Mitigation of Climate Change and Environmental Sustainability: The Role of Development Banks in both

dimensions

Bogotá - November 2010

Section V – The role played by development banks: paths to ‘scaling up’ the investment for mitigation

Section V – The role played by development banks: paths to ‘scaling up’ the investment for mitigation

1. Brazil

2. BNDES

3. Environmental division

4. Environmental Policies and Studies Department

5. Green Financing Department

6. Amazon Fund Department

7. A broad approach

AGENDA

Source: IBGE, 2009

Energy Supply Breakdown

• 46% renewable sources

• World average: 13%

• Developed countries average: 6%

Natural Resources

• Largest tropical forest

• One of the largest biodiversity

• Largest supply of fresh water

• High agricultural productivity/potential

Major contribution to face climate change: to avoid deforestation

General Features

Key Figures

Total area 8.5 million km2

Population 192 million

GDP (USD) 1.6 trillion

Per capita GDP (PPP) (USD) 10,200

..

• Successful management of the crisis

• Brazil has resumed growth trend at 5% a year on average on the next 5 years...

Brazil: GDP Annual Growth Rate (%)Brazil: GDP Annual Growth Rate (%)

Economic growth is on!

Economic growth is on!

Source:Miinistry of Fiinance

Context

• Investment and savings to strengthen economic growth

• Infrastructure

• Education

• Social mobility / income distribution

• Innovation and skill capabilities to keep pace with the industrial/technical “green” revolution

• New habits and routines related to sustainability awareness:

• consumer’s behavior

• proactive entrepreneurial strategies

NE

W C

ON

CE

PT

ION Developing

countries might lose significant

improvements obtained in recent years and might be

subject to new “sustainable” constraints

ATTENTION

Brazilian challenges

... But Brazil still faces an essential challenge:

to evolve from growth to sustainable development

AGENDA

1. Brazil

2. BNDES

3. Environmental division

4. Environmental Policies and Studies Department

5. Green Financing Department

6. Amazon Fund Department

7. A broad approach

• Established in 1952

• Main provider of long-term financing in Brazil

• Brazilian Export Bank

• 100% state-owned company under private law

• 2250 employees

• Instruments

o Direct & Indirect credit operation

o Project finance

o Equity investments

o Non-refundable credit lines

o Guarantee Fund for MSME

The role played by BNDES

Assets Equity Disbursement

World Bank 275.4 40.0 18.6

BNDES 222.0 15.9 72.2

IDB 72.5 19.4 7.1

CAF 14.3 4.6 5.8

Source: BNDES (Dec/09), World Bank (Jun/09), IDB y CAF (Dec/08).

(*) World Bank as of June 30th.

Non Performing Loans 2009: 0,20 (%)

Development Bank

Scale and Scope Matters (US$ Billion)

Today: Growing demand for a broad and active approach

Evolution of environmental approach

• BNDES’ first environmental unit was created in 1989.

• Focus: • To develop knowledge

• To provide technical support for the operational Areas

• To propose the creation of programs and credit lines

• To interact with other institutions

• Since the 80’s: environmental programs and credit lines

• Since the 90’s: environmental procedures

AGENDA

1. Brazil

2. BNDES

3. Environmental division

4. Environmental Policies and Studies Department

5. Green Financing Department

6. Amazon Fund Department

7. A broad approach

Drafting of environmental policies

and provision of technical support during

all phases of project analysis;

Innovation and Native Forests non-refundable

financing

Development and execution of financial

instruments and strategies to encourage

sustainable environmental initiatives

Verification of adherence to environmental

legislation and analysis of the legal aspects of

the divisions’ operations

Management of

the Amazon Fund

DEPUTYMANAGEMENT

Advisors Advisors

Department ofEnvironmental

Policies and Studies DEMAM

Green Financing Department

DEOPE

Amazon Fund Department

DEFAM

Legal Department

JUAMA

Structure of the Environmental Division

AGENDA

1. Brazil

2. BNDES

3. Environmental division

4. Environmental Policies and Studies Department

5. Green Financing Department

6. Amazon Fund Department

7. A broad approach

Environmental Policies and Studies

• BNDES participation in the discussion and implementation of the Brazilian environmental policies

