Roundup: Brazil launches multi-billion dollar currency hedge for green projects

April 3, 2024|Written by |Hong Kong Monetary Authority, Banco Central do Brasil, Banque de France, European Central Bank

Brazil aims to boost foreign investment in green projects, Hong Kong pushes green guidelines to strengthen its role as regional green hub, plus more in this week’s roundup.

Brazil announces multi-billion dollar FX hedge for sustainable projects

Banco Central do Brasil (BCB) will facilitate a multi-billion dollar currency exchange hedge programme for sustainable investments in Brazil.

The Inter-American Development Bank (IDB) will leverage its AAA rating to offer US$3.4 bn in derivatives, as well as a $2bn credit line, to help with the Brazilian government’s plan for a foreign exchange hedge.

The IDB and international banks will offer the security whereas the BCB will serve only as an intermediary, ensuring the central bank does not take on any risk, said BCB governor Roberto Campos Neto.

The programme tackles a key obstacle in scaling foreign investment in climate financing: the volatility of the Brazilian real. Only 6% of green projects are currently funded by foreign investment, compared to 14% for other emerging economies and 81% for advanced economies.

Hong Kong pushes green guidelines for long-term growth

Hong Kong is well placed to seize opportunities from continued growth in sustainable investment, a senior finance official has said.

Speaking to the South China Morning Post, Eddie Yue, CEO of the Hong Kong Monetary Authority (HKMA), said the transition to a greener future is a shared responsibility globally, but is also vital locally for Hong Kong to effectively protect its people.

Yue’s comments come as firms prepare for tighter disclosure rules from the Hong Kong stock exchange come into force at the beginning of 2025. The rules will require listed firms to disclose climate-related risks.

In the meantime, the HKMA is ironing out a raft of green finance guidelines to create a healthy green market ecosystem and attract credible transition investment opportunities. These include a set of transition principles for Asian banks and a local green taxonomy.

Central bankers meet to discuss sustainable future for Arab nations

Green finance in the Arab world is rapidly expanding and can be further accelerated through effective regional collaboration, Fahad Al Turki, director general of the Arab Monetary Fund (AMF), told a regional sustainable finance conference.

The AMF held the third session of the Arab Green and Sustainable Finance Network to discuss the future of sustainable finance in the region. The event brought together key figures from Arab central banks, monetary institutions and finance ministries with other international experts.

Al Turki also underscored the AMF’s commitment to sustainable financing and recognised the impact of climate change on the financial and banking sectors.

He also said that regional green bond issuance increased 40% between 2022 and 2023, indicating a burgeoning market for sustainable financing initiatives.

Achieving sustainable development in the region, however, will require significant changes to the global financial architecture, said Fadhel Kaboub, associate professor at Denison University in the US, while speaking at the Arab Forum on Sustainable Development in March.

Economists urge ECB to introduce dual interest rates

The European Central Bank (ECB) should redouble its green monetary policy efforts by introducing preferential interest rates to protect green investments, said a collective of senior economists, asset managers and business leaders in a letter published in Le Monde.

Rising interest rates in the eurozone have had a disproportionate effect on capital intensive renewable energy projects, said the group of thirty signatories, including Éric Monnet, professor at the Paris School of Economics, and Phillipe Zaouati, chief executive officer of global asset management group Mirova.

They also said the Banque de France (BdF) should actively participate in promoting this proposal, which is essential for addressing a key driver of overall inflation in the eurozone: fossil fuel dependency.

French president Emmanuel Macron and ECB executive board member Isabel Schnabel have both spoken in favour of green dual rates.

EBA consultation on ESG risk management guidelines closing soon

The European Banking Authority (EBA)’s consultation on draft guidelines for managing ESG risks is closing next month.

The consultation paper proposes standards that European financial institutions should have in place to meet their legal obligations under the new capital requirements directive (CRD).

The latest iteration of the CRD includes new measures around the internal management and assessment of ESG risks. The directive also grants financial regulators the authority to supervise financial institutions’ transition plans.

However, the CRD has left the definition of what constitutes minimum methodological standards, as well as what should be in prudential transition plans, up to the EBA.

The deadline for comments is 18 April 2024.

Reading roundup

The reaction of customers to corporate ESG performance – Frank Weikai Li, Singapore Management University

Addressing barriers to climate investments in EMDEs – Ekaterina Gratcheva, Fabio Natalucci and Cindy van Oorschot for the Official Monetary and Financial Institutions Forum

One planet, two realities: realising energy transition in the Global South – Ashutosh Singh and Atul Arya, S&P Global

This page was last updated April 3, 2024

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