Final
Report


April
2009








IFC
Sustainable
Investment
Country
Reports:

Sustainable
Investment
in
Brazil
2009


w w w . t e r i e u r o p e . o r g 

IFC
Sustainable
Investment
Country
Reports:


Sustainable
Investment
in
Brazil
2009



FINAL
REPORT


APRIL
2009



Prepared
for

International
Finance
Corporation
(IFC)

A
Member
of
the
World
Bank
Group

www.ifc.org


IFC
Task
Manager

Brunno
Maradei,
Project
Officer,
Environment

&
Social
Development
Department


Prepared
by

TERI‐Europe

www.terieurope.org


Written
and
edited
by

Ritu
Kumar
and
Dan
Siddy








Copyright
©
2009



International
Finance
Corporation


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TERI‐Europe


TERI‐Europe
is
a
not‐for‐profit
organisation
specialising
in
the
links

between
sustainable
development
in
emerging
markets
and
the
role
of

business
and
investment.

TERI‐Europe’s
partners
and
sponsors
include

IFC,
the
European
Commission,
the
UK
Foreign
&
Commonwealth

Office,
the
UK
Department
for
International
Development,
Unilever
and

the
Association
of
British
Insurers.

TERI‐Europe
is
based
in
London.




www.terieurope.org


The
authors


Ritu
Kumar
is
director
of
TERI‐Europe
and
a
sustainable
investment

advisor
with
the
emerging
market
private
equity
firm,
Actis:


rkumar@act.is

www.act.is


Dan
Siddy
is
an
associate
fellow
at
TERI‐Europe
and
director
of
Delsus

Limited,
a
specialist
advisory
firm
on
ESG
investment
in
emerging

markets:




dsiddy@delsus.com

www.delsus.com




About
IFC


IFC,
a
member
of
the
World
Bank
Group,
creates
opportunity
for
people
to
escape
poverty
and
improve
their

lives.
We
foster
sustainable
economic
growth
in
developing
countries
by
supporting
private
sector
development,

mobilizing
private
capital,
and
providing
advisory
and
risk
mitigation
services
to
businesses
and
governments.

Our
new
investments
totalled
US$16.2
billion
in
fiscal
2008,
a
34
percent
increase
over
the
previous
year.
For

more
information,
visit
www.ifc.org.


IFC’s
Sustainable
Investing
Team


For
the
past
four
years,
IFC's
Sustainable
Investing
team
has
delivered
technical
and
financial
support
for

projects
that
aim
to
mobilize
sustainable
capital
flows
into
emerging
markets.
The
goal
is
to
increase
the
volume

of
mainstream
investment
that
uses
ESG
analysis
as
a
standard
practice
in
their
investment
decision.

IFC’s
approach
is
twofold:


 To
catalyze
capital
market
flows
into
sustainable
investment,
IFC
works
to
(a)
promote
the
business
case
for

sustainable
investment
by
drawing
lessons
from
IFC’s
own
portfolio,
(b)
establish
frameworks
to
identify

and
assess
new
sustainable
investment
opportunities,
and
(c)
develop
new
financial
products
(e.g.

Sustainability
indices);
and


 To
support
fund
managers
investing
in
sustainable
companies,
IFC
works
(a)
with
private
equity
funds
in

IFC’s
portfolio
to
assist
them
to
establish
ESG
analytical
processes,
and
(b)
with
capital
market
actors
to

improve
the
enabling
environment
for
the
market
to
recognize
and
value
sustainability
in
corporate

valuation.


IFC
is
committed
to
continue
its
work
in
partnership
with
key
market
actors
to
improve
the
enabling

environment
and
address
barriers
to
sustainable
investment
in
emerging
markets.
In
order
to
do
this,
IFC’s
work

is
centered
in
three
areas:
policies
and
standards,
knowledge
management
and
investment
vehicles.


The

Sustainable
Investing
team
is
part
of
IFC’s
Environment
and
Social
Development
Department,
and
benefits
from

the
generous
financial
support
of
IFC
and
the
Governments
of
Japan,
the
Netherlands,
Norway,
Canada,
South

Africa
and
Switzerland.

For
more
information,
please
visit
the
Sustainable
Investing
website
at

www.ifc.org/sustainableinvesting.


Table
of
Contents

ACKNOWLEDGMENTS....................................................................................................................... i

GLOSSARY
OF
ABBREVIATIONS .........................................................................................................ii

EXECUTIVE
SUMMARY.....................................................................................................................iii

1.

INTRODUCTION........................................................................................................................... 1

Objectives ................................................................................................................................................ 1

Scope ....................................................................................................................................................... 1

A
snapshot
in
time................................................................................................................................... 2

Exchange
rates
used................................................................................................................................ 2

Structure
of
the
report ............................................................................................................................ 2

2.

COUNTRY
OVERVIEW.................................................................................................................. 3

Summary.................................................................................................................................................. 3

Brazil’s
economy...................................................................................................................................... 3

The
stock
market ..................................................................................................................................... 3

Key
industries
and
companies ................................................................................................................. 4

Key
environmental
and
social
issues ....................................................................................................... 4

3.

CORPORATE
SUSTAINABILITY
INDEX ........................................................................................... 5

History ..................................................................................................................................................... 5

Objective.................................................................................................................................................. 5

Management
and
governance................................................................................................................. 5

Eligibility .................................................................................................................................................. 6

Sustainability
criteria
and
methodology.................................................................................................. 6

Portfolio
composition.............................................................................................................................. 7

Use
by
investors .................................................................................................................................... 11

Research
into
an
ISE
‘premium’............................................................................................................. 11

Corporate
buy‐in ................................................................................................................................... 12

Reaction
to
and
use
of
the
ISE ........................................................................................................... 12

Non‐inclusion
of
Petrobras ................................................................................................................ 12

Questionnaire
response
rate.............................................................................................................. 12

Commercial
business
model .................................................................................................................. 14

Future
directions ................................................................................................................................... 14

4.

ASSET
MANAGERS......................................................................................................................15

Market
overview ................................................................................................................................... 15

Status
of
sustainable
investment .......................................................................................................... 18

5.

RETAIL
FUNDS............................................................................................................................19

Market
overview ................................................................................................................................... 19

Status
of
sustainable
investment .......................................................................................................... 19

6.

PENSION
FUNDS.........................................................................................................................25

Market
overview ................................................................................................................................... 25

Status
of
sustainable
investment .......................................................................................................... 25

7.

FOREIGN
INVESTMENT...............................................................................................................29

Market
overview ................................................................................................................................... 29

Status
of
sustainable
investment .......................................................................................................... 29

8.

OTHER
MARKET
PARTICIPANTS..................................................................................................33

Brazilian
Development
Bank.................................................................................................................. 33

Overview............................................................................................................................................ 33

Status
of
sustainable
investment....................................................................................................... 33

High
Net
Worth
Individuals ................................................................................................................... 35

Overview............................................................................................................................................ 35

Status
of
sustainable
investment....................................................................................................... 36

9.

ENABLING
ENVIRONMENT .........................................................................................................38

Regulatory
and
policy
frameworks........................................................................................................ 38

Environmental
legislation
and
enforcement...................................................................................... 38

Pension
fund
transparency ................................................................................................................ 39

Non‐financial
disclosure
requirements .............................................................................................. 39

Listing
rules
and
guidelines................................................................................................................ 40

Voluntary
non‐financial
reporting ......................................................................................................... 40

Sustainability
reporting ..................................................................................................................... 40

Carbon
Disclosure
Project .................................................................................................................. 44

Global
Compact
Communications
on
Progress.................................................................................. 45

Indices,
equity
research
and
ratings...................................................................................................... 45

Specialised
indices
in
addition
to
the
ISE ........................................................................................... 45

Dow
Jones
Sustainability
Index.......................................................................................................... 45

Independent
sustainability
research
and
rating
products ................................................................. 46

Sell‐side
equity
research
on
sustainability
issues............................................................................... 46

Networks
and
associations .................................................................................................................... 46

Industry
bodies .................................................................................................................................. 46

UNEPFI ............................................................................................................................................... 47

LASFF ................................................................................................................................................. 47

UNPRI................................................................................................................................................. 47

Development
finance
institutions ......................................................................................................... 49

Language
barriers .................................................................................................................................. 49

Green
consumerism .............................................................................................................................. 49

10.

BUILDING
ON
SUCCESS.............................................................................................................51

Overall
market
size................................................................................................................................ 51

Consolidated
estimates
of
SRI
assets
under
management ................................................................ 51

Brazilian
SRI
in
a
global
context......................................................................................................... 52

Strengths
and
weaknesses .................................................................................................................... 52

Strong
commitment........................................................................................................................... 52

Strong
business
case.......................................................................................................................... 52

Contribution
to
sustainable
development ......................................................................................... 52

Strategic
challenges
and
risks............................................................................................................ 53

Issues
on
the
horizon............................................................................................................................. 53

The
ISE
paradox ................................................................................................................................. 53

Limited
research
coverage................................................................................................................. 54

Stagnation
in
the
asset
management
sector ..................................................................................... 55

Limited
involvement
of
foreign
portfolio
investors............................................................................ 56

Fragmentation
and
overlap
in
market
leadership ............................................................................. 56

Recommendations................................................................................................................................. 56

Update
the
ISE’s
commercial
business
model .................................................................................... 56

Make
greater
use
of
ISE
data............................................................................................................. 57

Create
a
commercial
market
for
ESG
research .................................................................................. 58

Develop
human
capital ...................................................................................................................... 58

Implement
an
international
strategy................................................................................................. 58

Invest
in
research
and
development .................................................................................................. 59

Foster
competition
and
innovation.................................................................................................... 60

Organising
for
success ........................................................................................................................... 61

APPENDIX
A:
COUNTRY
PROFILE.....................................................................................................65

Profile .................................................................................................................................................... 66

Millennium
Development
Goals............................................................................................................ 69

Economy ................................................................................................................................................ 70