• Technical support to the operational areas of BNDES

• Technical Training of Employees

• Coordination and Preparation of Studies on specific subjects and sectors

• Mapping out socioenvironmental best practices

• Green Accounting Project

• Non-reimbursable funding

• Technology Fund – FUNTEC

• BNDES Mata Atlântica (Atlantic Forest Iniciative)

The Atlantic Forest

Atlantic Forest

BNDES Initiative

Smaller than the Smaller than the Amazon, but similar Amazon, but similar range of biodiversityrange of biodiversity

Originally 330 million Originally 330 million acres acres

7% remaining in very 7% remaining in very good conservation statusgood conservation status

60% of Brazil’s 60% of Brazil’s populationpopulation

80% of the GDP 80% of the GDP

Source: The Atlantic Forest Restoration PactSource: The Atlantic Forest Restoration Pact

Non-refundable financial resources from the BNDES Social Fund, for the reforesting of areas with native species.

• 55 proposals

• 27 projects selected

The Iniciative

• Job opportunities

• Income, training and education to residents of local communities

Creating jobs and developing local economies

Atlantic Forest BNDES Initiative

Original areaOriginal areaTodayToday

AGENDA

1. Brazil

2. BNDES

3. Environmental division

4. Environmental Policies and Studies Department

5. Green Financing Department

6. Amazon Fund Department

7. A broad approach

Investiments (US$ Million)

Direct Operations

Sectors directly related to the environment or traditional sectors with technological innovations optimizing the consumption of natural resources

•Forest assets

•Chemical industry

•Renewable energies and green technology

•Biotechnology

•Sanitation and waste

Private Equity Funds

• CDM Fund

• Sanitation and Environment Fund

• Forestry Fund

• Amazon Productive Activities Fund

Green Financing Department

Equity

227 828TOTALBNDES

Forestry

SanitationEnvironment

CDM

• Support Program for Energy Efficiency: Support for projects contributing to the energy economy, raising the global efficiency of energy systems or fostering the replacement of fossil fuels with renewable sources.

• Environment Line: Support for environmental projects fostering the sustainable development of the country:

• sanitation; organization of the use of natural resources; recovery and conservation of the ecosystems and biodiversity; MDL; recovery of environmental damage.

• BNDES Florestal: Support for reforesting, conservation and forest recovery of degraded or converted areas, and for the sustainable use of native areas by means of forest management.

• Forest Replenishment: Support the regularization of environmental damage in rural properties working with agribusiness, and contribute to the restoration and appreciation of native forests and remaining ecosystems.

Green Financing Department

Fixed Income

Green Financing Department

Green Securities and Products

• Carbon Efficient Index (ICO2)

• Exchange-Traded Fund (ETF)

• Development of market devices to encourage “good” practices in agricultural

production (securitization of green receivables)

• Development of mechanism to auction expectations to reduce emissions

(securitization of carbon credits)

• Development of mechanism to finance the production chain of large companies

with “good” environmental practices (securitization of sustainable receivables)

• Development of a carbon market in Brazil (following the European Emission

Trading Scheme)

Recalculation based on GEE emissions

Increased participation (+ 2%)

Increased participation (+ 3%)

Reduced participation (- 3%)

Reduced participation (- 2%)

38 %

17 %

13 %

32 %

40 %

14%

16 %

30 %

The Carbon Efficient IndexCalculated on companies’ Greenhouse gas emissions

• Based on Brazilian IBrX-50 stock index

• Weight reduction in the index of stocks with the highest [tCO2e emission/R$MM of revenue] for each sector

• Companies’ participation is voluntary

Green Financing Department

“Original’ Index

Participation

“Carbon Efficient” Index

New participation

Expected impact

•Bring transparency to the market regarding company emissions

•Encourage the dissemination and adoption of policies to reduce emissions in companies

•Anticipate the competitive environment in a low carbon economy

•Create investment opportunities for investors sensitive to environmental issues

Previous Situation of IBrX-50 Companies

Of companies that report data on emissions (June/2009)

Source: Websites, annual reports and sustainability reports.Source: Websites, annual reports and sustainability reports.

