The Banco Central do Brazil (BCB) has opened a public consultation on two draft regulations that define sustainability criteria to be applied to rural credit operations and the characterization of projects with restrictions to rural credit due to regulations related to social and environmental issues. The public consultation will be active until 23 April, while both regulations are set to come into effect on 1st July 2021.
The proposal allows rural financing to be classified in three categories:
• Projects that may not be financed with rural credit due to the existence of regulatory provisions regarding overlap with indigenous areas, illegally deforested areas in the Amazon Biome, or administrative sanctions for ‘slave-like’ work conditions.
• Projects that can be financed with rural credit with an indication, from the BCB, of social or environmental risks to the financial institution. Therefore, these projects shall not be classified as sustainable rural credit operations.
• Projects financed with rural credit that may be qualified as sustainable rural credit operations if they comply with social and environmental sustainability parameters — such as low-carbon agriculture, the existence of grants for water usage, or the employment of renewable energy generated at the property.
According to the BCB, in order to allow the issuance of green bonds, third party verifiers may also use the information on the rural credit operations, as well as the rating agencies specialized in Environmental, Social and Governance (ESG) criteria, and service providers contracted to audit the adherence of projects to social and environmental requirements.
As context, last September 2020, the BCB and Climate Bonds Initiative (CBI) signed a Memorandum of Understanding (MoU) with the objective of promoting a sustainable finance agenda and the integration of socio-environmental and climatic risks in the national financial sector.