GDP
growth ....................................................................................................................................... 70

Value‐added....................................................................................................................................... 70

Foreign
trade ..................................................................................................................................... 70

Private
capital
flows .............................................................................................................................. 71

International
context ......................................................................................................................... 71

Brazil .................................................................................................................................................. 71

The
stock
market ................................................................................................................................... 73

Market
size ........................................................................................................................................ 73

Corporate
governance
segments....................................................................................................... 75

Key
companies
and
industries............................................................................................................ 76

Capital
raising.................................................................................................................................... 78

Performance ...................................................................................................................................... 80

Market
participants ........................................................................................................................... 80

Key
environmental
and
social
issues ..................................................................................................... 81

Principal
issues................................................................................................................................... 81

New
national
plan
on
climate
change ............................................................................................... 82

APPENDIX
B:
EXAMPLES
OF
ESG
ISSUES
IN
THE
INTERNATIONAL
MEDIA.........................................83

APPENDIX
C:
SWOT
ANALYSIS.........................................................................................................88

APPENDIX
D:

SUSTAINABILITY
IN
BRAZIL'S
PRIVATE
EQUITY
MARKET ............................................92

Market
overview ................................................................................................................................... 93

Fundraising
Activity ........................................................................................................................... 93

Investing
Trends................................................................................................................................. 95

Exit
Trends ......................................................................................................................................... 95

Developing
Brazil’s
venture
capital
industry...................................................................................... 96

Status
of
sustainable
investment .......................................................................................................... 96

Mainstream
private
equity ................................................................................................................ 97

Clean
technology
and
venture
capital ............................................................................................... 98

Sustainable
entrepreneurs................................................................................................................. 99






SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 i


ACKNOWLEDGMENTS




Particular
thanks
are
due
to
Brunno
Maradei
at
IFC
for
his
patient
and
effective
management
of
this

study,
and
to
Bruno
Erbisti
(Votorantim),
Luiz
Maia
(TriPod)
and
Gladis
Ribeiro
(Pereni)
in
Brazil
who

provided
wise
counsel
and
opened
many
doors.





Actis:

Beatriz
Amary
and
Donald
Peck


AIG
Capital:

Cristiano
Gioia


Amazonia:

Gustavo
Pimental

Banco
Real:

Pedro
Villani
and
Eugenia
dos
Santos
Buosi

BM&F
Bovespa:

Izalco
Sardenberg,
Murilo
Robotton
Filho,
Ivan
Wedekin,
Alvaro
Affonso
Mendonça

and
Rogério
Marques

CES‐FGV:

Mario
Monzoni
and
Patricia
Berardi

CVM:

Sergio
Weguelin

Delsus
Ltd:

Rachel
Mew,
Joe
Roland,
Colin
Hedges
and
Dougal
Benson

DGF
Investimentos:

Sidney
Chameh,
Antônio
José
Duarte,
Humberto
Casagrande
and
Frederico
Greve

Ecoinvest:

Carlos
Martins

EcoSecurities
Brasil:

Mauricio
de
Moura
Costa

Greenvest:

Marco
Galhardo


HSBC:

Paula
Peirão
de
Oliveira

IADB:

Luiz
Ros

IFC:

Euan
Marshall,
Brunno
Maradei,
Cecilia
Bjerborn,
Berit
Lauridsen,
Maria
Delores
Hermosillo
and

Miguel
Martins

Mercer
Limited:

Danyelle
Guyatt
and
Helga
Birgden

New
Carbon
Finance:

Camilo
Terranova

Pereni
Soluções
Sustentáveis:

Gladis
Ribeiro

PREVI:

Sergio
Rosa,
Luiz
Carlos
Aguiar
and
Rafael
Soares
Ribeiro
de
Castro

Rio
Bravo:

Fabio
Ohara
Ishigami,
Diogo
Caiuby
Novaes,
Marcelo
Romeiro
and
Anton
Castanheira

Santa
Fé
Portfólios:

Paulo
Battistella
Bueno

Stratus:

Oren
Pinsky
and
Carlos
Kokron

Sustain
Capital:

Luzia
Hirata

TriPod
Investment:

Luiz
Maia
and
Elisabeth
Lerner

UNPRI:

James
Gifford,
Narina
Mnatsakanian
and
Marcela
Zonis

Votorantim
Asset
Management:

Bruno
Erbisti

World
Federation
of
Exchanges:

Thomas
Krantz,
Peter
Clifford
and
Sibel
Yilmaz

WRI:

Virginia
Barreiro
and
Ella
Delio


ii
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


GLOSSARY
OF
ABBREVIATIONS



ABRAPP
 Brazilian
Association
of
Pension
Funds

ABVCAP
 Brazilian
Private
Equity
and
Venture
Capital
Association

ADR
 American
Depository
Receipt

ANBID
 National
Association
of
Investment
Banks

APIMEC
 Association
of
Capital
Markets
Analysts
and
Investment
Professionals

ASRIA
 Association
for
Sustainable
&
Responsible
Investment
in
Asia

AUM
 Assets
under
management

BNDES
 Brazilian
Development
Bank

CDP
 Carbon
Disclosure
Project

CES‐FGV
 Center
for
Sustainability
Studies
at
the
Fundaçao
Getulio
Vargas
business
school,
São
Paulo

CVM
 Brazilian
Securities
and
Exchange
Commission

DJSI
 Dow
Jones
Sustainability
Index

EMDP
 Emerging
Markets
Disclosure
Project

EMPEA
 Emerging
Market
Private
Equity
Association

ESG
 Environment,
social
and
governance

FDI
 Foreign
Direct
Investment

FBDS
 Brazilian
Foundation
for
Sustainable
Development

FINEP
 Brazilian
Innovation
Agency

GDP
 Gross
Domestic
Product

GP
 General
partner
(manager
of
a
private
equity
fund)

GRI
 Global
Reporting
Initiative

HNWI
 High
Net
Worth
Individual

IADB
 Inter‐American
Development
Bank

IBAMA
 Brazilian
Institute
for
the
Environment
and
Natural
Renewable
Resources

IBGC
 Brazilian
Institute
of
Corporate
Governance

ICGN
 International
Corporate
Governance
Network

IFC
 International
Finance
Corporation

IGC
 Bovespa
Corporate
Governance
Index

IMF
 International
Monetary
Fund

INOVAR
 Venture
capital
development
program
operated
by
FINEP

IPO
 Initial
Public
Offering

ISE
 Bovespa
Corporate
Sustainability
Index

LAVCA
 Latin
American
Venture
Capital
Association

LASFF
 Latin
American
Sustainable
Finance
Forum

LP
 Limited
partner
(investor
in
a
private
equity
fund)

MDG
 Millennium
Development
Goals

MIF
 Multilateral
Investment
Fund
(part
of
IADB)

N1
 Nivel
(Level)
1
of
Bovespa’s
differentiated
corporate
governance
levels

N2
 Nivel
(Level)
2
of
Bovespa’s
differentiated
corporate
governance
levels

NAV
 Net
asset
value

NM
 Novo
Mercado

OM
 Opportunities
for
the
Majority

P/E
 Price/earnings
ratio

PE
 Private
equity

PREVI
 Pension
fund
of
Banco
do
Brasil

ROE
 Return
on
equity

SEC
 United
States
Securities
and
Exchange
Commission

SME
 Small
and
medium
sized
enterprises

SRI
 Socially
Responsible
Investment

UKSIF
 UK
Sustainable
Investment
Forum

UNCTAD
 United
Nations
Conference
on
Trade
and
Development

UNEPFI
 United
Nations
Environment
Program
Finance
Initiative

UNPRI
 United
Nations
Principles
for
Responsible
Investment

VC
 Venture
Capital

WRI
 World
Resources
Institute


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 iii


EXECUTIVE
SUMMARY



This
report
has
been
prepared
by
TERI‐Europe
for
IFC
to
(a)
provide
an
up‐to‐date
assessment
of
the

landscape
of
sustainable
investment
in
Brazil
today,
and
(b)
stimulate
discussion
on
the
future

evolution
and
needs
of
this
market.

“Sustainable
investment”
refers
to
portfolio
equity
investment
in

publicly
listed
companies,
using
strategies
that
take
into
account
environmental,
social
and

governance
(ESG)
issues
and
their
effect
on
shareholder
value.


Brazil
is
the
world’s
tenth‐largest
economy.

The
São
Paolo
stock
exchange
(operated
by
BM&F

Bovespa)
has
a
market
cap
of
some
US$585
billion,
having
fallen
by
about
50
per
cent
over
the
last

year
in
common
with
most
markets
around
the
world.

The
stock
market
is
dominated
by
the
financial

sector,
oil
&
gas,
mining
and
steel.

34
per
cent
of
the
benchmark
IBOVESPA
Index
is
concentrated
in

just
two
stocks
‐
the
oil
&
gas
company
Petrobras
and
the
mining
company
Vale
R
Doce.

Domestic

savings
have
increased
significantly
in
recent
years:
the
top
40
asset
managers
in
Brazil
control
about

US$500
billion
in
mutual
funds
and
other
products,
whilst
the
country’s
278
pension
funds
have

combined
assets
of
about
US$185
billion.

Foreign
portfolio
investment
has
also
become
increasingly

important
to
the
economy:

the
total
stock
of
such
investment
stood
at
about
US$232
billion
at
the

end
of
August
2008.

In
addition,
American
Depository
Receipts
(ADRs)
issued
by
Brazilian
companies

and
traded
on
the
New
York
Stock
Exchange
have
a
total
ownership
value
of
a
further
US$110
billion.


Uniquely
amongst
emerging
economies,
ESG
issues
have
had
a
prominent
place
in
the
Brazilian

financial
and
investment
community
for
nearly
a
decade.

Bovespa
introduced
its
corporate

governance‐themed
Novo
Mercado
listing
segment
in
2001
and
in
the
same
year
Banco
Real
launched

Brazil’s
first
socially
responsible
investment
(SRI)
mutual
fund,
Fundo
Ethical.

