Planet Tracker is launching a new programme of thought leadership that explores the relationship between sovereign bonds, natural capital and environmental risks, and the macroeconomics – sovereign health – of a country and its key soft commodities.
This report sets out four steps Brazil could take to change direction, including issuing an innovative Deforestation-Linked Sovereign Bond tying interest payments to its success in reducing deforestation.
Understanding the dependence of sovereign debt on nature
The first policy report produced by Grantham Research Institute and Planet Tracker explores the implications of the impact of natural capital on sovereign debt. The report outlines a new research framework to enable market participants to integrate the value of natural capital into the issuance, analysis and stewardship of sovereign bonds. It focuses on the two G20 countries most dependent on natural capital for their exports, Argentina and Brazil.
Sovereign bonds are one of the largest capital market asset classes and there is growing focus both on how environmental, social and governance (ESG) factors influence their risks and returns, and how sovereign bonds can raise capital for sustainable development.
The Sovereign Bonds programme will analyse the macroeconomic mechanisms through which natural capital can affect the ability of a country to pay its sovereign debt.
Brazil’s governance strength in managing the country’s exposure, sensitivity and adaptation ability to natural capital sustainability is a growing factor for domestic and international sovereign bond investors currently holding $870 billion in sovereign debt, maturing 2019–30.
Argentina’s governance strength in managing the country’s exposure, sensitivity and adaptation ability to natural capital sustainability is a growing factor for domestic and international sovereign bond investors currently holding $283 billion in sovereign debt, maturing 2019–38.
Investors have recently added their voice to the chorus of concern about the fires in the Amazon.
The 80,000 fires that have broken out in the Brazilian Amazon rainforest this year come at a time when the climate crisis and the accelerating loss of nature is rising to the top of the financial agenda.