Brazil’s exchange, B3, as an architect of ESG best practice in the Brazilian market

03/08/2021

The world of investment has changed. In a short period of time, one subject has gained prominence in the news, on major forums and in the investment strategy decision-making of companies’ mangers, investors and clients: environmental, social and governance (ESG) criteria. The global market has proven to be even more in step with ESG-related changes. This has been particularly evident this year following the letter that Larry Fink, CEO of the largest asset manager in the world, BlackRock, sent to business leaders, which placed sustainability at the center of investments.

Whilst Larry Fink’s letter was an important catalyzer for this conversation, Brazil’s financial market infrastructure B3 has also been instrumental in bringing the subject to light. With the launch of the Novo Mercado segment and its higher corporate governance standards 20 years ago, we made what I call our first step on this journey. After this initial step, indices and our products focused on sustainability grew, something B3 believes to be an essential market practice that will generate value for companies and investors in the long term.

As our duties include promoting ESG best practice and providing products and services that support our clients in this evolution, we understand just how dynamic the environmental agenda is. To strengthen our commitment, we have also recently approved a plan for 2020-21 built on the following pillars:

 

– Progress in aligning management with sustainability best practices

– Promotion and fostering of ESG best practices in the Brazilian market

– Strengthening and development of ESG products and services

 

In Pillar 1 we focus inward, seeking to identify improvement opportunities and to create a plan of action to advance our ESG practices.

In Pillar 2 in partnership with several players we promote opportunities to support our clients in advancing their practices and highlight those practices that are already consolidated, promoting wide experience-sharing in the market.

The climate change agenda fits into this context. To support companies on this journey we have established a climate roadmap, with engagement and training initiatives that range from drawing up a GHG emissions inventory, to compensation and analysis of climate change management risks and opportunities.

Based on these inputs, the company has been able to establish a climate strategy that is better aligned with the requirements that allow it to be included in B3’s Corporate Sustainability Index (ISE) and in the Carbon Efficient Index (ICO2), as well as having access to other B3 products. The ISE questionnaire itself works as a sustainable practices indicator and helps companies to identify their gaps. To this end, it is available for queries and for use by companies that want to enhance their practices.

In Pillar 3 we promote restructuring of the ISE and ICO2, in 2020 and 2021, to make them even more attractive for the investor. Our sustainability index, for example, will include analysis that considers the materiality of each sector. Furthermore, the CDP questionnaire will have a climate change dimension, resulting in greater consistency, the standardization of data and a reduced observation cost for companies.

In 2020, ICO2 has already advanced and expanded into IBrX-100 from IBrX-50, the universe of companies invited to take part in the process. This year, we are discussing other opportunities, including criteria such as adaptation, emission compensation and carbon pricing. We are also working on granting greater visibility for Green Bond issuances in Brazil and we are launching a new ESG index in partnership with S&P. Furthermore, we want to develop new business fronts, promoting discussions about impact companies and the carbon market.

We know that a low-carbon economy that effectively faces up to climate changes means robust transformations. For this reason, we are in discussions with Brazil’s Ministry of the Economy and with the World Bank about the carbon market and fostering this agenda in Brazil. Being at the center of these transformations is a responsibility but also a great opportunity for B3. In addition to Brazil having incredible environmental potential and standing out as a destination of interest for “green” financial investments due to its production mix, B3 has a portfolio of products that already attend to this trend, such as ICO2, Green Bonds and CBIOs – which are carbon credits originating from the National Biofuels Policy (RenovaBio).

We want to be the connection hub in this regard, meeting growing demand from investors and the market. Here at B3 we understand that that issue will orient a new way of thinking about companies’ business. Being part of this agenda can generate more consistent results and deliver value to stakeholders. Now is the time to make choices.

Do you want to find out more? Access information about the matter here

Ana Buchaim
Ana Buchaim

Ana Buchaim is HR, Marketing, Communication and Sustainability Director at B3.