The Financial Innovation Laboratory (LAB) has just completed its first year of activities in Brazil. To celebrate this anniversary the Seminar “Innovate to transform the sustainable development”, on September 13, in São Paulo. The seminar is organized by the Brazilian Development Association (ABDE), the Inter-American Development Bank (IDB) and the Securities and Exchange Commission (CVM), institutions that conceived the LAB at the time, with the financial support from the International Climate Initiative. In that meeting the products already completed by the LAB and those in development, which were prepared by the four working groups (GT) that make up the initiative, will be presented.
The LAB is constituted by four working groups (GT), which act separately, and are dedicated to the following topics: Green Finance, Fintechs, Financial Instruments and Impact Investments and Green Bonds.
The ultimate purpose of the LAB is for Brazil to become a reference in projects and investments that promote the reduction of carbon emissions, propose solutions and device improvements for adapting to climate change, to address social impacts and to promote digital finance.
The LAB was structured in order to stimulate the participation of the private sector in the creation of financial products and solutions for those markets that involve the supply of a number of services such as those of water, transport, energy, agriculture, infrastructure and financial services, with the participation of the National Development System (SNF).
The Seminar will allow to know new products and publications dedicated to the promotion of sustainable investments, including those from small and medium entrepreneurs; included among those products are the Energy Efficiency Fund, the First Loss Fund, the study on “Metrics for Socio-Environmental Evaluation” and a publication dedicated to issuers of securities and investors in the Brazilian green bond market.
The activities of the Working Groups
Green Finance. Around four years ago Brazil ceased considering environmental issues merely as a risk factor for investment and financing. In this new scenario, the Green Finance GT originated four products:
- Energy Efficiency Fund;
- Energy Saving Insurance Program (ESI);
- Risk Analysis Model for Photovoltaic Solar Projects; and,
- First Loss Fund.
Among the projects already under way in this Working Group, the Energy Saving Insurance Program (ESI) is in an advanced stage of development. This innovative proposal combines a traditional line of credit from the energy and water management system, with a performance contract, which is protected by an insurance policy based on energy performance, and in turn accompanied by technical evaluation methodologies applied by the Brazilian Association of Technical Standards (ABNT). A pilot project foresees the granting of the first ESI lines of credit through the Development Bank of Espírito Santo (BANDES – ES), the Goiás Fomento Agency (GO) and the Regional Development Bank of Extremo Sur (BRDE – RS) .
Another novelty proposed by this WG is the integrated risk analysis model for solar photovoltaic projects for small and medium-sized entrepreneurs. The concept is to align the credit risks of the client and of the project to be financed. Currently in a test phase under the LAB, this proposal is to be undertaken by eight financial institutions and led by the Brazilian Federation of Banks (Febraban). The proposal will be operated by the following institutions: Banco de Brasil, Bradesco, Caja Federal Federal, Itaú Unibanco, Safra, Santander, Rabobank and Votorantim.
Impact Investments. This Working Group is in charge of two studies on the evolution of Financial Development Institutions (IFD), in relation to financial instruments of the Social Impact Contract (CIS), crowdfunding as well as Solidarity Rotating Funds; the WG has elaborated two products and a publication on “Metrics for Socio-environmental Assessment”, based on the perspectives of regional development institutions.
The proposal for the use of crowdfunding, which is being evaluated in the framework of a pilot project, has been prepared on the basis of dialogues with the Financial Development Institutions (IFD) in order to disseminate this idea, given that the potential and restrictions for operations are also pondered.
In the case of the Rotary Solidarity Funds, suggestions are made that foresee changes in the National Policy for Solidarity Economy, intended to be included in the complementary law project (PLC 137/2017), with the aim of improving that regulatory framework and giving a broader scope to projects and beneficiaries. That proposal has been directed by the rapporteur of the PLC, Senator Ana Amélia.
Green Bonds. During this first year the main result of this WG was conducting a survey of the investors and issuers of securities on the green securities market in Brazil, which originated a publication with recommendations for the expansion of this market, consisting of resources raised to undertake investments and projects related to positive environmental externalities.
Beyond the discussions about the incentives and activities necessary to develop a national green securities market, the opportunities for the issuance of sovereign bonds and the alignment between the local market and international practices, the GT also acts as an interface between the public entities for the exchange of views with the Private Intersectorial Council of Green Bonds.
Fintechs. Contemporarily to the arrival of new financial technologies (fintechs) to Brazil in recent years, the entire global financial services market was transformed and acquired more modern and accessible schemes. Focusing on small and medium-sized companies, the LAB also included fintechs among its actions, to encourage the insertion of startups in the sector into the traditional financial system. Today, from the commitment to make possible the creation of a compatibility analysis platform between this segment and the needs of the Brazilian market, in different sectors, the WG advances in the implementation of the regulatory framework, in order to consolidate more modern rules and innovative, that stimulate the emergence of new fintechs.
ABDE The Brazilian Development Association (ABDE) brings together the development financial institutions that are present throughout the country – federal public banks, development banks controlled by Federation units, cooperative banks, state commercial public banks with a development portfolio, development agencies-, in addition to FINEP and SEBRAE. These institutions are part of the National Development System (SNF). ABDE defines strategies and examines inductive actions for the SNF, with the permanent goal of improving the actions of its members so that these institutions are able to efficiently finance Brazilian development.
IDB. The mission of the Inter-American Development Bank (IDB) is to improve the lives of the inhabitants of the region. Created in 1959, the IDB is one of the main sources of long-term financing for the economic, social and institutional development of Latin America and the Caribbean. The IDB also conducts cutting-edge research projects and provides policy advice, technical assistance and training to public and private clients throughout the region.
CVM. The Securities and Exchange Commission (CVM) is an autarkic entity linked to the Ministry of Finance that supervises, establishes rules, disciplines and develops the securities market in Brazil. In 2013, the CVM reformulated its institutional strategy and launched its current Strategic Plan, reaffirming values and purposes and defining the Strategic Objectives with projection to 2023.
IKI. The International Climate Initiative (IKI) of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU), created in 2008 has been financing climate and biodiversity projects in developing and newly industrialising countries, as well as in countries in transition.
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