“Brazil should work towards incorporating socio-environmental risk assessments in its projects and construction” warns article by Gabriel Kohlmann in Nexo

“The need to preserve capital and to protect the ‘money owners’ from the reputational risks of investments that affect the environment can make a difference to those who hope to tap into the resources that will become the object of competition once the pandemic allows the world to function once again,” says Gabriel Kolhmann, project manager at Instituto Escolhas, in an article published in Nexo Jornal.

Under the title “The economic recovery will be green—or not,” the author shows why banks, financial institutions, investment funds, the private sector and the government should adopt criteria for assessing socio-environmental risks, so that the country can find its place in the competition over international resources that are so sorely needed for the post-pandemic economic recovery.

The theme was debated during the workshop “A socioenvironmental risk matrix for energy projects,” organized by Instituto Escolhas on July 13^th.

Read the full article:

The COVID-19 pandemic has paralyzed the global economy.  Value chains have collapsed due to the challenges that have emerged at every stage: production, flow, logistics, sales, and consumption.  Estimates hint at the scope of this impact.  In its June report, the International Monetary Fund (IMF) predicts a 5% drop in global GDP in 2020, while the World Trade Organization (WTO) has estimated that the reduction in global trade this year will exceed 13% in the most optimistic scenario. In Brazil, the market’s expectation is that GDP will drop 6.5% in 2020.

Around the world, governments, central banks, and multilateral funding and credit agencies are already planning economic rescue and recovery plans.  Such an impact on global economic activity requires vast and bold responses. Back in June, the IMF calculated that countries will have to allocate US$11 trillion in resources to overcome the crisis.  In Brazil, the measures announced by the Ministry of the Economy have already mobilized 1.1 trillion Brazilian reais, according to Economy Minister Paulo Guedes, and there are plans underway for an infrastructure investment program.

The European Union plans to allocate 750 billion euros to economic recovery, and its design of policies and programs focuses on what is commonly referred to as “green recovery”—in other words, the resources will be channeled towards sectors that are linked to climate policies and to sustainable, low socio-environmental impact businesses.  The plan is part of the so-called “European Green Deal,” which aims to fund projects not only in European territory, but also in partner countries.

CLIMATE CHANGE HAS THE POTENTIAL TO CAUSE HUmANITARIAN TRAGEDIES AND EVEN TO TRIGGER THE COLLAPSE OF THE CORONAVIRUS GLOBAL CHAINS

In general, government measures around the world—including in Brazil–focus on three areas: 1) attempts to preserve jobs and income; 2) saving the financial system and strategic sectors; and 3) public and private investments in infrastructure. The two first areas are already under implementation, since they are emergency measures, while the third one is usually developed after the most acute sanitary crisis has been stabilized, so as to spearhead global economic recovery, since it entails intensive investments in labor, mobilizing complex productive chains.

This means that a significant volume of financial resources will be reserved for structural investments in areas such as logistics, energy, sanitation, and urban development.  And there will be countries, companies, and projects ready to compete over and to capture this liquidity.

It is at this point that the environmental agenda and the search for sustainable investments can be strengthened. The pre-COVID-19 context already mobilized the banking sector, investors, and multilateral agencies in channeling financial resources to the promotion of sustainable initiatives, and it stimulated the inclusion of ecological impact assessments as a decisive factor in the allocation of money—in accordance to the broad debates during the most recent World Economic Forum, in Davos.

The post-pandemic world should strengthen decisions based on scientific studies and conclusions.  And climate change will play an even greater role in risk assessments, since they already have the potential to cause humanitarian tragedies and even the collapse of the coronavirus global chains.

In addition to the European Union’s initiative, financial actors and multilateral organizations have already indicated that they will strengthen their environmental analyses, favoring the allocation of resources to projects in countries that feature robust ecological planning.

The banking sector has also been discussing more rigid rules and new parameters for the socio-environmental assessment of business ventures. Besides reviewing the Equator Principles—a voluntary agreement among banks to apply ecological indicators in the analysis of investments—banking institutions around the world are adopting methodologies for measuring the impact of climate change on individual projects and investments, as well as product and customer portfolios.

The Financial Stability Board (FSB), a body that advises the G20 on global finance, analyzes methodologies and indicators for measuring the sustainability of loan investment portfolios and investments in the private sector. Central banks, linked together by a network for the promotion and regulation of sustainable practices in the financial sector (Network for Greening the Financial System), have also indicated that they will continue to review norms and to apply measures so as to further advance the climate agenda as a factor in investment decisions. Brazil’s Central Bank has just announced its membership in the network, reflecting the commitment by the country’s monetary authority to adhere to the environmental agenda and calling on the body to be more incisive in its role in that field.

The need to preserve capital and to protect the “money owners” from the reputational risks of investments that affect the environment can make a difference to those who hope to tap into the resources that will become the object of competition when the pandemic allows the world to start functioning once again.

This mobilization on the part of the global financial sector, which sent Brazil a letter with sharp criticisms of the national environmental policy (citing, among other points, the possibility of withdrawing investments from the country), along with the alert voiced by major Brazilian entrepreneurs to the Vice-President of the Republic, suggest that Brazil may not receive those key resources for economic recovery.

It is thus becoming clear that Brazilian banks, entrepreneurs, investors in infrastructure, governments, and public funding agencies should work towards the adoption of criteria and socio-environmental risk assessments of projects and construction, lest they fail to gain access to the financial liquidity of international resources that will become available in the post-pandemic period.

Gabriel Kohlmann is a project manager at Instituto Escolhas. He holds a Masters degree in international economics and development from the University of Applied Sciences in Berlin (HTW Berlin).