Brazil publishes first Allocation and Impact Report of sustainable sovereign bonds issuance

The Federal Government published today, November 8, 2024, its first Allocation and Impact Report – RAI 2024, referring to the issuances of sustainable sovereign bonds carried out in November 2023 and June 2024. This report reflects the country’s commitment to transparency and good market practices, also complying with the International Capital Market Association (ICMA)[1] principles for sustainable issuances.

In accordance with the Brazil’s Sovereign Sustainable Bond Framework[2], Brazil commits to allocating an amount equivalent to the net proceeds of these issuances in eligible expenses, based on the Federal Government budget programs, in addition to reporting impact measures of these allocations.

Regarding allocation, amounts equivalent to 20.1% of the net proceeds from the first issuance (R$ 1.93 billion) were directed to environmental expenses, and 40.0% (R$ 3.85 billion) to social expenses, between January 2023 and July 2024. In relation to the second issuance, the equivalent of 40.0% (R$ 4.33 billion) of the net proceeds were allocated to social expenses, up to July 2024. It is important to highlight that the Framework provides for a period of up to 24 months after each issuance for the full reporting of resource allocation.

Source: Sistema Integrado de Administração Financeira do Governo Federal (SIAFI) and BNDES

The following tables show the allocation of resources by Framework categories, comparing the values ​​occurred with the limits previously signaled in the pre-issuance indicative resource allocation reports. Among the first issuance environmental categories, expenses focused on terrestrial and aquatic biodiversity (equivalent to 10.0% of net proceeds), renewable energy (with 5.1% of net proceeds) and sustainable management of living and natural resources and use of land (with 3.9% of net proceeds) stand out. In the social expenditure group, RAI presents resource allocations for combating poverty and food security and sustainable food systems.

Source: Sistema Integrado de Administração Financeira do Governo Federal (SIAFI) and BNDES

Regarding the second issuance, the 2024 RAI reports that the equivalent of 40% of the net resources was allocated to social expenses, with 36% allocated to the “Combating Poverty” category and 4% to the “Access to Basic Infrastructure” category. Due to the proximity of only one month between the reference date for calculating the allocation and the date of this issuance, the RAI does not yet present an allocation for environmental expenses.

Source: Sistema Integrado de Administração Financeira do Governo Federal (SIAFI) and BNDES

Regarding impact, this report uses as reference indicators from the Multi-Year Plan - 2024-2027 PPA[3], to monitor the benefits of eligible budget programs. The PPA is the main medium-term budget instrument of the Federal Government, which defines programs for a four-year cycle, with specific objectives monitored by its own indicators. These programs are associated with budget programs in each Annual Budget Law.

The 2024 RAI provides a list of selected PPA indicators for the reported expenditure categories, according to the budget programs associated with the PPA programs. It is worth noting that the current PPA came into effect in 2024 and, as the indicators are measured annually, this RAI presents the targets for the indicators, while the measured results will be presented in subsequent reports.

Although the PPA is the basis for impact assessment in this report, in the case of expenditures executed through the Climate Fund, indicators related to the financed projects are presented due to the specific nature of the allocation of resources through this fund, operated by the National Bank for Economic and Social Development (BNDES). In this case, the impact report considered the indicators that are reported and monitored by BNDES.

The 2024 RAI was prepared by the Sovereign Sustainable Finance Committee (CFSS in Portuguese) [4], under the presidency of the National Treasury and the executive secretariat of the Public Debt Management Office, involving joint efforts by various Federal Government agencies that are CFSS members and the BNDES. The development of this report also had the support of the World Bank, the Inter-American Development Bank (IDB) and the United Nations Development Program (UNDP).

With the publication of the 2024 RAI, the first cycle of sustainable sovereign bond issuances by the National Treasury comes to an end. This cycle began with the publication of the Framework in September 2023, followed by the pre-issuance reports, which indicated the allocation of resources before the issuances of November 2023 and June 2024, and concluded with the demonstration of the allocation and expected benefits. This milestone reinforces Brazil's commitment to transparency and sustainable development, in addition to paving the way for the continuous improvement of issuance and reporting practices in the future.