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Santander Brasil To Reward Water Companies For ESG Compliance

What’s happening? Banco Santander Brasil has said it will lower the cost of borrowing for water and sewage companies – or those investing in them – that demonstrate ESG compliance. The move comes with the bank looking to put BRL5bn ($982m) to work in the sectors via credit lines for investors. Having put laws in place recently, which potentially will lead to the privatisation of water and sanitation firms, Brazil's government anticipates more than BRL600bn being put to work in the space in the near future. The lender has not revealed details of how much it will cut interest rates on loans provided to companies. 
 
Why does this matter? Encouraging borrowers to act in an environmentally focused fashion by reducing the cost of credit is a tactic growing in popularity. On the flipside, lenders have also included climate-focused restrictions on loans made to certain companies to prompt a change of corporate policy.
 
Firms in utilities and construction – such as the water companies mentioned above – seem to be prime candidates for such lending arrangements. In March, for example, Finnish forestry firm UPM linked repayments on a revolving credit facility to its sustainability efforts. BNP Paribas, UPM’s lender, said it would reduce the rate at which repayments had to be made if UPM could reduce CO2 emissions from purchased fuels and electricity by 65% from 2015 levels over the next 10 years.
 
More recently, Celsa Steel received an emergency £30m ($37.5m) loan under the UK’s Project Birch scheme, offering last-ditch support for strategically important companies. As part of the conditions attached to the loan, Celsa will reportedly be bound to follow through on climate change and net-zero emissions initiatives. The exact details have not been made public.
 
Lenders themselves can also benefit from encouraging climate action among their clients. Banks are facing increased scrutiny over the nature of businesses they offer financing to and the carbon emissions accounted for by their loan books.
 
Regulators have been signalling they will stress test financial institutions over their exposure to climate risks. China’s central bank recently hinted it would begin assessing its country’s lenders on their green finance efforts in 2021. Some of these plans have, however, been placed on hold due to the impact of the Covid-19 pandemic – the Bank of England’s Prudential Regulation Authority, for example, has postponed stress testing of this nature until at least mid-2021.

Nick Finegold is Founder & CEO of Curation Corp, an emerging and peripheral risks monitoring service.


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