CASE STUDY

Brazil Sovereign Sustainable Bond: Financing a greener,
more inclusive, and equitable economy
The World Bank provided technicalassistance to the Federative Republic ofBrazil to establish its sovereign sustainablebond program and pave the way for its
inaugural $2 billion issuance.

Background

Brazil has set a nationally determined contribution(NDC) target for a 53 percent reduction in GHG
emissions by 2030 in comparison with 2005, andcarbon neutrality (net-zero) by 2050. In addition, theNDC aims to reduce vulnerability in terms of water,energy, food, social and environmental security, andenhance social benefits to ensure the climate
resilience of the population and infrastructure. There
are large costs associated with meeting Brazil’s NDCs:
the most recent estimates place these costs at $1.4
trillion between 2016 and 2030, equivalent to $100billion (or about 7 percent of GDP) per year 1.
On September 5, 2023, Brazil launched its Sovereign
Sustainable Bond Framework, a reference document
for the issuance of sovereign debt securities that willenable the country to raise funds associated withfinancing budgetary programs that generate positiveenvironmental and/or social impacts, many of which
can support the long term decarbonization andclimateresilience.
TheFramework
follows
international best practices and has been certified bySecond Party Opinion provider - Morningstar
Sustainalytics, demonstrating its alignment with theprinciples established by the International CapitalMarkets Association (ICMA).

Financial Solution

Sustainable bonds (green, social and sustainability
bonds) are debt instruments that support
expenditures and projects with environmental andsocial benefits. They are innovative financial tools
used by many borrowers – from sovereigns tocorporates and multilaterals – to financeenvironmental and social action. With $7.2 billion ofsustainable debt issued in 2022, Brazil ranked firstregionally for corporate green bonds, having raised
money for climate and biodiversity projects. In
1IFC, 2016. By 2030, the financing gap for achieving net-zeroemissions is estimated at USD 1.3 trillion for energy, transportation,building, waste management, and industrial energy efficiency sectors.
An additional USD 163 billion for agriculture, of which USD 78 billion inPhoto Credit: Adobe Stock

November 2023, it became the eighth country in Latin
America 2 to issue a sustainable sovereign bond. With
the addition of Brazil’s bond, the total cumulative
volume of sustainable bonds issued globally in 2023
reached $4.9 trillion, and issuances in Latin America
and the Caribbean reached $157 billion regionally,
with 47 percent issued by sovereigns (Brazil, Chile,Colombia, Ecuador, Guatemala, Mexico, Peru, andUruguay).
Use of proceeds
Brazil’s Sustainable Bond Framework complies withthe use of proceeds principles outlined in theInternational Capital Market Association (ICMA)’s‘Green Bond Principles, Social Bond Principles, andSustainability Bond Guidelines’. The Framework lists
eligible expenses within the scope of sustainablebond transactions and the categories of activities (17in total) associated with environmental (10categories) and social (7 categories) benefits. The firstissue has allocated the proceeds to deforestation
control, biodiversity conservation, the National
Climate Change Fund (that focuses on renewableenergy and clean transport, among others), andprograms to combat poverty (Bolsa Familia) and thefight against hunger (Food Acquisition Program). The
split of allocation of resources to environmental vs.
social priorities is well balanced (approximately 1:1) inaccordance with international best practice.

livestock-related activities is obtained from Climate Bonds Initiative,
2020.

Others are Chile, Colombia, Uruguay, Ecuador, Guatemala,Mexico, and Peru.

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CASE STUDY
Process for project evaluation and selection
The Framework defines the process for assessing andselecting eligible expenses for financing throughsustainable bonds, ensuring that the raised funds aredirected to eligible and high-impact expenses. It
outlines procedures for managing the funds raised
and the parameters adopted for monitoring,measuring, and publishing allocation and impact
reports of the funds raised, as well as the use ofexternal verification to provide assurance toinvestors. The CFSS is also responsible for identifying
and mitigating environmental and social risks
associated with the financed projects.
Management of proceeds
The CFSS oversees the allocation and tracking of bondproceeds. The Federative Republic of Brazil intends tofully allocate net proceeds within twenty-four monthsof issuance, on a best-efforts basis. The National
Treasury’s expense management process will ensurethat an amount, at least equivalent to the net
proceeds of sustainable sovereign bonds, will be used
to identify and allocate proceeds to eligible expenses
in the federal budget (virtual allocation).
Allocation and impact reporting
The Federative Republic of Brazil intends to report on
the allocation and impact of projects and activities
supported annually until full allocation of theproceeds. The report will be published on its website.
Allocation reporting may include the breakdown ofproceeds per type of expenditure, share of financing
and refinancing, share of co-financing and theamount of unallocated proceeds. The impact reportwill include both qualitative and quantitative
information about expected impacts and results
associated with the amount of proceeds disbursed
for each expense category.

sector, the National Treasury chose a 7-year
benchmark, where private issues are concentrated.
According to National Treasury Secretary Rogério
Ceron, the Treasury aims to create a reference yield
curve to stimulate further sustainable debt sales byprivate sector borrowers. Furthermore, thetransaction highlighted Brazil’s commitment toenvironmental and social sustainability to thefinancial markets and beyond.

World Bank’s Role
The World Bank 3 and Inter-American Development
Bank jointly provided technical assistance to theBrazilian National Treasury to establish thesustainable bond program. The joint work wasaligned with the World Bank and IDB Presidents’commitment to join forces to maximize development
impact in Latin America and the Caribbean. The two
multilateral development banks supported theBrazilian government in understanding the value
proposition of issuing labeled thematic bonds in linewith the country’s debt management strategy andinternational best practices, establishing an interministerial working group (“Comitê de FinançasSustentáveis Soberanas”), developing the bondframework, identifying eligible projects, andobtaining the external review (Second Party Opinion).
The World Bank also advised the Brazilian Treasury
on the communication strategy and organizedknowledge-sharing events to share Brazil’s
experience with peers. The World Bank will further
support Brazil in the preparation of the post-issuanceimpact report.
Summary of Financial Terms
Issue DateOutcomesAmount/Currency

On November 13, 2023, Brazil successfully debuted a$2 billion sovereign sustainable bond. The
transaction succeeded in extending the maturity ofdebt, accessing new investors, and broadening theinvestor base, in conformity with Brazil’s mediumterm debt management strategy. As external Federal
Public Debt acts as a reference for the corporate

Tenor
Coupon/Yield

Oversubscription

November 13, 2023
U.S. $2 billion
7 years (maturing on March 18,2031)

6.50% 43X

Contact: Miguel Navarro-Martin, Manager, Financial Products & Client Solutions, The World Bank Treasury
 mnavarromartin@worldbank.org  +1 (202) 458 4722
1225 Connecticut Avenue NW, Washington, D.C., 20433, U.S.A.

The work was led by Treasury’s Sustainable Finance and ESG
Advisory in strong coordination with Brazil’s country team.

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Spread-over-US treasury bond of 181.9 bps - the lowest level
achieved for a new issuance in almost a decade andcomparable to those obtained by investment-grade countries4