A
key
feature
in
Brazil’s

sustainable
investment
landscape
is
BM&F
Bovespa’s
Corporate
Sustainability
Index,
the
ISE.


Launched
in
December
2005,
the
ISE
was
swiftly
followed
by
a
dramatic
increase
in
the
number
and

size
of
Brazil’s
retail
SRI
funds
and
has
generally
matched
the
IBOVESPA
benchmark
in
performance.


Today,
ten
asset
managers
offer
retail
SRI
funds
with
combined
assets
under
management
of
about

US$315
million.

Several
of
these
asset
managers
came
together
in
2006
to
create
the
Latin
American

Sustainable
Finance
Forum
(LASFF)
in
association
with
CES‐FGV,
a
specialist
centre
of
excellence
for

sustainability
studies
within
Brazil’s
leading
business
school.

CES‐FGV
is
also
the
data
provider
for
the

ISE
and
designed
the
index’s
ESG
methodology.

Seed
funding
from
IFC
played
a
critical
role
in
the

creation
of
both
the
LASFF
and
the
ISE.



Brazil’s
pension
funds
have
taken
a
proactive
stance
on
ESG
issues,
largely
due
to
the
leadership
of

their
largest
member,
PREVI.

18
pension
funds
have
signed
the
UN
Principles
for
Responsible

Investment
(PRI).

Together
they
represent
combined
assets
of
US$110
billion,
or
about
60
per
cent
of

the
country’s
total
pension
fund
corpus.

Although
implementation
is
still
at
a
relatively
early
stage,

momentum
is
high
and
is
supported
strongly
by
the
UNPRI
Secretariat,
which
has
helped
to
establish

a
PRI
Brazil
Network
aided
by
a
part‐time
in‐country
coordinator.

The
PRI
Brazil
Network
has
now

developed
a
well‐organised
work
program
focusing
on
shareholder
engagement,
ESG
integration
and

recruitment
of
new
signatories.

Shareholder
engagement
on
ESG
issues
is
still
in
its
infancy,
and

currently
focuses
on
labour
standards
in
charcoal
producers
associated
with
Brazil’s
iron
and
steel

industry.




This
engagement
involves
cooperation
with
some
international
PRI
signatories
as
well
as
LASFF

members
and
Brazil’s
pension
funds.

In
general,
though,
foreign
portfolio
investors
have
thus
far
not

been
actively
engaged
in
Brazil’s
sustainable
investment
market
and
have
shown
little
interest
in

using
the
ISE
index,
for
example.

However,
quantitative
data
on
this
point
are
extremely
limited;
in

the
absence
of
hard
facts,
TERI‐Europe
has
used
a
working
assumption
that
ESG
investment
styles

account
for
about
1
per
cent
of
foreign
portfolio
investment
and
investment
in
Brazilian
ADRs,
i.e.

approximately
US$2.2
billion.

iv
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Other
market
participants
may
also
be
relevant
for
the
future
of
Brazil’s
sustainable
investment

market.

The
Brazilian
Development
Bank
(BNDES),
for
example,
has
stakes
in
over
30
publicly
listed

Brazilian
companies;
this
portfolio
is
worth
about
US$16
billion.

BNDES
follows
environmental
and

social
policies
for
its
project
finance
operations,
but
is
unclear
whether
or
how
these
are
applied
to
its

equity
holdings.

The
wealth
management
market
may
also
be
important:

Brazil
has
143,000
high
net

worth
individuals
(HNWIs)
constituting
a
market
of
about
US$1.4
trillion.

About
16
per
cent
of
Latin

American
HNWIs
allocate
some
part
of
their
portfolio
to
“green
investments”
such
as
clean

technology
and
alternative
energy.

However,
more
detailed
information
is
not
currently
available.


The
enabling
environment
for
sustainable
investment
in
Brazil
is
relatively
strong
compared
to
large

emerging
economies
such
as
India
or
China,
particularly
in
terms
of
voluntary
non‐financial
reporting

by
companies.

About
60
per
cent
of
companies
in
the
IBOVESPA
publish
sustainability
reports,
many

of
which
are
based
on
the
international
good
practice
guidelines
issued
by
the
Global
Reporting

Initiative
(GRI).

The
number
and
quality
of
corporate
responses
to
the
annual
survey
of
the

international
Carbon
Disclosure
Project
(CDP)
is
also
improving.




Nevertheless,
further
progress
is
needed
on
ESG
related
transparency
and
disclosure,
especially
in

relation
to
regulatory
filings
and
IPO
prospectuses.

Furthermore,
Brazilian
stocks
do
not
receive
much

ESG
coverage
from
international
sustainability
research
firms
or
equity
analysts.

Lack
of
commercial

demand
on
the
domestic
front
also
means
that
Brazil
has
not
yet
developed
any
home‐grown

infrastructure
in
this
respect,
despite
the
capacity
building
efforts
of
organisations
such
as
the

Association
of
Capital
Markets
Analysts
and
Investment
Professionals
(APIMEC).

Other
Brazilian

industry
associations
taking
a
proactive
advocacy
position
on
sustainable
investment
include
the

Brazilian
Association
of
Pension
Funds
(ABRAPP)
and
the
National
Association
of
Investment
Banks

(ANBID).


Looking
to
the
future,
sustainable
investment
in
Brazil
faces
some
important
challenges.

Many
of

these
are
essentially
about
adapting
to
success
through
a
new
phase
of
market
evolution.

The
key

issues
include:


 Updating
the
ISE’s
commercial
business
model

 Making
greater
use
of
the
underlying
ISE
data

 Creating
demand
for
the
commercial
provision
of
ESG
research

 Developing
human
capital

 More
effective
outreach
and
engagement
with
international
investors

 Investment
in
research
and
development

 Fostering
renewed
competition
and
innovation
in
the
asset
management
industry

 Building
on
LASFF
and
the
PRI
Brazil
Network
to
increase
the
effectiveness
of
national

cooperation
in
the
sustainable
investment
community.


The
report
provides
detailed
analysis
and
recommendations
on
each
of
these
issues,
which
are
inter‐
related
and
largely
inter‐dependent.

A
strategic
vision
is
therefore
required
which
combines
the
long‐
term
interests
of
all
stakeholders.

One
possible
vehicle
for
“organising
for
success”
could
be
the

creation
of
a
fully
equipped
Brazilian
Sustainable
Investment
Forum
(BRASIF)
as
an
evolutionary

replacement
for
LASFF.

This
new
entity
–
which
would
complement,
rather
than
duplicate
or

compete
with
the
existing
PRI
Brazil
Network
–
would
serve
the
common
needs
of
a
range
of

organisations,
including
PRI
signatories,
non‐PRI
signatories
and
other
important
institutions
in
the

value
chain
such
as
BM&F
Bovespa
and
APIMEC.

It
would
also
act
as
a
national
focal
point
for

sustainable
investment
in
Brazil,
including
promoting
inward
sustainable
investment
from
overseas.


Ultimately,
the
right
way
forward
for
Brazil
must
come
from
a
bottom‐up,
demand‐driven
process

rather
than
through
a
top‐down
blueprint
imposed
from
outside.

The
analysis
and
recommendations

in
this
report
are
offered
for
consideration
and
discussion
by
all
participants
in
Brazil’s
sustainable

investment
market.

The
final
recommendation
of
this
report
is
therefore
to
suggest
that
it
might
be

useful
for
relevant
stakeholders
to
come
together
in
some
type
of
roundtable
discussion
that
takes

stock
of
the
progress
made
over
recent
years,
and
enables
debate
on
the
strategic
direction
and

needs
of
the
market
over
the
next
five
years
or
so.



SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 1


1.

INTRODUCTION


Objectives


Environmental,
social
and
governance
(ESG)
issues
have
been
a
prominent
concern
and
an
important

commercial
differentiator
in
the
Brazilian
financial
and
investment
community
for
nearly
a
decade.


The
commitment,
depth
and
sophistication
of
this
market
evolution
are
probably
unique
among
the

world’s
emerging
economies,
and
in
this
way
Brazil
has
set
examples
and
pioneered
business
models

that
have
received
international
attention
and
adaptation.


Despite
the
progress
that
has
been
made,
Brazil’s
sustainable
investment
market
is
still
in
its
relative

infancy
and
faces
continued
challenges
and
fresh
obstacles
to
new
opportunities,
especially
taking

into
account
the
country’s
environmental
and
social
problems
and
the
scale
of
domestic
and
foreign

investment
in
what
is
now
the
world’s
tenth
largest
economy.

Against
this
background,
this
report

aims
to:


• Determine
the
current
state
of
development
of
sustainable
investment
in
Brazil
by
measuring

the
market
on
a
number
of
indicators;
and


• Stimulate
discussion
by
all
market
participants
and
stakeholders
on
the
future
evolution
and

needs
of
the
Brazilian
sustainable
investment
market.


The
report
has
been
prepared
by
TERI‐Europe
based
on
comprehensive
desk
research,
extensive

interviews
conducted
in
São
Paulo
and
Rio
de
Janeiro
in
September
2008,
and
subsequent
discussions

with
a
number
of
organisations
and
individuals.

The
study
was
sponsored
by
the
International

Finance
Corporation
(IFC)
through
the
Sustainable
Investing
Program
of
its
Sustainability
Business

Innovator
(a
division
of
IFC’s
Environment
&
Social
Development
Department)
as
part
of
a
wider
IFC

project
that
also
covers
the
markets
of
India,
China
and
South
Africa.




Scope


The
term
“sustainable
investment”
can
mean
different
things.

In
the
interests
of
clarity,
the
scope
of

“sustainable
investment”
as
covered
in
this
report
is
domestic
and
foreign
investment
in
Brazil’s

publicly
quoted
companies
using
strategies
that
take
environmental
and
social
(sometimes
combined

with
governance)
issues
into
consideration.