AGENDA

1. Brazil

2. BNDES

3. Environmental division

4. Environmental Policies and Studies Department

5. Green Financing Department

6. Amazon Fund Department

7. A broad approach

The Amazon Fund Department

The world sponsors it. Brazil tends to it. We all win.

The Amazon forest

The Amazon Region

• The largest tropical rainforest on the planet

• Some 7 million km2 stretched across nine countries in South America:

• Bolivia

• Ecuador

• Venezuela

• Colombia

• Peru

• Suriname

• Guiana

• French Guiana

• Brazil

Some 60% of the

Amazon forest is in

Brazilian territory.

82% still

forested

Brazilian Amazon

in about 30 years

18% of

deforestation

Brazilian Amazon

The Brazilian government’s original

proposal presented in

Bali, Indonesia, in

Dec/2007, to create

a mechanism to

support efforts in

reducing

deforestation in the

Amazon.

The Amazon Fund Context and History

• Promoting a consistent and continuous reduction in the rate of deforestation in Brazil;

• Transforming the reduction of emissions from deforestation into a system that finances the conservation and sustainable use of forests;

• Demonstrating the feasibility of the incentive mechanisms to reduce emissions from deforestation;

• and making the forest more valuable than the alternative use of the land.

Funds raised are earmarked for non-reimbursable funding for projects aimed at:

The Amazon Fund Goals

Guideline and Criteria/Determine factors

Projects must be coherent with:

PAS Sustainable Amazon Plan

PPCDAM Action Plan for Prevention and Control of Deforestation in the Legal Amazon

STATE PLANS State Plans to Combat Deforestation

COFA Guidelines and Criteria

Guidelines and criteria established by the Guidance Committee of the Amazon Fund

The BNDES’ Operational Policies BNDES’ Operational Policies for the Amazon Fund

• First donation: Norway

• The Norwegian Government announced that it will provide

the Amazon Fund with US$ 1 billion over the next four to

seven years.o2009: US$ 110MM

o2010: US$ 110MM

o2011: at least US$ 110MM

Fundraising Kickoff

Approved Projects in 2009

• Projects deal with: o Protected areas

o Enviromental’s services payments to communities

o Enviromental rural producers registrations

o Monitoring

o Stimulation to sustainable activities

o Recover of degraded areas

o Familar rural production

• Time to implementation varies 3-5 years

• Total project’s areas equivalents to Portugal, Denmark, Austria

Total of BRL 70,3 million = USD 40,4 million

IMAZON – AMAZON INSTITUTE OF PEOPLE AND THE ENVIRONMENTAMAZON FUND US$ 5.5 million

Approved Projects in 2009

TNC – THE NATURE CONSERVANCY (BRAZIL)

AMAZON FUND US$ 9.1 million

IOV – OURO VERDE INSTITUTEAMAZON FUND US$ 3.1 million

ARPA – PROTECTED AMAZON AREASAMAZON FUND US$ 11.4 million

FAS – AMAZONAS SUSTAINABLE FOUNDATIONAMAZON FUND US$ 11 million

Projects deal with: Institutional Development

Approved Projects in 2010

Alta Floresta Municipality(Mato Grosso State)

US$ 1.5 million

Amazonas State US$ 11.4 million

Pará StateEnvironment Unit

US$ 9 million

Total of BRL 39,0 million = USD 22,4 million

The Amazon Fund

AGENDA

1. Brazil

2. BNDES

3. Environmental division

4. Environmental Policies and Studies Department

5. Green Financing Department

6. Amazon Fund Department

7. A broad approach

Conclusion

Thank You!

Claudia Nessi Zonenschain

nessi@bndes.gov.br

www.bndes.gov.br

Thank You!

Claudia Nessi Zonenschain

nessi@bndes.gov.br

www.bndes.gov.br

Conclusion