Apontamentos de Fernanda Guardado na UNFCCC

Question: The BCB has been leading in managing physical and transition risks launching your comprehensive Sustainability Agenda in September 2020. What are the lessons you have learnt from this work and how important this is for a country exposed to both the physical and transition risks from climate change?

• The greatest lesson for all of us is that sustainability issues have become increasingly important for society. o Climate and environmental issues, which have long been major topics on the international agenda, have gained even more importance after the pandemic. • Within climate risks, both physical and transition risks represent significant challenges going forward. • The financial system is closely linked to those risks, not only to the adverse impacts they may bring on their portfolios, but also to the effects that financial institutions generate on the environment. o For instance, in terms of emissions from reporting financial institutions in Brazil, from 2011 to 2014, they grew around 51%. Since then, they have been reducing, returning in 2020 to the same levels of 2011 (675 thousands of tons of CO2 Página 2 de 4 equivalent), according to the Brazilian Public Registry, based on the GHG Protocol program1 . • In addition, climate issues involve not only risks but also opportunities for the financial system. And we have seen progress in this area recently. o Just to give an example, issuance of green and sustainability-linked bonds in Brazil has grown from US$ 600 million in 2015 to almost US$ 8 billion in 2021 year-todate, according to Reuters. • To deal with these challenges and opportunities, central banks need to remain on the frontier of knowledge and actions, responding: o to the evolution of society's demands; o to structural changes in the economy; and o to current and future shocks and risks. • For central banks, having a sustainability agenda is important because sustainability issues have the potential to affect their two main mandates: o Monetary policy and financial stability. BCB’s Sustainability Agenda • Of course, these issues are important for a country rich in natural resources like Brazil. o And we have taken the opportunity to advance further in the sustainability agenda. • Banco Central do Brasil (BCB) has a long history of supporting the environmental agenda, implementing measures related to the subject and actively participating in the international debate. o Especially in the last decade, the BCB issued several regulations with the aim of starting the integration of social and environmental factors in the risk analysis of financial institutions. ▪ In 2014, the BCB established the guidelines of socio-environmental responsibility policies for Brazilian the financial institutions; ▪ In 2017, we included social and environmental risk among those that financial institutions must identify, measure, assess, control and mitigate. • As you mentioned in your question, in September 2020 the BCB launched a broader sustainability agenda as an additional pillar of its strategic agenda for the development of the financial system (AgendaBC#). • With our Sustainability Agenda we aim to lead by example within the Brazilian financial system and to deliver concrete results to society, in line with the best international practices. • This sustainability agenda has several kinds of actions: Internal; Policies; Partnerships, Supervisory; Regulatory. • Since the topic of this panel is on risk management, I will focus on the supervisory and regulatory actions of our agenda related to risk management. • On the supervisory front, the BCB is developing the following actions: o Structuring and expanding the collection of information on social and environmental risks. o Stress tests for climate risks. ▪ Inclusion of climate risk scenarios in new and improved stress tests performed by the BCB, in line with international best practices. • Regarding regulation, the BCB has sought to dialogue with society. o For this, the BCB has made use of public consultations to receive contributions from various segments of society. • In 2021, for example, two important issues were regulated after being the object of a public consultation: o The ESG Risk Management and Policy2 and o The Disclosure of ESG Policy3 . o The former extends regulatory requirements applicable to the management of traditional risks to social, environmental and climate-related risks, on an integrated risk management framework. ▪ Furthermore, the Social, Environmental and Climate Responsibility Policy (PRSAC) improves the requirement that financial institutions develop and disclose a Socio-Environmental Responsibility Policy, including climaterelated responsibility. o The latter improves the requirements for implementing a transparent and standardized reporting of the Social, Environmental and Climate risks and opportunities of financial institutions. ▪ In Brazil, the scope of this initiative goes beyond the climate perspective of TCFD and has been expanded to include social and environmental issues. o We understand that the development of a sustainability agenda requires some time, and therefore requires a gradual timeline for a feasible implementation. ▪ For example, in the disclosure of ESG risks, the BCB will request from financial institutions first qualitative information, and at a later stage quantitative information. • Also on the regulatory front, one of BCB´s most important actions in progress is the implementation of a Sustainable Rural Credit Bureau (Green Bureau). o The measure seeks to define sustainability criteria applicable to rural credit concessions, which will make it possible to characterize rural credit operations with social, environmental and climate additionalities4 . o The Green Bureau will be a tool for risk management by financial institutions, improving asset pricing and access to new sources of resources, under an Open Finance framework. • I would like to point out that the objective of this agenda is, within the BCB's mandate, to induce the conditions for the development of sustainable finances in the national financial system, which includes: o The best international practices related to sustainable finance; o Greater availability of resources for sustainable enterprises; and o Better management of social, environmental and climate risks. Conclusion • Looking ahead, climate transition is likely to pose increasing costs and challenges for the economy and the society. o In order to face this transition in a more appropriate way, the BCB will support the development of proper financial market instruments, since these instruments are able to promote a more efficient resource allocation. • Our Sustainability Agenda is extensive, but by no means exhaustive. • Ultimately, the BCB will seek to continue on the frontier of the knowledge and actions linked to social, environmental and climate issues. o The institution will act, within its mandate, to address present and future challenges related to these topics, as these are fields in constant evolution.