BC: Social, Environmental and Climate Risks and Opportunities Report.

Today is Wednesday, November 8, 2023.

Published last October 30 an integrated report of all actions related to social, environmental and climate (ESG) risks and opportunities by the Central Bank of Brazil (BC).

Important?

Well, the report contains many specifics regarding the Brazilian financial sector, its modus operandi. This is exactly why it has a broad impact, on your company, your personal finances, your money. And the ecosystems around us.

Some parts may interest you more than others. Let's look at some highlights.

Regulation Part:

(1) disclosure of information by financial institutions based on the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD);

(2) BC and IBAMA will share databases relating to rural credit and environmental information;

(3) Accounting record of investments in carbon credits and other sustainability assets (COSIF adjustments);

and (4) Regulations on the sale of gold, due to the impacts associated with deforestation of illegal mining (since July 2023).

From Supervision, climate stress tests, that is, how much losses banks can absorb due to, for example, intense rains and extreme droughts. Here is an example from the insurance sector in the United States.

Regarding (macro)economic Policies:

(1) Impacts of climate events and transition policies to a low-carbon economy;

(2) Case of the Mariana disaster (Project with the Inter-American Development Bank);

(3) Effect of frost on the companies' production chain (partnership with MIT, Massachusetts Institute of Technology);

and (4) Estimation of the effects of extreme events on companies' financial flows.

In the Planet part, monitoring of sustainable bond issues, with several graphs.

There are also parts on Governance, People and Prosperity with items such as relating to integrated corporate risk management (11 strategic risks, see page 31), the "Brazilian financial health index" (partnership with the Brazilian Federation of Banks, Febraban) and tokenization (GTI, Sandbox, LIFT BC, Drex, all aligned with international frontrunners such as BIS, World Bank Group, IDB Bank, International Emissions Trading Association (IETA) and International Organization of Securities Commissions (IOSCO).

Click at the image below to download and read the full 63-page report.

Curiosity on page 26. BC indicates that it allocated 1,100 tons of banknotes that were no longer in a condition to circulate - fragmented residue - "for the co-processing of cement, that is, as an input to be used to heat the furnaces of that industry ".

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