This
includes
negative
screening,
positive
screening,
best‐
in‐class,
shareholder
activism
and
similar
“socially
responsible
investment”
styles,
together
with

“integrated”
approaches
such
as
engagement
and
non‐financial
risk
analysis.


Private
equity
and
venture
capital
funds
investing
in
Brazil
are
a
secondary
focus
of
this
study.


Specifically,
the
report
covers
(a)
the
use
of
environmental/social
due
diligence
policies
and

procedures
by
“mainstream”
private
equity
and
venture
capital
funds
(b)
private
equity
and
venture

capital
funds
that
are
based
on
sustainability
themes
such
as
clean
technology
and
climate
change.


The
report
does
not
cover
other
segments
of
the
sustainable
finance
and
investment
market
such
as

the
Equator
Principles,
ESG‐related
banking
products
or
microfinance.

As
context,
however,
it
is

essential
to
note
that
(with
the
possible
exception
of
microfinance)
these
themes
are
also
a
strong

feature
of
the
Brazilian
capital
market:

most
leading
Brazilian
banks
have
committed
to
implement

the
Equator
Principles
for
project
finance
and
several
have
successfully
introduced
innovative

sustainable
lending
products,
while
at
the
same
time
pioneering
many
of
the
sustainable
investment

initiatives
captured
in
this
report
as
part
of
the
same
overarching
corporate
strategies
and
ethical

values.

2
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


A
snapshot
in
time


This
report
must
be
seen
in
the
context
of
the
global
financial
crises
that
have
unfolded
during
2008
–

and
will
continue
to
evolve
for
the
foreseeable
future
‐
following
the
emergence
of
problems
in
the

US
sub‐prime
mortgage
market
in
2007.




The
authors
have
done
their
best
to
present
an
accurate
and
balanced
‘snapshot’
of
Brazil’s

sustainable
investment
market
in
this
fast‐changing
and
turbulent
environment
and
to
frame

conclusions
and
recommendations
that
will
hold
their
currency
for
the
next
6‐12
months.

We
have

sought
to
use
the
most
up‐to‐date
data
available,
but
acknowledge
that
some
of
the
information
and

corresponding
analysis
contained
in
this
report
may
have
an
unavoidably
short
shelf
life
in
these

exceptional
circumstances.


Exchange
rates
used


Unless
otherwise
stated,
the
exchange
rate
used
in
this
report
is
R$2.315
to
the
US$
(the
rate

prevailing
as
of
December
31,
2008).



Structure
of
the
report


As
important
context
for
the
rest
of
the
report,
Chapter
2
begins
with
a
brief
overview
of
Brazil’s

development
profile,
economy
and
stock
market
(the
BM&F
Bovespa),
along
with
a
summary
of
the

key
industries
and
companies
that
are
traded
on
the
stock
market
and
a
short
discussion
on
ESG
value

drivers
in
Brazil.

More
detailed
information
on
these
issues
is
provided
in
Appendices
A
and
B.


One
of
the
most
important
centrepieces
of
the
sustainable
investment
landscape
in
Brazil
is
BM&F

Bovespa’s
Corporate
Sustainability
Index,
the
ISE.

Detailed
information
on
the
ISE’s
methodology
and

impact
is
presented
in
Chapter
3.


Chapter
4
provides
an
introduction
to
the
leading
asset
managers
in
Brazil,
their
market
share
and

assets
under
management,
and
their
current
involvement
in
sustainable
investment.

Chapters
5
–
8

then
analyse
sustainable
investment
activity
across
different
types
of
market
participant,
focusing

primarily
on
Brazilian
mutual
funds,
Brazilian
pension
funds
and
foreign
institutional
investors.


The
enabling
environment
for
sustainable
investment
in
Brazil
is
analysed
in
Chapter
9
and
includes

public
policy
and
regulation,
corporate
transparency
and
disclosure
practices,
equity
indices
and

research
coverage.

Chapter
9
also
highlights
the
industry
associations
and
similar
networks
that
play

a
key
role
in
creating
the
framework
conditions
for
sustainable
investment
in
Brazil,
particularly
the

UN
Principles
for
Responsible
Investment
(UNPRI)
and
the
Latin
American
Sustainable
Finance
Forum

(LASFF).


Finally,
Chapter
10
provides
a
forward‐looking
discussion
on
the
current
status
of
sustainable

investment
in
Brazil
and
the
future
opportunities
and
risks
this
market
faces.

A
“SWOT”
analysis
is

also
presented
in
Appendix
C.

Chapter
10
concludes
with
a
number
of
recommendations
that

stakeholders
in
Brazil’s
sustainable
investment
market
may
wish
to
take
forward
for
further

consideration.


Information
on
sustainable
investment
practices
in
Brazil’s
private
equity
and
venture
capital
market

(a
secondary
focus
of
this
report)
is
provided
in
Appendix
D.


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 3


2.

COUNTRY
OVERVIEW



Summary


Sustainable
investment
trends
in
Brazil
have
to
be
understood
in
the
wider
context
of
Brazil’s
overall

economic
and
sustainable
development.

Appendix
A
provides
detailed
information
on
Brazil’s

development
profile,
economy
and
stock
market
(the
BM&F
Bovespa),
along
with
data
on
the
key

industries
and
companies
that
are
traded
on
the
stock
market
and
a
discussion
on
ESG
value
drivers
in

Brazil.

The
key
points
for
context
are
summarised
below.

Brazil’s
economy


Based
on
the
IMF’s
2008
estimates
of
worldwide
GDP,
Brazil
is
today
the
world’s
10th
largest

economy.

Characterized
by
large
and
well‐developed
agricultural,
mining,
manufacturing,
and
service

sectors,
Brazil's
economy
outweighs
that
of
all
other
South
American
countries
and
is
expanding
its

presence
in
world
markets.

Brazil
became
investment
grade
at
the
end
of
April
2008,
when
Standard

&
Poor’s
upgraded
Brazil’s
sovereign
debt
rating
to
BBB‐
from
BB+.




Economic
growth
in
Brazil
increased
from
3.8
per
cent
in
2006
to
exceed
expectations
at
5.4
per
cent

in
2007.

This
trend
continued
over
the
first
seven
months
of
2008
when
GDP
grew
by
some
6.1
per

cent.

As
with
almost
all
countries,
Brazil
has
subsequently
been
impacted
by
the
global
financial

shocks
that
dominated
the
global
economy
since
the
second
half
of
2008.



Brazil
has
a
thriving
capital
market
bolstered
by
significant
domestic
savings
and
pension
fund
assets.


Foreign
portfolio
investment
has
also
become
increasingly
important
to
the
economy
and
Brazil’s

share
of
net
portfolio
equity
flows
to
all
developing
countries
surged
to
nearly
25
per
cent
in
2007.

Net
foreign
portfolio
investment
flows
have
increased
dramatically
in
the
last
few
years
and
by
2007

they
reached
US$34
billion,
almost
matching
the
volume
of
FDI.


The
total
stock
of
foreign
portfolio

investment
amounted
to
some
US$214
billion
at
the
end
of
2007
and
stood
at
about
US$232
billion

by
August
2008,
the
latest
date
for
which
reliable
data
are
available.

The
stock
market


The
São
Paolo
stock
exchange,
operated
by
BM&F
Bovespa,
is
the
13
th

largest
market
in
the
world
by

market
capitalization,
following
a
dramatic
increase
in
size
over
the
last
two
decades.

In
common

with
the
rest
of
the
world,
Brazil’s
market
capitalisation
has
experienced
a
sharp
decrease
in
the
last

12
months
as
a
result
of
the
global
economic
crisis
and
the
worldwide
fall
in
equity
prices.

As
of
the

end
of
November
2008,
the
market
value
of
BM&F
Bovespa
listed
companies
came
to
R$1,355
billion

(US$585
billion).



Brazil’s
benchmark
index
is
the
IBOVESPA.


A
vital
feature
of
the
São
Paolo
stock
exchange
is
that
it
maintains
different
listing
segments
for

companies,
based
on
differentiated
levels
of
corporate
governance.

In
addition
to
the
Traditional

Bovespa
segment,
these
include
the
Novo
Mercado
(NM)
and
two
further
differentiated
corporate

governance
categories,
Level
(Nivel)
1
and
Level
(Nivel)
2.

Novo
Mercado
companies
represent
about

33
per
cent
of
total
market
capitalisation.


Brazil
has
experienced
a
surge
of
IPOs
and
secondary
public
offerings
in
recent
years.

Some
US$35

billion
worth
of
new
deals
were
completed
over
the
period
June
2007
‐
June
2008.

The
majority
of

IPOs
are
now
on
the
Novo
Mercado.



4
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009




Figure
1:

Sectoral
breakdown
of
the
IBOVESPA
Index







Key
industries
and
companies


As
of
the
end
of
November
2008,
393
companies
were
listed
on
the
exchange.

Figure
1
shows
the

sectoral
breakdown
of
the
IBOVESPA
index,
which
is
dominated
by
the
financial
sector,
oil
&
gas,

mining
and
steel.

The
Brazilian
stock
market
is
highly
concentrated:

the
top
ten
companies
with
the

highest
market
value
make
up
about
50
per
cent
of
total
market
capitalisation.




It
is
particularly
important
to
understand
that
approximately
25
per
cent
of
the
total
value
of
the

overall
market
is
concentrated
in
just
two
companies,
Petrobras
(oil
&
gas)
and
Vale
R
Doce
(mining);

these
two
firms
also
represent
34
per
cent
of
the
notional
IBovespa
portfolio.

The
capital
structure
of

both
Petrobras
and
Vale
R
Doce
includes
preference
as
well
as
common
shares
and
thus
neither
firm

is
listed
on
the
Novo
Mercado.


Key
environmental
and
social
issues


Corporations
and
their
investors
in
Brazil
face
a
wide
and
often
complex
range
of
social
and

environmental
issues
that
present
potentially
significant
risks
and
opportunities
to
shareholder
value

and
corporate
reputation.


