Natural Capital & Finance in Brazil

Brazil’s financial system is significantly exposed to natural capital risks as many sectors, which banks and pension funds finance, are heavily reliant on natural resources. This initiative aims at providing financial institutions in Brazil with an understanding of the relevance and magnitude of the natural capital risks they are exposed to and to equip them with adequate tools and capacities to integrate such risks into their lending and investment decision-making.

The first report – Natural Capital Risk Exposure of the Financial Sector in Brazil – shows how the potential exposure at the level of the portfolio, sector and investment can be quantified using natural capital accounting techniques in combination with a natural capital risk driver framework and traditional financial analysis. The report finds that the annual natural capital costs caused by companies across 45 key sectors in Brazil, which domestic banks finance, are 2.25 times the value of credit provided to these companies. Cattle ranching, agriculture, fishing, and food and beverage were identified as the sectors with the highest financial risk for Brazilian banks.

The second report – Leveraging a Water Efficient Economy – Opportunities for Companies and Financial Institutions in Brazil – focused on identifying and aligning business and investment opportunities in water-saving technologies for both Brazilian companies and financial institutions. The study revealed that the estimated share of water annually conserved through the adaptation of the scrutinized 14 technologies amounts to 19% of the water consumed by the industry and 3% of water consumed by agriculture. These estimates correspond to an annual saving of R$ 11.6 billion (EUR 3.2bn). In order to exploit the full potential of these technologies, investments of approximately R$ 49 billion (EUR 13.5bn) are required. R$ 25 billion of these investments effectively represent attractive investment opportunities for financial institutions, based on an analysis of average capital expenditure, water break even costs and the investment gap for each technology.

Resources

• Portfolio Analyser Tool: The Portfolio Analyser provides financial institutions a tool to identify the impact of sector-specific natural capital exposure on the bank’s credit portfolio.
• Financial Analysis Tool: The tool demonstrates in a case study the financial implications of natural capital-related lending decisions and how natural capital data can be integrated into financial models.
• Report I: Natural Capital Risk Exposure of the Financial Sector in Brazil (Jan 2015)
• Report II: Leveraging a Water Efficient Economy – Opportunities for Companies and Financial Institutions in Brazil (Jun 2016)

Events

• Workshop I: Introduction to Natural Capital – Understanding Risks and Opportunities (23 Sep 2014, São Paulo). The workshop introduced the concept of natural capital, its relevance for financial institutions and the rationale behind integrating natural capital considerations into corporate credit valuation and risk management.
• Workshop II: Understanding, Quantifying and Managing Natural Capital Risks (15 Dec 2014, São Paulo). The workshop served to present and discuss the results of the report Natural Capital Risk Exposure of Financial Institutions in Brazil.
• Workshop III: Seizing Business Opportunities – Investing in Eco-friendly Markets and Sustainable Business Practices (14 Jun 2016, São Paulo). The workshop served to present findings of the report Leveraging a Water Efficient Economy – Opportunities for Companies and Financial Institutions in Brazil and discuss with financial institutions, companies, government representatives, and experts the financial viability of different water management technologies and related investment opportunities in Brazil.

Partners