Supporting Brazilian Development Banks to integrate climate risks and climate neutrality

• DBs are key stakeholders in the drive for net-zero transitions as they can accelerate the transition of key economic sectors in Brazil
• DBs can also benefit from an extended view of climate risks and their financial impacts, as they are often involved in long-term loan operations (e.g., infrastructures) and development policies
• Despite recent advances through the Taskforce of Climate related Financial Disclosures (TCFD), there are major constraints related to lack of awareness and capacity of DBs to integrate climate change in financial decision-making
• Therefore, the project sought to support Brazilian DBs to mainstream climate-related risks assessment in credit operations, aligned with the TCFD recommendations by: (i) developing a physical and transition risks assessment framework; and (ii) designing an applied tool for scenario analysis and stress testing relevant to key economic sectors for the Brazilian low-carbon transition

In the first phase of the project, a climate risk assessment framework for credit operations and a tool for climate risk assessment was made available for all DBs in Latin America (in Portuguese, English and Spanish) through the ESG Academy platform. This was joined by an intensive course on how to use the materials produced by the project and other relevant information, such as case studies, complementary resources/materials, etc.

Employees from DBs and agencies in Latin America can subscribe to the course. The strong interest received for this course shows the project's success in engaging with the Brazilian financial sector to empower Brazilian DBs with knowledge, methods, and tools to support the promotion of a greener, low-carbon and resilient future.

The second phase of the project assisted BNDES to establish eligibility criteria for carbon projects. As national legislation points to an increasingly regulated market, it was important for BNDES to build their internal capacity to assess the quality of the credits and projects it receives. Finally, the project supported BNDES to develop an Inclusive Climate Neutrality Strategy, involving topics like financed emissions and decarbonisation, establishment of Science-Based Targets for financial institutions, adaptation, engagement and stewardship, and integration with a 'just transition' perspective. BNDES publicly committed to the Inclusive Climate Neutrality Strategy during a presentation at COP27.

Limited access to green finance from marginalised groups and lack of awareness from financial systems are significant barriers to a green and just transition. WayCarbon aimed to address these challenges by embedding gender equality and social inclusion (GESI) considerations across all aspects of the project.

The “Climate risk assessment framework” include a review of GESI related issues associated with each sector assessed in the climate risk assessment tool. This included specific challenges and opportunities to further develop and integrate GESI elements in climate risk assessments and enhance capabilities in DBs.

The design of the carbon projects' eligibility criteria for BNDES’ purchase processes integrated GESI aspects at the evaluation stage. This enabled the screening of potential projects through a diversity and inclusion lens and provided recommendations to companies on integrating diversity into their operations and supply chains.

The development of the Climate Neutrality Strategy for BNDES explored the integration of diversity and social inclusion insights into investment processes as part of a just transition. Research has linked gender diversity in leadership and the workforce to financial returns, lower risk, and sustainable growth. Therefore, the application of a social inclusion lens to investment processes can enhance the positive impacts that a more diverse and social inclusive project might have on vulnerable/marginalised groups.

Meetings held with members from BDMG, BNDES, other DBs and agencies, and project stakeholders included key discussions on GESI aspects. The participants expressed appreciation that integrated GESI was being considered in the work, as integrating such aspects is recognised as a significant challenge for the institutions.

These are the next steps and recommendations for the continuity and sustainability of this work:

• The climate risk assessment tool can continue to be applied in DBs and is publicly available to facilitate this
• This work highlighted the important role that financial institutions play in the climate transition and it is crucial that they continue to understand, assess, and monitor climate risks, incorporating them into the decision-making
• The carbon credit purchase process was developed using a pilot call for proposals from the bank and has great potential to be replicated/scaled up. BNDES have now launched a second call for proposals using the processes developed by this project
• The Inclusive Climate Neutrality Strategy requires consolidation and implementation by BNDES in the coming years, and continued momentum will be required to achieve this
• The strategy also provides recommendations for climate adaptation measures with social impacts such as ‘just transition' and job generation through new investments.