At
the
current
time
there
does
not
appear
any
single
source
that

synthesises
this
information
into
an
investor‐friendly,
comprehensive
analysis
of
key
sustainability‐
related
business
drivers
in
the
industries
that
make
up
Brazil’s
stock
market.

A
detailed
assessment
is

beyond
the
current
scope
of
this
report,
but
the
principle
issues
are
discussed
further
in
Appendix
A

and
are
illustrated
by
examples
of
recent
media
coverage
that
are
provided
in
Appendix
B.


One
important
recent
development
is
the
Brazilian
Government’s
National
Plan
on
Climate
Change,

published
in
December
2008.

The
measures
in
this
action
plan
may
have
potentially
significant

implications
(both
positive
and
negative)
across
a
number
of
key
Brazilian
industry
sectors,
including

oil
&
gas,
biofuels,
mining,
steel,
power
and
pulp
&
paper.

Further
information
is
provided
in

Appendix
A.

Financial
21.6%
Oil and gas
19.8%
Mining 15.2%
Steel 11.1%
Electric utilities
7.3%
Telecom 4.8%
Transportation
4.1%
Other 16.1%
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 5


3.

CORPORATE
SUSTAINABILITY
INDEX

History


Brazil’s
Corporate
Sustainability
Index
(the
ISE)
was
created
in
2005
by
the

São
Paulo
stock
exchange,
Bovespa
(now
BM&F
Bovespa),
in
response
to

the
country’s
growing
interest
in
sustainable
investment
and
sustainable

finance.

The
index
was
developed
with
technical
input
from
CES‐FGV
and

with
grant
funding
from
IFC’s
former
Sustainable
Financial
Markets

Facility.




The
index
was
launched
in
December
2005
at
a
major
international

conference
on
the
theme
of
emerging
market
sustainable
investment,

organised
by
CES‐FGV
and
again
sponsored
by
IFC.

At
the
time,
it
was

only
the
second
emerging
market
sustainability
index
in
the
world.

It
is

still
the
only
index
of
its
kind
in
Latin
America,
and
has
played
an

important
role
in
stimulating
the
development
of
other
emerging
market

sustainability
indices
in
India,
the
Middle
East,
Africa
and
elsewhere.


Objective


The
ISE
measures
the
total
return
on
a
theoretical
portfolio
composed
by
stocks
issued
by
companies

highly
committed
to
corporate
sustainability
and
social
responsibility.

The
maximum
number
of

companies
that
can
be
admitted
to
the
ISE
is
40.

Their
stocks
are
selected
from
among
BM&F

Bovespa’s
most
actively
traded
securities
in
terms
of
liquidity,
weighted
according
to
the
outstanding

shares’
market
value.

The
index
provides
a
valuable
benchmark
for
investors
and
is
also
intended
to

promote
good
practices
in
the
Brazilian
corporate
community.

The
ISE
index
is
re‐balanced
annually

in
December.


Management
and
governance


The
ISE
is
operated
by
BM&F
BOVESPA,
which
is
responsible
for
index
calculation
and
technical

management.

BM&F
BOVESPA
has
contracted
CES‐FGV
to
undertake
the
collection
and
analysis
of

the
necessary
corporate
sustainability
data.

The
ISE
is
presided
over
by
an
independent
Deliberative

Board
composed
of
representatives
from
the
following
organisations:


 Brazilian
Association
of
Pension
Funds
(ABRAPP)

 National
Association
of
Investment
Banks
(ANBID)

 Association
of
Capital
Markets
Analysts
and
Investment
Professionals
(APIMEC)

 BM&F
BOVESPA

 Brazilian
Institute
of
Corporate
Governance
(IBGC)

 IFC


 Ethos
Institute
of
Social
Responsibility

 Brazilian
Ministry
of
the
Environment

 United
Nations
Environment
Programme
(UNEPFI)


The
Ethos
Institute
has
been
temporarily
suspended
from
the
Board
for
leaking
information
to
the

media
about
the
exclusion
of
Petrobras
prior
to
the
official
announcement
of
the
2008/2009

portfolio.






6
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Eligibility


Stocks
admitted
to
the
ISE
must:


 be
among
the
150
best
classified
stocks
in
the
negotiability
index,
measured
in
the
twelve

months
preceding
the
beginning
of
the
re‐evaluation
process;

 have
a
trading
session
presence
of
at
least
50
per
cent,
measured
in
the
twelve
months

preceding
the
beginning
of
the
re‐evaluation
process;
and

 meet
the
sustainability
criteria
approved
by
the
ISE
Board.


Sustainability
criteria
and
methodology


The
ISE’s
sustainability
criteria
and
methodology
were
developed
by
CES‐FGV
and
approved
by
the
ISE

Board.

Data
for
the
ISE
are
collected
by
means
of
a
detailed
questionnaire
(around
140
questions)

sent
by
CES‐FGV
each
year
to
up
to
150
of
Brazil’s
largest
and
most
traded
publicly
quoted
companies.


CES‐FGV
designed
a
set
of
criteria
based
on
the
“triple
bottom
line”
concept
i.e.
the
integrated

analysis
of
environmental,
social
and
economical
aspects.

In
addition,
the
methodology
takes
into

account
general
issues
(for
example,
a
company’s
commitment
to
the
UN
Global
Compact),
the

nature
of
the
company’s
product
or
business
activity
(for
example,
risk
to
consumer
health)
and

corporate
governance
criteria.


The
environmental,
social
and
economic
criteria
are
divided
into
four
groups:


 policies
(commitment
indicators);

 management
(program,
target
and
monitoring
indicators);

 performance;
and

 legal
compliance.



Slightly
different
environmental
criteria
are
applied
to
companies
in
the
financial
sector.
Real
sector

companies
are
weighted
differently
on
environmental
criteria
depending
on
whether
they
are

classified
as
“high
impact”
or
“medium
impact”.


CES‐FGV
carries
out
cluster
analysis
of
the
dataset
to
identify
groups
of
companies
with
similar

performance
and
to
select
a
group
with
better
general
performance.

Subject
to
the
approval
of
the

ISE
Board,
the
companies
included
in
the
latter
group
are
admitted
to
the
ISE
portfolio.

No
more
than

40
companies
may
be
included
in
the
ISE.



This
process
is
carried
out
annually
to
re‐balance
the
portfolio.

However,
the
ISE
Board
has
the
power

to
exclude
a
company
from
the
ISE
portfolio
at
any
time
if
“any
event
alters
significantly
a
component

company’s
sustainability
level”.



The
ISE’s
methodology
does
not
use
an
exclusion
list
of
“sin
sectors”
such
as
defence,
tobacco,

alcohol,
nuclear
power
or
gambling.


In
ISE’s
first
year
of
operation,
companies
were
not
required
to
present
documents
to
prove
their

sustainability
policies.

In
the
second
year,
verification
began
to
be
carried
out
only
after
disclosure
of

the
portfolio.

Only
companies
that
provided
proof
of
their
practices
were
selected
for
the
ISE
in
the

latest
re‐balancing.







SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 7


Portfolio
composition


The
current
ISE
portfolio
came
into
effect
on
December
1,
2008
and
is
valid
until
November
30,
2009

(Table
1).

New
admissions
to
the
ISE
include
Celesc,
Duratex,
Odontoprev,
TIM,
Telemar
and

Unibanco.

Aracruz,
CCR
Rodovias,
Copel,
Iochpe‐Maxion,
Petrobras
and
WEG
were
dropped
from
the

index.

Figure
2
illustrates
the
new
ISE
portfolio
weightings
and
provides
a
comparison
with
the

current
IBOVESPA
universe
of
59
stocks.

Figure
3
illustrates
the
changes
to
the
new
ISE
portfolio,

which
–
with
the
addition
of
Telemar
and
TIM
–
now
includes
telecom
stocks
for
the
first
time.


Figures
4
and
5
show
the
industry
breakdown
of
the
ISE
for
the
2007/2008
and
2008/2009
periods

respectively.

The
ISE
is
now
heavily
weighted
towards
banking
stocks
and
in
particular
towards
two

banks
(Bradesco
and
Itaú)
which
together
make
up
more
than
40
per
cent
of
the
notional
ISE

portfolio.

As
noted
on
page
16,
the
two
‘titans’
of
the
Brazilian
corporate
sector
are
the
oil
&
gas

company
Petrobras
and
mining
firm
Vale
R
Doce.

Vale
R
Doce
has
never
been
a
component
of
the

ISE.

The
decision
to
exclude
Petrobras
from
the
ISE
2008/2009
portfolio
means
that
the
re‐balanced

sustainability
index
now
differs
significantly
from
the
IBOVESPA
index.





Table
1:

ISE
portfolio
2008/2009
(source:
BM&F
Bovespa)

Company
 Industry
 IBovespa?

