Emerging Markets Dialogue on Green Finance Simone Dettling PRI: Critical ESG Themes for 2015 April 1st, 2015 Outline 1) The Emerging Markets Dialogue on Green Finance 2) Study: Quantifying the Natural Capital Risk Exposure of Financial Institutions in Brazil 3) Tool for Integrating Water Risk in Corporate (Bond) Analysis 1) The German Government’s Emerging Markets Dialogue on Green Finance Platform for Financial Institutions Development of Tools and Methodologies Share efforts: Work in international group of FI on specific methodologies/tools and benefit from experts provided through the program Creating Country-Specific Knowledge Jointly create knowledge relevant for the financial sector in your country/region and benefit from experts provided through the program Promote Market Development for Green Financial Instruments (e.g. Green Bonds) Learn from experienced peers and benefit from the program‘s ability to bring together private and public sector actors as well as scientific institutions 1) Quantifying the Natural Capital Risk Exposure of Financial Institutions in Brazil Creating Country-Specific Knowledge Approach and Objectives Approach 1. Quantify the natural capital costs of 45 business sectors in Brazil • for six key environmental impacts: greenhouse gases (GHGs), land-use conversion, water consumption, water pollution, air pollution, waste • differentiated by five different major ecosystems/regions in the country Objectives 2. Map the amounts of investment/lending to sectors and regions by a given financial institution  Get figures on the magnitude of the natural capital risk exposure through different sectors and regions and identify high-risk sectors for the financial institution to focus on  Understand and compare the natural capital risk exposure of different investment portfolios or loan books Main Findings The highest natural capital intensity sectors (unpriced natural capital costs per R$m of production) include cattle ranching, fats & oil refining, aquaculture, cotton farming, sugarcane farming and cement manufacturing. Main Findings Brazilian banks are more than twice as exposed to natural capital costs as pension funds. Banks are most exposed through their financing of cattle ranching, agriculture, fishing, and food and beverage, while pension funds are most exposed through their investments in food and beverage companies. Main Findings Mining Livestock Natural capital risk exposure can differ significantly: Comparison of two participating banks demonstrates that Bank A has significantly greater exposure (2.5 times higher) to natural capital risks than Bank B Main Findings Indirect Natural Capital Cost Exposure of Brazilian Banking Industry by Environmental Impact 2) Integrating Water Risk in Corporate (Bond) Analysis Development of Tools and Methodologies Tool - Snapshot Example: Barrick Gold Location Name Buzwagi, Tanzania Zaldivar Copper, Chile Lagunas Norte, Peru Super Pit, Australia Pueblo Viejo, Dominican Republic Veladero, Argentina Nevada, USA Porgera, Papua New Guinea Hemlo, Ontario, Canada Lumwana Copper, Zambia Latitude Longitude -6.76 39.28 -33.23 -70.8 -12.06 -77.1 -30.79 121.5 18.4 -70.77 -27.91 -68.92 38.8 -116.42 -5.46 143.15 48.68 -85.98 -11.82 25.13 Thousand m3 %age of TEV $/m3 Water Use TEV, $/m3 Water Use x %age of Water Use 3,330 13.33 3% 0.44 6,920 12.73 7% 0.87 732 11.59 1% 0.08 18,631 8.19 18% 1.51 18,484 5.55 18% 1.02 1,473 2.80 1% 0.04 15,158 2.80 15% 0.42 32,410 0.51 32% 0.16 1,042 0.02 1% 0.00 2,729 0.02 3% 0.00 100,909 100% 4.55 Additional water cost (water use X TEV) = $483 million in 2013 Launch at PRI in Person, 9th September 2015 Thank you very much for your attention! Contact: Simone Dettling ([email protected]) Website: www.emergingmarketsdialogue.org