Mark Jones, Simon Jessop, Jake Spring and Marcela Ayres
LONDON/SAO PAULO (Reuters) – Political push for the first-ever Amazon bond has intensified during talks to agree a roadmap, but the chance of a deal this year faces technical hurdles and skepticism among some. he is tasked with managing the debt, sources told Reuters.
Brazil, Colombia and Ecuador are among a group of countries negotiating with development banks to launch a special program to raise billions of dollars in low-cost financing to protect the world’s largest tropical forest.
Proposed by the Inter-American Development Bank and the World Bank last year, Reuters is reporting for the first time the progress made, bond structures and timing being discussed, and some pushback from officials in the region’s two largest countries. countries.
Covering an area of more than 6 million square kilometers, the Amazon (NASDAQ:) absorbs vast amounts of climate-warming greenhouse gases and is home to more than 10% of all known animals and plants, the highest species density on Earth.
“This will be a major landmark deal for nature-related securities,” said Arend Kulenkampf, director of the Center for Sustainable Development-Linked Sovereign Debt, a nonprofit that coordinates green finance, referring to the potential impact of the effort.
COST OF MANAGEMENT
Politically, the Amazon bonds are in line with calls from the presidents of Brazil, Colombia and other Amazon countries for rich countries to contribute more to protecting the rainforest.
A member of Brazil’s climate delegation told Reuters that increased funding for the Multilateral Development Bank (MDB) is a key demand of its G20 presidency this year and ahead of UN climate summits in Azerbaijan in November and its Amazonian town of Belem in 2025.
Only MDBs can mobilize climate finance on the scale needed in large developing countries such as Brazil, Mexico and India, the person said. “Credit guarantees,” for example, can dramatically reduce borrowing costs, which can typically be in the double digits for countries.
The question of how much money MDBs can provide and how quickly remains an open question as officials say there is no time to waste on tackling climate change.
But while politically Brazil and Colombia, where the U.N. COP16 biodiversity talks will take place in October, are keen to reach a landmark agreement to show off their efforts, some officials are skeptical about the need to rush into a new debt instrument.
“Colombia, like the other eight Amazon countries, could issue ‘Amazon bonds,’ but it insists on treating the Amazon not as a source of debt, but as a source of income,” said José Roberto Acosta, Colombia’s communications director. . loan from the Ministry of Finance.
Developing economies are increasingly calling on the world to help appreciate the value of managing such shared resources, for example by creating biodiversity credits that could be sold to other countries or companies to raise money.
“For this reason, it is unlikely that this will 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 happen this year.
Brazil’s Ministry of Finance said it was not “yet” aware of any discussions and had not yet received a formal offer for Amazonia bonds.
The ministry also pointed to strong demand last year for Brazil’s first international green bond, which raised $2 billion and was sold at a lower-than-usual interest rate of 6%. The company plans to issue more in the future, although banking sources suggest Amazonia bonds guaranteed by MDBs may require only half that interest rate.
And there is a need to keep borrowing rates as low as possible. The cost of meeting Brazil’s climate goals – it aims to more than halve greenhouse gas emissions by 2030 and reach net zero by 2050 – is estimated at $100 billion a year, or 7% of its economic output.
Other countries and development banks involved in the plans did not comment on the status of negotiations when asked by Reuters.
MARCH NEGOTIATIONS
At the March negotiations, a number of issues were discussed that will need to be agreed upon before the launch of the first bonds.
Among them was to include in the “menu” of bond options open to countries issuing under the framework, with the aim of launching both “revenue utilization” bonds, where the money is earmarked for specific projects, and “sustainability-linked bonds” ” (SLBs) tied to broader goals such as reducing deforestation rates.
With most countries in the region yet to incorporate the SLB structure into national regulations, using proceeds bonds is a more likely option for the first issue, three of the sources said. Companies and local development banks may also issue bonds in the future.
International interest is high, with individual governments including Sweden, Italy and Spain already providing support, three sources said. Going forward, other multilateral organizations such as the Development Bank of Latin America and the Caribbean (CAF) are likely to be involved, one source added.
Other issues to be resolved include determining what should be considered a legitimate use of proceeds from the new bonds, including whether to allow spending in cities, given that 80% of those living in the Amazon live in urbanized environments.
While the first bonds will likely be issued by countries individually, it is hoped that they could eventually be issued jointly under the IDB’s Amazon Forever program to enable large-scale and effective cross-border conservation efforts.
The program aims to finance sustainable development and help reduce deforestation, with approximately four football fields being cut down every minute, according to EU statistics.
Although Brazil, Colombia, Ecuador, Guyana, Peru, Bolivia and Suriname have already signed the agreement, jointly issuing bonds is not an easy task given the different financial conditions of each state.
It followed Brazil’s leftist President Luiz Inacio Lula da Silva’s push to unite his neighbors and force richer countries to help pay for forest protection. Since 1970, Latin America has lost 94% of its monitored populations of mammals, birds, fish, reptiles and amphibians, a WWF and ZSL analysis found.