Market
cap
US$

million

ISE
weight
(%)

AES
TIETE
 Electric
utilities
 2,236
 0.703

BRADESCO
(N1)
 Financial
intermediaries
  27,966
 22.302

BRASIL
(NM)
 Financial
intermediaries
  15,969
 3.934

BRASKEM
(N1)
 Petrochemicals
  1,207
 0.504

CELESC
(N2)
 Electric
utilities
  663
 0.415

CEMIG
(N1)
 Electric
utilities
  6,123
 4.883

CESP
(N1)
 Electric
utilities
  1,908
 1.339

COELCE
 Electric
utilities
 708
 0.293

CPFL
ENERGIA
(NM)
 Electric
utilities
  6,191
 2.047

DASA
(NM)
 Medical
products
 552
 0.640

DURATEX
(N1)
 Wood
  773
 0.470

ELETROBRAS
(N1)
 Electric
utilities
  12,379
 4.847

ELETROPAULO
(N2)
 Electric
utilities
  1,704
 1.204

EMBRAER
(NM)
 Aerospace
  2,791
 3.215

ENERGIAS
BR
(NM)
 Electric
utilities
 1,536
 0.635

GERDAU
(N1)
 Steel
  8,584
 5.278

GERDAU
MET
(N1)
 Steel
  3,430
 3.017

ITAUBANCO
(N1)
 Financial
intermediaries
  30,708
 20.330

LIGHT
S/A
(NM)
 Electric
utilities
  1,908
 0.321

NATURA
(NM)
 Cosmetics
  3,486
 1.035

ODONTOPREV
(NM)
 Medical
products
 263
 0.248

PERDIGAO
S/A
(NM)
 Meat,
poultry
&
others
  2,634
 1.987

SABESP
(NM)
 Water
utilities
  2,706
 1.614

SADIA
S/A
(N1)
 Meat,
poultry
&
others
  1,162
 0.727

SUZANO
PAPEL
(N1)
 Pulp
&
paper
 1,627
 0.894

TELEMAR
 Telecommunications
  5,763
 5.403

TIM
PART
S/A
 Telecommunications
  3,628
 1.227

TRACTABEL
(NM)
 Electric
utilities
 5,181
 1.871

UNIBANCO
(N1)
 Financial
intermediaries
  15,755
 7.808

V
C
P
(N1)
 Pulp
&
paper
  1,545
 0.810

8
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Figure
2:

Comparison
of
current
ISE
and
IBovespa
index
constituents
(Source:
BM&F
Bovespa)





0 5 10 15 20 25
BRADESCO
ITAUBANCO
GERDAU
UNIBANCO
TELEMAR
CEMIG
ELETROBRAS
BRASIL
EMBRAER
CPFL ENERGIA
PERDIGAO S/A
TRACTEBEL
SABESP
CESP
TIM PART S/A
ELETROPAULO
NATURA
SUZANO PAPEL
V C P
SADIA S/A
AES TIETE
DASA
ENERGIAS BR
BRASKEM
DURATEX
CELESC
LIGHT S/A
COELCE
ODONTOPREV
COMGAS
TELESP
ARACRUZ
ROSSI RESID
KLABIN S/A
TRAN PAULIST
COSAN
ULTRAPAR
B2W VAREJO
JBS
GAFISA
TAM S/A
SOUZA CRUZ
LOJAS RENNER
CCR RODOVIAS
CYRELA REALT
P,ACUCAR-CBD
NOSSA CAIXA
COPEL
VIVO
GOL
ALL AMER LAT
LOJAS AMERIC
REDECARD
BRADESPAR
NET
BRASIL TELEC
AMBEV
SID NACIONAL
USIMINAS
ITAUSA
BMF BOVESPA
VALE R DOCE
PETROBRAS
% of index
ISE
IBOV
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 9


Figure
3:

Changes
in
ISE
2008/2009
portfolio
compared
to
2007/2008
(source:
BM&F
Bovespa
data)






Figure
4:

ISE
2007/2008
industry
breakdown
(source:
BM&F
Bovespa)


UNIBANCO
TELEMAR
ITAUBANCO
BRADESCO
ELETROBRAS
TIM PART S/A
CESP
PERDIGAO S/A
GERDAU
BRASIL
CPFL ENERGIA
CEMIG
TRACTEBEL
NATURA
DURATEX
GERDAU MET
ELETROPAULO
SABESP
COELCE
ODONTOPREV
ENERGIAS BR
AES TIETE
DASA
LIGHT S/A
CELESC
SUZANO PETR
BRASKEM
IOCHP-MAXION
SUZANO PAPEL
SADIA S/A
EMBRAER
AM INOX BR
V C P
COPEL
CCR RODOVIAS
WEG
ARACRUZ
PETROBRAS
-30.00 -25.00 -20.00 -15.00 -10.00 -5.00 0.00 5.00 10.00
Financials
39.1%
Oil and gas
25.0%
Electric utilities
12.4%
Steel
7.7%
Transportation
5.0%
Wood and paper
4.4%
Consumer non-cyclical
3.1%
Water utilities
1.3%
Machines and
equipment
1.2%
Petrochemicals
0.8%
Other
15.8%
10
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



Figure
5:

ISE
2008/2009
industry
breakdown
(source:
BM&F
Bovespa)



Performance


Over
the
three
years
since
its
launch,
the
performance
of
the
ISE
has
closely
matched
that
of
Brazil’s

main
benchmark
index,
the
IBOVESPA
(Figure
6).




Both
indices
made
very
strong
gains
in
2007
(partly
as
a
result
of
several
large
IPOs)
but
have
fallen

sharply
(by
around
40
per
cent)
over
the
last
six
months
of
2008
due
to
the
wider
effects
of
global

economic
turmoil.



As
a
result,
cumulative
performance
over
the
three
years
since
the
ISE’s
launch
is
relatively
low
at

around
11
per
cent
for
the
period
December
2005
–
December
2008.






Figure
6:

Performance
of
ISE
index
compared
to
IBOVESPA,
Dec
2005
–
Dec
2008
(source:

Bloomberg)



Financials
54.4%
Electric utilities
18.6%
Steel
8.3%
Telecomms
6.6%
Consumer non-cyclical
4.6%
Transportation
3.2%
Wood and paper
2.2%
Water utilities
1.6%
Petrochemicals
0.5%
Other
12.1%
0%
20%
40%
60%
80%
100%
120%
140%
Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
IBOVESPA ISE
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 11


Use
by
investors


The
ISE
has
been
well
received
by
Brazilian
investors
interested
in
sustainability
issues
and
has
led

directly
to
a
substantial
increase
in
the
number
and
size
of
SRI
mutual
funds
available
in
Brazil
(see

Chapter
5).

The
managers
of
these
funds
currently
use
the
ISE
free
of
charge.

The
ISE
is
currently
the

main
tool
used
by
PREVI
and
other
pension
funds
that
are
seeking
to
implement
the
PRI
across
their

listed
equity
portfolios.

PREVI
has
indicated
that
it
is
keen
to
see
the
development
of
a
more

sophisticated
tool
than
the
ISE,
which
can
only
be
used
for
screening
purposes
and
does
not
enable

comparison
or
ranking
of
companies
and
industry
sectors.

The
ISE
does
not
appear
to
be
well
used
or

well
known
by
foreign
portfolio
investors.

Research
into
an
ISE
‘premium’


Even
though
the
ISE
is
a
relatively
young
index,
there
is
already
a
small
but
growing
body
of
academic

research
into
the
possibility
that
stocks
admitted
to
the
ISE
trade
at
a
premium
as
a
result
of
their

superior
sustainability
(i.e.
environmental,
social
and
governance)
performance.



Professor
José
Luiz
Rossi
Júnior
has
used
the
ISE
to
assess
whether
corporate
social
responsibility
has

an
impact
on
the
value
of
Brazilian
firms
1
.


Prof
Rossi
analyzed
data
from
2005
to
2007
on
a
sample
of

non‐financial
Brazilian
companies
to
assess
whether
corporate
social
responsibility
(measured
using

ISE
inclusion
as
a
proxy)
has
an
impact
on
firm
value.

He
showed
found
that
companies
included
in

the
ISE
have
a
higher
market
value
compared
to
other
publicly
traded
companies,
implying
(but
not

proving)
that
sustainability
is
the
causal
factor
for
this
premium.


Bogéa
et
al
conducted
an
event
study
to
detect
unusual
changes
in
the
share
price
of
ISE
stocks

following
the
annual
announcement
of
index
constituents
in
2005,
2007
and
2007
2
.

They
found
no

statistically
significant
evidence
of
positive
abnormal
returns
following
the
announcement
of

companies
being
included
in
the
ISE.

On
the
other
hand,
there
was
also
no
evidence
of
negative

abnormal
returns.

The
lack
of
significant
results
from
this
research
on
the
ISE
have
also
been
found
in

previous
work
on
international
indices
such
as
FTSE4Good,
and
does
not
necessarily
mean
an
absence

of
a
relationship
between
good
sustainability
practices
and
the
creation
of
shareholder
value.


For
context,
it
is
relevant
to
note
a
number
of
studies
on
equivalent
questions
related
to
the
more

mainstream
and
longer‐established
subject
of
corporate
governance
in
Brazil.

A
2003
study

commissioned
by
BOVESPA
found
that
companies
that
moved
into
higher
corporate
governance

levels
experienced
a
positive
impact
on
their
stock
valuation
and
increased
trading
volume
and

liquidity
3
.

A
2005
study
by
Bruno
Erbisti
(one
of
Brazil’s
leading
ESG
investment
professionals)

showed
that
Brazil‐based
firms
with
the
best
corporate
governance
ratings
garnered
2004
P/E
ratios

that
were
20
per
cent
higher
than
firms
with
the
worst
governance
ratings
4
.
The
better‐rated
firms

were
also
found
to
have
ROEs
that
were
45
per
cent
higher
and
net
margins
that
were
76
per
cent

higher
than
those
with
below‐average
governance
practices.




Santana
et
al
have
also
commented
on
the
impact
of
governance
rules
on
stock
prices
in
Brazil
in
a

2008
paper
for
the
IFC’s
Global
Corporate
Governance
Forum
5
.

They
noted
that
Bovespa’s
index
of

shares
with
differentiated
corporate
governance
(the
IGC)
rose
237
per
cent
between
June
2001
and

June
2006,
while
the
IBovespa
index
gained
168
per
cent
during
the
same
period.

Novo
Mercado
and

Level
2
companies
also
obtained
higher
multiples
in
their
IPOs
than
the
market
average.




































































1

Rossi
Júnior,
José
Luiz

What
is
the
value
of
corporate
social
responsibility?

An
answer
from
the
Brazilian
Sustainability
Index

IBMEC
Working
Paper
WPE‐95‐2008
(2008)

2

Bogea,
Felipe,
Campos,
Anderson
LS
and
Camino
Blasco,
David

Did
the
creation
of
the
ISE
create
value
to
companies?


