Brazil preparing to issue overseas ESG-linked bond

Brazil's government has given authorization to create a committee that will be responsible for preparing for the country's first issue of a sovereign overseas bond linked to ESG practices.

The committee will include officials from various ministries and the national treasury, who will be charged with creating the rules for the bond, the government said in a presidential decree published in the official gazette.

The future proceeds must be used for projects that follow ESG practices.

The government wants to issue the overseas ESG bond in the second half of this year, but has not yet defined the exact amount to be raised because that will depend on capital market conditions, a spokesperson for treasury told BNamericas.

SUSTAINABILITY

Since President Luiz Inácio Lula da Silva took office in January, the government has made sustainability issues one of its main priorities.

As part of these efforts, Lula named Marina Silva as environment minister. She previously held the post in 2003-08 and she is one of the leaders of the environmentalist party Rede Sustentabilidade.

Lula's administration also recently topped up the Amazon Fund with fresh money from multiple countries, looking to prioritize sustainability projects and support indigenous peoples in order to reduce deforestation and exploitation of communities in the jungle.

However, the government's greater environmental focus is creating some cracks in the ruling coalition.

"There is currently a dispute between the pro-development wing of the government coalition against the pro-environment wing. We have to remember that this more friendly approach to the environmental agenda now, in Lula's third term, is new for him. When he was president before, between 2003 and 2010, the [environmental] agenda didn't have that much appeal among voters," Lucas Fernandes, a political analyst at local consulting firm BMJ Consultores Associados, told BNamericas. 

These tensions emerged a few days ago, when environmental regulator Ibama rejected oil giant Petrobras’ request to drill a deepwater exploration well in block FZA-M-59, in the Foz do Amazonas basin in the Equatorial Margin.

The decision was issued due to a set of "technical inconsistencies for safe operation in a new exploratory frontier of high socio-environmental vulnerability," the agency said.

Shortly after that decision was made public, senator Randolfe Rodrigues, who leads government relations in congress and represents Amapá state on Brazil's northeast coast, levelled criticism against Ibama.

"In its decision against drilling off the coast of Amapá, Ibama failed to listen to the state government or any citizen of the state. The people of Amapá want to have the right to be heard about the possible existence and eventual destination of our wealth," Rodrigues stated on his Twitter account.  

Rodrigues was also a member of the Rede Sustentabilidade party, but he announced he would leave it after Ibama's decision was issued.

Amapá would be the principal beneficiary of industrial development and revenues generated by oil and gas production in the Equatorial Margin.