDES Mata Atlántica Initiative”, which considers the non-reimbursable financing of native forest restoration in permanent preservation areas on rivers banks; and the “Forest Compensation Supporting Program”, that finances the acquisition of indigenous forest for forest compensation;
• Credit analysis and concession: edition of around 60 social and environmental procedure guides (sugar and alcohol, water and drainage; livestock, etc. and more than 50 guides under way;
• sustainable internal practices, for example, the construction of a policy for sustainable acquisitions and tenders, the monitoring of material and energy input consumption with a greater eco-efficiency, campaigns on internal awareness;
• Communication and training, spreading of Protocol-related commitments in all the bank’s units;
• Best practices harmonization, through periodic meetings with all the representatives of signatory banks in order to define a common agenda
Financial cooperation and multilateral banking institutions such as the German bank KfW and the IADB, renewed support to the Latin American development banking through financing methodologies, lines and programs and technical assistance for environmental programs developed by financial institutions.

KfW is ready to share its experience and tools in monitoring projects to verify the impact on gas emissions reduction and energy saving. The complexity of the monitoring challenge varies from financial sectors and instruments to the others, and the implementation of appropriate internal monitoring procedures can take from 1 to 2 years, resulting in a good argument for collaboration at international level.

In brief, this committee intends to stimulate the analysis of environmental financing-related issues, by performing studies, technical meetings, exchanging information and experiences, as well as the development of cooperation and training programs.