Funding for Climate Finance
Most of the finance aligned with climate objectives came from domestic sources, which channeled US$ 6.3 billion/year (95%) between 2015 and 2020. Two-thirds of domestic finance US$ 4.1 billion/year came from private finance, which is largely explained by the fact that financial institutions in Brazil are obligated to allocate funds to rural credit.[4] Domestic private funding originated primarily from financial institutions (31%), corporations (16%), and rural producers (10%). The main sources of domestic public finance were the federal and state governments (26%) and the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) (6%).
International funds accounted for 5% (US$ 327 million/year) of climate finance flows. This international funding originated mostly from public sources: international governments (US$ 136 million/year), climate funds (US$ 125 million/year), and multilateral development banks (US$ 58 million/year). The main sources were the government of Germany (US$ 79 million/year), the Amazon Fund (US$ 53 million/year), the World Bank (US$ 39 million/year), the Green Climate Fund (GCF) (US$ 33 million/year), the Global Environment Facility (GEF) (US$ 32 million/year), and the government of Norway (US$ 20 million/year) – which, together, accounted for approximately 80% of climate-aligned international public funding. To avoid the double counting of financial flows, the source of finance called “international governments” does not include grants from the governments of Germany and Norway to the Amazon Fund.
The Amazon Fund is the main climate fund that channels international funding for land use in Brazil and, as such, is quite relevant in the promotion of conservation and sustainable land use in the country. Despite this, the Amazon Fund approved an average of US$ 53 million/year in project finance, which is equivalent to 0.7% of the total climate finance for land use in the country between 2015 and 2020.
Disbursement Channels
Disbursement channels intermediate climate finance for land use in Brazil and allocate finance to various sectors. Financial institutions were responsible for channeling almost two-thirds (US$ 4.1 billion/year) of finance tracked from 2015 to 2020, most of which came from private sources (US$ 3.1 billion/year), mainly originating from the institutions themselves (US$ 2.0 billion/year). Financial institutions also intermediate finance from public sources, such as federal and state governments (US$ 608 million/year) and BNDES (US$ 386 million/year). Climate finance channeled from corporations accounted for 16% (US$ 1.0 billion/year) and originated mostly from the corporations’ own funds, obtained by means of thematic bonds (US$ 1.0 billion/year).
Disbursements channeled via government agencies amounted to (US$ 1.0 billion/year) (15%) of climate finance, with (US$ 872 million/year) (84%) coming from federal and state government funds. Government agencies also channeled international finance (US$ 162 million/year) from international governments US$ 85 million/year, multilateral development banks (US$ 45 million/year), and climate funds (US$ 31 million/year).
Financial Instruments
Rural credit is the main financial instrument with climate-aligned finance for land use in Brazil, having channeled US$ 3.2 billion/year between 2015 and 2020, equivalent to 48% of all flows tracked in the same period. Approximately two-thirds (US$ 2 billion/year) of finance were sourced from the financial institutions that operate them. However, the total volume of rural credit in the country in the period under analysis was US$ 42.2 billion/year, meaning that the portion of rural credit aligned with climate objectives corresponded to only 8% of the total volume, in accordance with the criteria established in this work.[5]
Agricultural risk management instruments, which constitute the main tool for climate adaptation, accounted for US$ 1.0 billion/year in finance aligned with climate objectives between 2015 and 2020. The most relevant of these instruments was rural insurance, which directed US$ 625 million/year in climate finance for agricultural risk management. Rural insurance relied on private finance expressed in the amount paid by producers to take out the insurance policies (US$ 500 million/year and), in the case of subsidized premiums, it also relied on public finance from the Rural Insurance Premium Subsidy Program (Programa de Subvenção ao Prêmio de Seguro Rural – PSR), in the amount of US$ 124 million/year.
Thematic bonds, which obtain resources to finance projects that have social and environmental impact, captured US$ 1.0 billion/year (16%) in climate finance for land use, corresponding to only a small portion of traditional capital market finance. These securities were issued following voluntary guidelines and standards, such as the Green Bond Principles (GBP), and include global notes (US$ 686 million/year), bonds (US$ 100 million/year), Eurobonds (US$ 114 million/year), Agribusiness Receivables Certificates (Certificado de Recebíveis do Agronegócio – CRA) (US$ 85 million/year), debentures (US$ 22 million/year), and promissory notes (US$ 0.4 million/year).
The public budget channeled US$ 767 million/year (11%) in climate-aligned finance and constituted the main financial instrument for the implementation of policies aimed at the forest sector (US$ 572 million/year). Among the activities financed for this sector, the public budget disbursed US$ 22 million/year for actions to prevent and control deforestation and fires, and US$ 16 million/year for environmental and land regularization policies and territorial planning.
Public international finance (US$ 320 million/year) were mainly channeled via grants (US$ 216 million/year) and were mostly earmarked for the forest sector (US$ 221 million/year).
Sectors
The crop sector received, on average, US$ 3.9 billion/year in climate finance, which corresponds to 60% of the flows tracked from 2015 to 2020. This is explained by the prevalence of rural credit as the main financial instrument for climate-aligned finance. The forest sector received US$ 1.7 billion/year (25%); the cattle sector received US$ 532 million/year (8%); bioenergy and fuels received US$ 311 million/year (5%); and multi-sector received US$ 86 million/year (1%).
Climate Objectives
Finance aimed towards mitigation activities amounted to US$ 4.5 billion/year, i.e., 68% of climate finance for land use in the period from 2015 to 2020. Adaptation activities amounted to US$ 1.2 billion/year (19%). Furthermore, flows targeting both mitigation and adaptation accounted for US$ 859 million/year (13%). The high share of finance directed towards mitigation is in line with the GHG reduction commitments set in Brazil’s NDC, given that most of the country’s emissions come from changes in land use and agriculture.
In some rural credit lines and development and international cooperation projects, it is possible to identify the beneficiaries of the finance and ascertain whether they are small, medium or large rural producers, producer cooperatives, corporations, indigenous peoples, quilombolas, or other traditional communities. But this is not possible for most climate finance tracked in this report. Furthermore, a portion of the flows accounts for the provision of a public good, having been allocated to activities such as forest conservation. However, for climate finance to support the transition more effectively to low-carbon land use in Brazil, the design and information about finance will need to be improved in order to increase transparency about who the beneficiaries are and their locations.
