Commentary

How to Fix Climate Finance, Brazil-style

Fernando Campos, Conservation and Climate Finance Manager at Sitawi, offers a Brazilian perspective on achieving a sustainable finance system.

Brazil has a golden opportunity to spearhead the global charge against greenhouse gas (GHG) emissions. The government is setting a sterling example by revising its nationally determined contribution (NDC) targets, pledging to slash emissions by 48% before 2025 and 53% by 2030. These goals outshine those of many developed nations, and for good reason: Brazil is one of the few countries where emissions reduction can be achieved with remarkable efficiency.

Why? A sizeable chunk of its GHG emissions stem from deforestation and land-use change. According to the Seeg (Greenhouse Gas Emissions and Removals Estimation System) platform, almost a quarter of these are spewed by agriculture. These volumes are intricately linked to the vital national agri-business industry, which accounted for almost a quarter (24,1%) of the country’s GDP in 2022, as indicated by the Centre for Advanced Studies in Applied Economics (Cepea/Esalq/USP).

Low-cost actions

This means tackling the two main culprits behind national GHG emissions requires straightforward and relatively low-cost actions. No colossal projects like clean energy plants are needed, given Brazil’s electricity grid already boasts an 87.9% reliance on renewables.

Reducing deforestation in the country is a powerful method to cut emissions because the Amazon rainforest, on its own, stores the equivalent of 442 billion tons of CO2. Therefore, the mechanisms for Reducing Emissions from Deforestation and Forest Degradation (REDD), combined with conservation actions, sustainable management of forests, and enhancement of forest carbon stocks (REDD+) have gained an important space in the national discussion and international interest.

Take Tobasa, a company producing activated charcoal from the endocarp of the babassu nut, native to the Amazon region. The firm safeguards 300,000 hectares of community-managed rainforest while generating income for 1,500 families in the Tocantins state. Another example is Coopersapó, a small family farmers’ cooperative in Maués, Amazonas, cultivating and selling around 50 tons of guarana seeds and powder annually. This sustains 45 members across 14 local communities.

In addition, reforestation projects present an incredible opportunity: there are 70 million hectares of degraded land in the country and Brazil has committed to restore 12 million hectares under the Paris Agreement. Not surprisingly, quite a few businesses were created with ambitious goals to tackle such a challenge. For instance, re.green‘s goal is to restore one million hectares of native forest in areas of the Atlantic and Amazon forests over the next 15 years. Up to this moment, re.green raised BRL390 million in a series of funding rounds from five investors: Lanx Capital, BW Capital, Gávea, Principia Capital, and Dynamo. On the other hand, Biomas – a start-up founded by the companies Suzano, Vale, and Marfrig, and the banks Itaú Unibanco, Santander Brasil, and Rabobank – has the ambition to conserve two million hectares and restore another two million hectares of degraded areas. Each of the founders has committed BRL20 million each for the first years of the start-up.

Another shining example is Belterra, an impact business establishing partnerships with small and medium-sized farmers to create productive forests in degraded areas. Belterra implements biodiverse and successional agroforestry systems, generating results with high social and environmental impact from the point of view of ecological restoration, agricultural production, and climate mitigation. Belterra has structured U$35 million for agroforestry systems implementation from investors such as Fundo Vale, Good Energies Foundation, Cargill, Gaia, and Sitawi.

To finance projects like these, we propose adopting ‘patient capital’, meaning credit lines with specific guidelines. Essentially, we are talking about long-term, high-risk investments aligned with the annual harvest cycles typical of many Amazonian and other local biodiverse cultures. This is a crucial step towards a more sustainable economy.

Remaining challenges

Of course, challenges remain. Firstly, it is paramount to simplify access to these financial resources for small, frontline communities crucial to fostering sustainable agriculture and forest management. Contract terms must be feasible, acknowledging the financial limitations of these fragile economic players.

Secondly, ensuring the voices of local communities and small enterprises are heard within the design of these financial instruments is crucial, both for safeguarding their rights and ensuring the conservation of native species’ biodiversity. This means including access to information and the use of the appropriate mechanisms for the disclosure of participation opportunities. This includes aspects regarding scope, format, and timeline, as well as the efforts made so that the information is appropriately distributed among the different interested parties.

Finally, and equally important, guaranteeing transparency and compliance throughout this territorial development process is non-negotiable. It is necessary to establish transparent and equitable financial mechanisms, thereby guaranteeing that the decisions are taken in a participatory manner and that the people and communities involved play a leading role in the negotiations and decisions. The development of benefit-sharing funds facilitates the access and the allocation of financial resources with the communities and territories, as well as providing greater security for the organisations.

Brazil is poised to become a global positive force in the fight against climate change. With the right financial tools and unwavering commitment to sustainability, we can unlock the immense potential of our local communities and biodiversity, setting an example for the world.

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