(September
2008)

3

Gledson
de
Carvalho,
Antonio
Effects
of
migration
to
special
corporate
governance
levels
of
Bovespa
(2003)



4

Erbisti,
Bruno
Corporate
governance
in
Brazil:
is
there
a
link
between
corporate
governance
and
financial
performance
in
the

Brazilian
Market?
ABN
AMRO
Asset
Management
(July
2005)

5

Santana,
Maria
Helena,
Ararat,
Melsa,
Aleandru,
Petra,
Yurtoglu,
B.
Burcin
Novo
Mercado
and
its
followers:
case
studies
in

corporate
governance
reform
Global
Corporate
Governance
Forum
(February
2008)

12
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Corporate
buy‐in


Reaction
to
and
use
of
the
ISE


The
ISE
appears
to
have
been
accepted
and
welcomed
by
Brazil’s
publicly
quoted
companies.

The

majority
of
companies
admitted
to
the
ISE
make
extensive
use
of
the
fact
(and
the
ISE
logo)
in
their

websites,
annual
reports,
sustainability
reports,
press
releases
and
other
external
communications.


The
ISE
has
a
relatively
high
profile
on
the
internet.

Numerous
references
to
the
ISE
and
companies’

inclusion
in
the
index
can
also
be
found
at
Bloomberg
and
PR
Newswire,
as
well
as
in
the
Brazilian

media.


Many
ISE
companies
use
the
ISE’s
“brand
value”
in
a
proactive
way
in
their
regulatory
reporting
as

well
as
in
their
PR
and
investor
relations.

Figure
7
provides
an
example
of
one
of
several
Petrobras

filings
with
the
US
Securities
&
Exchange
Commission
that
refer
to
the
ISE;
similar
references
to

Brazil’s
sustainability
index
can
be
found
in
the
SEC
filings
of
numerous
other
ISE
companies.

Non‐inclusion
of
Petrobras


The
fact
that
Petrobras
has
been
dropped
from
the
ISE’s
2008/2009
portfolio
is
a
very
significant

development
and
arguably
marks
an
important
milestone
in
the
short
life
of
the
Index
to
date.


Petrobras’
exclusion
from
the
ISE
is
linked
to
controversial
issues
concerning
serious
air
pollution
from

Brazil’s
diesel
fleet
and
delays
in
the
introduction
of
low‐sulphur
diesel
fuel
necessary
for
low

emission
vehicles.

The
news
attracted
considerable
attention
in
the
Brazilian
media
(but
little

international
coverage).

Petrobras
was
unhappy
about
the
circumstances
surrounding
its
exclusion

from
the
ISE
and
issued
an
angry
rebuttal
alleging
that
the
existence
of
a
defamatory
campaign

against
the
company
led
by
the
Ethos
Institute,
a
member
of
the
ISE
Board
(Petrobras
also
resigned
its

membership
of
the
Ethos
Institute).

It
is
too
early
to
tell
what
the
longer‐term
fall‐out
of
this
may
be

in
terms
of
future
support
for
the
Index
by
other
Brazilian
companies
and
relevant
stakeholders.

Questionnaire
response
rate


The
response
rate
to
the
annual
questionnaire
sent
out
by
FGV‐CES
has
been
falling
every
year
since

the
ISE’s
launch
(Table
2).

This
contrasts
sharply
with
the
steady
growth
in
corporate
sustainability

reporting
by
Brazilian
companies,
suggesting
the
type
of
“questionnaire
fatigue”
experienced
by
the

SRI
market
in
the
US
and
Europe
at
a
similar
stage
of
maturity.




It
should
also
be
noted
that
the
Integration
Working
Group
of
the
PRI
Brazil
Network
is
examining
the

ESG
indicators
that
are
most
relevant
and
material
for
investors
in
Brazil
(page
48).

This
will
include
a

comparison
of
the
most
commonly
used
indicators
in
Brazil
with
those
provided
in
the
GRI
guidelines.


Based
on
this
selection,
PRI
pension
funds
in
Brazil
may
then
develop
a
joint
questionnaire
that
they

will
send
to
Brazilian
companies.

The
relationship
between
this
initiative
and
the
ISE
is
currently

unclear.


Table
2:

Declining
company
response
rate
to
ISE
questionnaire


 2005
 2006
 2007
 2008

No.
of
companies
invited
to
complete
questionnaire
 121
 120
 137
 137

Response
rate
to
questionnaire
 52%
 50%
 42%
 37%

Source:

CES‐FGV,
BM&F
Bovespa
 
 
 
 

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 13



Figure
7:

Example
of
a
company’s
use
of
the
ISE
in
investor
relations
and
regulatory
reporting

(source:
SEC)


Petrobras’ participation in BOVESPA’S
Corporate Sustainability Index is renewed
(Rio de Janeiro, November 27, 2007). – PETRÓLEO BRASILEIRO S/A - PETROBRAS, [Bovespa:
PETR3/PETR4, NYSE: PBR/PBRA, Latibex: XPBR/XPBRA, BCBA: APBR/APBRA], a Brazilian
international energy company, announces that, for the second consecutive year, it has been included in the
list of companies whose shares compose Bovespa’s Corporate Sustainability Index (ISE) for their high
degree of commitment to sustainability and social responsibility. Petrobras’ common and preferred shares
will have the weights of 11.12% and 13.88%, respectively, totaling 25%, the ISE’s biggest individual
weight.
The ISE’s new portfolio will go into effect on December 01 2007 and remain valid through November 30
2008. It brings together 40 corporate stocks (common and preferred) issued by 32 companies performing in
13 sectors. These companies were selected for their policies, management practices, performance, and legal
obligation fulfillment with regard to economic efficiency, environmental balance, social justice, product
nature, and corporate governance. Jointly, the 32 companies’ market value is R$927 billion, or 39.6% of
BOVESPA’S total capitalization, currently worth R$2.3 trillion.
BOVESPA, ABRAPP, ANBID, APIMEC, IBGC, IFC, the ETHOS institute, and the Ministry of the
Environment, who comprise the index’ Deliberation Board, created the ISE as a benchmark for socially
responsible investments in Brazil. The Board later added PNUMA to its composition. FGV-EAESP
elaborated the methodology used to assess the companies. The 141-question questionnaire was sent to the
137 outfits that issue the 150 most liquid shares traded at the BOVESPA and, ultimately, answered by 62
companies.
The ISE is a pioneering initiative in Latin America, designed to create an investment environment that is
compatible with sustainable development demands imposed by the contemporaneous society and to
encourage ethical corporate responsibility. After undergoing a revision process which involved the
participation of several stakeholders, the ISE is now in its third edition.
The renewal of Petrobras’ participation in the ISE is a major victory for the company and is the outcome of
its efforts to realize its strategic objectives of growing with profitability and social and environmental
responsibility.




SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 6-K

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934

For the month of November, 2007

Commission File Number 1-15106



PETRÓLEO BRASILEIRO S.A. - PETROBRAS
(Exact name of registrant as specified in its charter)



Brazilian Petroleum Corporation - PETROBRAS
(Translation of Registrant's name into English)



Avenida República do Chile, 65
20031-912 - Rio de Janeiro, RJ
Federative Republic of Brazil
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ___X___ Form 40-F _______
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes _______ No___X____

14
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Commercial
business
model


All
BM&F
Bovespa
indices,
including
the
ISE,
are
made
available
to
investors
free
of
charge.




Companies
wishing
to
be
included
in
the
ISE
pay
an
evaluation
fee
of
US$2,000;
companies
admitted

to
the
ISE
can
also
purchase
a
license
to
use
the
ISE
brand
for
a
fee
of
US$7,000
per
annum.

These

income
streams
are
the
only
source
of
revenue
to
cover
the
ISE’s
maintenance
costs,
which
are

largely
incurred
by
CES‐FGV.




Future
directions



The
ISE
Board
is
currently
considering
the
possibility
of
changing
the
ISE
methodology
to
introduce
a

two‐tier
system.

The
aim
behind
this
concept
is
to
encourage
‘out‐lying’
companies
to
improve
their

ESG
performance
(in
a
similar
way
to
the
exchange’s
differentiated
corporate
governance
levels)
and

to
enhance
the
value
of
the
index
to
investors.




BM&F
BOVESPA
and
CES‐FGV
are
also
interested
in
the
concept
of
creating
a
regional
Latin
American

version
of
the
ISE
that
might
include
Chile,
Argentina
and
Mexico
(and
potentially
also
Peru
and

Colombia).



SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 15


4.

ASSET
MANAGERS


Market
overview


Brazil
has
around
8,300
investment
funds
with
over
11
million
shareholders
and
total
net
assets
of

around
US$700
billion
as
of
Q2
2008,
according
to
data
from
the
Brazilian
Securities
and
Exchange

Commission
(CVM).

The
market
has
grown
significantly
over
the
last
decade
(Figure
8).




At
the
end
of
2007,
Brazilian
investment
funds
had
around
48
per
cent
of
their
total
assets
in
equities.


Due
to
sharp
falls
in
the
stock
market
in
2008,
re‐allocation
and
net
outflows,
as
of
October
2008
this

figure
had
fallen
to
around
15
per
cent,
with
the
balance
represented
by
investments
in
fixed
income

securities.


Table
3
lists
the
top
40
Brazilian
asset
managers
in
terms
of
global
assets
under
management
as
of

October
2008.

Their
client
base
is
diversified
across
a
wide
range
of
investor
types
(Figure
9).


Pension
fund
assets
make
up
around
22
per
cent
of
global
assets
but
it
should
be
noted
that
this

figure
may
be
heavily
distorted
by
‘captive
mandates’
i.e.
the
pension
schemes
of
the
parent
financial

institutions.




Between
them,
these
40
asset
managers
have
equity
holdings
of
around
R$178
billion
(US$77
billion);

about
97
per
cent
of
this
equity
corpus
is
managed
by
20
firms,
most
notably
Banco
do
Brasil
(Figure

10).






