Publication / 02 Feb 2015

Natural Capital Risk Exposure of the Financial Sector in Brazil: Full Report

Trucost was commissioned by GIZ and CEBDS to provide Brazilian financial institutions with an understanding of the relevance and magnitude of the natural capital risks they are exposed to through their funding and investments.

Brazil’s financial sector is dependent on natural capital to support economic growth and ensure future returns for investors. Nature’s assets are abundant in Brazil, from its farmland, forests and energy reserves to its ecosystem services such as the rainforest which helps regulate weather patterns.

However, there is mounting demand and supply side pressures on natural capital, including a rapidly growing population and deforestation. This renders natural capital increasingly scarce, leading to reduced crop yields, increasing input costs and disruption to supply chains. At the same time, there are financial and reputational risks for high-impact, high-dependence companies from the Brazilian government’s strengthening legislation to make companies pay for their environmental impacts and make banks more accountable for their financing decisions.

Investors and credit analysts are in need of better data and tools to integrate natural capital risks into investment and financing analysis in order to protect returns in the future. At the same time, there exists an opportunity for the financial sector to capitalise on the growing market for more sustainable and resource efficient business models. This study finds that the unpriced natural capital costs of companies which Brazilian financial institutions are financing amounts to R$1,646bn. Even if companies had to internalise only part of this cost, shareholder returns and loan repayments would be affected.

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