Natural Capital & Finance in Brazil

Natural Capital & Finance in Brazil

Brazil’s financial system is significantly exposed to natural capital risks as many sectors, which banks and pension funds finance, are heavily reliant on natural resources. This initiative aims at providing financial institutions in Brazil with an understanding of the relevance and magnitude of the natural capital risks they are exposed to and to equip them with adequate tools and capacities to integrate such risks into their lending and investment decision-making.

The first report – Natural Capital Risk Exposure of the Financial Sector in Brazil – shows how the potential exposure at the level of the portfolio, sector and investment can be quantified using natural capital accounting techniques in combination with a natural capital risk driver framework and traditional financial analysis. The report finds that the annual natural capital costs caused by companies across 45 key sectors in Brazil, which domestic banks finance, are 2.25 times the value of credit provided to these companies. Cattle ranching, agriculture, fishing, and food and beverage were identified as the sectors with the highest financial risk for Brazilian banks.

The second report – Leveraging a Water Efficient Economy – Opportunities for Companies and Financial Institutions in Brazil – focused on identifying and aligning business and investment opportunities in water-saving technologies for both Brazilian companies and financial institutions. The study revealed that the estimated share of water annually conserved through the adaptation of the scrutinized 14 technologies amounts to 19% of the water consumed by the industry and 3% of water consumed by agriculture. These estimates correspond to an annual saving of R$ 11.6 billion (EUR 3.2bn). In order to exploit the full potential of these technologies, investments of approximately R$ 49 billion (EUR 13.5bn) are required. R$ 25 billion of these investments effectively represent attractive investment opportunities for financial institutions, based on an analysis of average capital expenditure, water break even costs and the investment gap for each technology.