The ESG agenda is increasingly strategic for financial markets. More and more investors, consumers, and companies are realising that in the short, medium or long run their business activities will be impacted by environmental, social or governance (ESG) issues, or by all three at once.
To speak of ESG issues means first and foremost to speak of risk management; how to identify, analyse and mitigate the risks that are inherent in the company’s business and that may materialise via its operations.
Good ESG practices create value for a company, serve as team mobilisation tools, attract talent, reduce the cost of capital, and mitigate risk. All this is directly linked to gains in company performance, productivity, and image.
B3, Brazil’s exchange, has been working for years to promote this agenda and foster best ESG practices among Brazilian companies. One such initiative was the launch of Novo Mercado more than two decades ago. The innovation soon became a benchmark for the high standards of transparency and governance required by local and foreign investors when companies hold IPOs on our exchange.
A family of indices
We currently have a family of seven ESG-related indices, such as the ISE B3 and ICO2 B3, and in order to strengthen the portfolio of ESG products and new markets associated with this agenda, we have developed an OTC platform for registering and trading carbon credits, known in Brazil as CBIOs.
CBIOs originated as part of RenovaBio, the National Biofuel Policy established by Law 13,576 in 2017 to enable Brazil to achieve the goals to which it is committed under the Paris Agreement and increase the contribution of biofuels to the country’s energy mix.
Part of RenovaBio entailed annual greenhouse gas emission-reduction targets for fossil-fuel distributors. To help meet these targets, they can buy and retire CBIOs, each of which represents the equivalent of a metric ton of carbon dioxide not released into the atmosphere.
By June 2021, the volume of CBIOs registered on B3 had reached 15.8 million, or 88 percent of the total issued in 2020. Between the launch of the platform in April 2020 and the end of last year, more than 18 million CBIOs were registered, and almost 15 million were retired. The solution we have implemented provides a secure and transparent environment in which to trade CBIOs, affording yet another good example of B3’s determination as a financial market infrastructure to meet the needs of investors and companies.
Although Renovabio created a niche market, CBIOs can be purchased by many companies apart from those obliged to do so by the programme. For example, the use of CBIOs by Brazilian agribusiness shows that sound environmental management can be reconciled with high yields while furthering an agenda that is significant for investors and fund managers.
B3 is working hard, alongside private enterprise and regulators, to contribute to the development of a sustainable low-carbon economy by providing the infrastructure and knowledge companies need in order to manage climate-rated risks and identify business opportunities.
This will only happen if we provide financial instruments that help channel capital flows to the transition to a low-carbon economy.
Everyone wins as a result. When we talk about environmental, social and governance issues, we are talking about business ventures, risk management, innovation, and opportunities.