By: Moema Giovanella

Decree No. 11,532/2023, published on the 17th, established the Sovereign Sustainable Finance Committee, which will be responsible for preparing the framework for issuing public securities of the Federal Public Debt, allowing the Government to advance in the issuance on the international market, via bonds, of public securities linked to good ESG practices – from the English term for Environmental, Social and Governance or, in Portuguese, ESG – Environmental, Social and Governance.

Project agendas linked to ESG practices are increasingly being monitored by investors and companies, which can impact the share prices of different companies and even the remuneration of their executives.

Within the international market, according to the report by ISS Market Intelligence, released on 05/18/2023, ESG funds in the US performed well in 2022, in addition to totaling, at the end of the year, US$1.4T319 billion under management, representing 1.5% of the total - while the amount managed by long-term funds shrank by 1.4% in the year, that by ESG funds grew by 0.8%.

In this sense, companies that want to attract the attention of investors through environmental, social and governance policies – ESG must pay attention to transparency and the way they communicate their goals related to the topic, requiring not only the commitment of players in this regard, but also demonstrating how and in which stages certain objectives will be achieved.

The creation of the Sovereign Sustainable Finance Committee comes after discussions on the subject that began in October 2021 with several fixed and variable income managers, participants in ESG events promoted by the Brazilian Association of Publicly Traded Companies – Abrasca and also by the Association of Investors in the Capital Market – Amec and B3. During the discussion process for the creation of the Sovereign Sustainable Finance Committee, regulatory and self-regulatory bodies, index providers and financial institutions were also consulted.

The Sovereign Sustainable Finance Committee will be responsible for drafting the governance rules so that these sovereign bond issuances can be backed by actions and projects associated with environmental and social issues provided for in the Federal Budget. This group will draft the document through which the Government will certify to investors that the budgetary actions that will serve as backing for the new bond will, in fact, be implemented. This same committee will also establish the guidelines that the Government will require to issue sustainable bonds and the criteria for monitoring the environmental and social impact of the expenses incurred. This will serve, for example, to define minimum expenses for combating deforestation and supporting the energy transition. Furthermore, the Government will certify to international investors that it has budgetary actions compatible with the amounts raised, and, for example, if the raising is US$1.5 billion, it will demonstrate that it will use the equivalent of that amount or more for sustainable actions.

In this sense, the Federal Government's economic team is preparing to structure a first external issuance of sustainable bonds, via bonds. In addition to the perception that there is a strong demand for this type of paper in the domestic and foreign markets, the launch of this product is seen as a chance for Brazil to once again be an international showcase in the environmental area, now via the global market. bonds.

            This move by the Federal Government is particularly important as it can define the concepts, practices and metrics for measuring the performance of ESG policies in the international market, serving as a basis for private companies to also demonstrate their performance in relation to the environmental, social and governance impact of their operations.