Strategists at a UK bank have proposed the idea of a $10 billion Brazilian government bond that would be designed to help stop the destruction of the Amazon rainforest.
Part of Brazilian President-elect Luiz Inacio Lula da Silva’s plan to reclaim leadership on climate change measures is stopping deforestation of the Amazon, which absorbs vast amounts of planet-warming greenhouse gas.
He has recently asked the United States, Britain, France, Switzerland and Canada to join an international Amazon protection fund set up during his first 2003-10 administration and has made a firm commitment to zero deforestation by 2030.
To help stick to that pledge, strategists at NatWest UK have proposed what would be the world’s biggest ever ‘sustainability-linked bond’, a special type of government debt that would have an explicit promise to protect the rainforest.
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“It would be a big way for Lula to signal his intent,” NatWest’s head of emerging markets and ESG macro strategy, Alvaro Vivanco told Reuters. “The scale and importance of the Amazon, everyone can relate to it”.
A $10 billion bond would be a record for the nascent sustainability-linked debt markets, one of the biggest emerging market sovereign bonds ever sold and four times bigger than any of Brazil’s current bonds.
Money raised via sustainability-linked debt can be used for almost any purpose. So Lula would have a huge injection of resources, for his conservation plans and the other key parts of his political agenda.
Importantly, Vivanco sees the bond having a structure used by Uruguay this year where the regular annual interest payments investors receive, known as coupons, would go down if the government beats its targets, but also up as a penalty for missing them.
The bond could run to 2035 and the deforestation numbers could be verified using satellite images by a third party such as the United Nations.
The huge $10 billion scale shouldn’t be a huge hurdle either, with all types of investors, from major pension and wealth funds to even global central banks likely to be keen to show they are trying to tackle climate change.
“If Lula goes around the world selling this bond, you would have to have a reason not to be part of it,” Vivanco said.
Story was adapted from Reuters.