Figure
8:

Brazilian
investment
funds
AUM
(US$
million)
(source:
CVM)











118
149 148
97
176
247
326
434
633
743
704
0
100
200
300
400
500
600
700
800
1999 2000 2001 2002 2003 2004 2005 2006 2007 Jul
2008
Aug
2008
A
U
M

U
S
$

m
i
l
l
i
o
n

16
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



Figure
9:

Assets
under
management
according
to
type
of
investor,
Oct
2008
(source:
ANBID)


Figure
10:

Top
20
asset
managers
according
to
assets
under
management
invested
in
equities,
Oct

2008
(source:
ANBID)






Retail 13%
Private 13%
Pension funds - private
companies 12%
Pension plans 11%
Corporate 11%
Pension funds - public
sector companies 10%
High income retail 9%
Public authorities 7%
Foreigners 5%
Insurers 3%
Middle market 2%
Others 2%
Investment funds 1%
Capitalization 1%
Other; 21%
$671
$702
$771
$775
$850
$1,299
$1,418
$1,600
$1,929
$2,367
$2,448
$2,547
$2,677
$2,925
$3,155
$5,226
$6,072
$7,188
$9,025
$21,131
$0 $5,000 $10,000 $15,000 $20,000 $25,000
LEGG MASON
BANCO SAFRA
VOTORANTIM ASSET
ALFA
CITIBANK
BANCO REAL
BEM
GERACAO FUTURO CORRETORA
BNP PARIBAS
UNIBANCO
SANTANDER BRASIL
OPPORTUNITY
HSBC
CREDIT SUISSE
CAIXA
UBS PACTUAL
BRADESCO
ITAU
BNY MELLON
BANCO DO BRASIL
US$ million
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 17



Table
3:

Ranking
of
Brazilian
asset
managers
by
global
assets
under
management


 
 R$
million
 US$
million
 PRI
 CDP
2008

SRI

products

1
 BANCO
DO
BRASIL
 237,441.90
 102,566.70
  
2
 ITAU
 156,054.50
 67,410.15
  
3
 BRADESCO
 146,539.50
 63,300.00
  
4
 CAIXA
 69,270.20
 29,922.33
  
5
 SANTANDER
BRASIL
 60,658.90
 26,202.55

6
 UBS
PACTUAL
 59,436.80
 25,674.64

7
 UNIBANCO
 58,792.00
 25,396.11
   
8
 HSBC
 56,822.70
 24,545.44
   
9
 BNY
MELLON
 51,643.90
 22,308.38

10
 BEM
 34,445.20
 14,879.14

11
 BANCO
REAL
 32,991.90
 14,251.36
   
12
 NOSSA
CAIXA
 27,920.90
 12,060.86

13
 BANCO
SAFRA
 21,174.00
 9,146.44
 
14
 INTRAG
 20,195.80
 8,723.89

15
 CITIBANK
 19,708.30
 8,513.30

16
 LEGG
MASON
 18,208.10
 7,865.27
 
17
 BNP
PARIBAS
 18,134.20
 7,833.35
 
18
 VOTORANTIM
ASSET
 18,011.80
 7,780.48



19
 CREDIT
SUISSE
HEDGING
GRIFFO
 17,337.40
 7,489.16



20
 SUL
AMERICAN
INVESTIMENTOS
 11,408.10
 4,927.90



21
 OPPORTUNITY
 9,108.30
 3,934.47



22
 CONCORDIA
 4,059.50
 1,753.56



23
 ALFA
 3,800.70
 1,641.77



24
 GERACAO
FUTURO
CORRETORA
 3,705.40
 1,600.60



25
 CREDIT
AGRICOLE
BRASIL
 3,332.50
 1,439.52



26
 BANCO
FATOR
 3,153.20
 1,362.07



27
 BBM
 1,868.90
 807.30



28
 DYNAMO
ADMINISTRACAO
DE
RECURSOS
 1,043.60
 450.80



29
 BANESTES
 979.20
 422.98



30
 FIBRA
 976.70
 421.90



31
 BRB
 816.20
 352.57



32
 MERCANTIL
DO
BRASIL
 441.60
 190.76



33
 BANCO
DE
TOKYO
MITSUBISHI
UFJ
BRASIL
 361.80
 156.29



34
 PAM
‐
PARANA
BANCO
ASSET
 246.60
 106.52



35
 MAGLIANO
 115.40
 49.85



36
 PROSPER
 94.90
 40.99



37
 COINVALORES
 92.40
 39.91



38
 TITULO
 89.60
 38.70



39
 BANPARA
 65.40
 28.25



40
 PILLA
 14.30
 6.18




 TOTAL
 
1,170,562.30
 505,642.46


 
 

Source:
ANBID
(data
as
of
October
2008)








18
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Status
of
sustainable
investment


The
National
Association
of
Investment
Banks
(ANBID)
is
actively
engaged
on
sustainable
investment

issues
on
behalf
of
its
members.

It
serves
on
the
ISE
Deliberative
Board
and
has
also
worked
with
the

Carbon
Disclosure
Project
(CDP)
and
the
UN
PRI.


As
shown
in
Table
3,
four
of
the
top
40
asset
management
firms
are
signatories
to
the
PRI:

Banco

Real,
BNP
Paribas,
HSBC
and
Unibanco.

Between
them,
they
manage
US$73
billion
or
around
14.5

per
cent
of
total
assets
under
management
by
all
40
firms.

In
terms
of
equity
holdings,
the
four
PRI

signatories
manage
US$8.2
billion,
which
is
just
under
11
per
cent
of
the
total
equity
corpus
of
US$77

billion.

With
the
exception
of
BNP
Paribas,
each
of
these
firms
currently
offers
retail
SRI
funds

(Chapter
5).

However,
there
is
limited
information
on
the
extent
to
which
these
four
PRI
signatories

are
integrating
ESG
into
their
mainstream
(non‐SRI
branded)
products
and
strategies.


SRI
mutual
fund
products
are
also
offered
by
Banco
do
Brasil,
Bradesco,
Caixa,
Itaú,
Legg
Mason

Western
Asset
Management,
Safra
and
Votorantim
(Chapter
5).

None
of
these
asset
managers
have

signed
the
UNPRI
at
the
current
time.




Seven
of
the
top
40
firms
were
signatories
to
CDP
Brazil
2008.

They
represent
combined
assets
of

US$326
billion
or
nearly
65
per
cent
of
total
assets
under
management
by
all
of
the
firms
listed
in

Table
3.

In
terms
of
equity
holdings,
the
CDP
signatories
manage
US$44
billion
or
57
per
cent
of
the

total
equity
corpus.





None
of
the
asset
management
firms
employs
full‐time
ESG
analysts.

Banco
Real,
HSBC,
Itaú,

Unibanco
and
Votorantim
each
have
one
full‐time
analyst
working
on
ESG
issues
part‐time.



SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 19


5.

RETAIL
FUNDS

Market
overview


Retail
and
‘high
income’
retail
customers
constitute
around
13
per
cent
and
9
per
cent
respectively
of

global
assets
managed
by
the
40
firms
listed
in
Table
3.

The
combined
value
of
these
assets
is
around

US$109.7
billion;
Banco
do
Brasil
and
Caixa
lead
the
rankings
for
retail
assets
under
management

whilst
the
two
leading
managers
of
high
income
retail
assets
are
Itaú
and
Banco
Real
(Bradesco
has

the
third
place
in
both
categories)
(Table
4).



Table
4:

Retail
and
high
income
retail
investors'
assets
under
management

RETAIL
INVESTORS
 HIGH
INCOME
RETAIL
INVESTORS

Top
10
managers
 
R$
million

 US$
million
 Top
10
managers
 
R$
million

 US$
million

1
 BANCO
DO
BRASIL
 
45,928

 
19,840

 1
 ITAU
 
26,888

 
11,614


2
 CAIXA
 
38,489

 
16,626

 2
 BANCO
REAL
 
12,431

 
5,370


3
 BRADESCO
 
24,661

 
10,653

 3
 BRADESCO
 
9,737

 
4,206


4
 ITAU
 
11,335

 
4,896

 4
 SANTANDER
BRASIL
 
8,749

 
3,779


5
 SANTANDER
BRASIL
 
10,522

 
4,545

 5
 BANCO
DO
BRASIL
 
7,735

 
3,341


6
 LEGG
MASON
 
8,249

 
3,564

 6
 HSBC
 
7,658

 
3,308


7
 HSBC
 
5,473

 
2,364

 7
 UNIBANCO
 
5,833

 
2,520


8
 UNIBANCO
 
5,129

 
2,216

 8
 CAIXA
 
4,284

 
1,851


9
 BANCO
REAL
 
2,517

 
1,087

 9
 BANCO
SAFRA
 
3,440

 
1,486


10
 NOSSA
CAIXA
 
2,437

 
1,053

 10
 BEM
 
2,276

 
983


Total
(40
managers)
 154,781.5
 66,860
 Total
(40
managers)
 99,229
 42,863

Source:
ANBID
(data
as
of
October
2008)


Status
of
sustainable
investment


Not
counting
feeder
funds,
there
are
currently
10
retail
SRI
mutual
fund
products
available
to
retail

investors
in
Brazil,
with
total
combined
assets
of
approximately
R$730
million
(US$315
million)
(Table

5).

Retail
SRI
mutual
funds
therefore
represent
less
than
0.3
per
cent
of
the
total
retail/high
income

retail
investment
market
of
US$109.7
billion.




For
comparison,
in
the
UK
there
are
around
80
SRI
products
for
retail
investors,
accounting
for
nearly

4
per
cent
(£30
billion,
or
US$44
billion)
of
the
UK’s
£770
billion
(US$1.12
trillion)
retail
investment

funds
market.

In
the
United
States,
there
are
approximately
180
retail
SRI
mutual
funds,
which

together
represent
about
1.8
per
cent
of
the
US$9.3
trillion
mutual
funds
market.




The
growth
of
retail
SRI
mutual
fund
assets
over
time
is
illustrated
in
Figure
11.

The
first
Brazilian

retail
SRI
fund
was
Banco
Real’s
Ethical
Fund,
launched
in
2001.

It
was
some
three
years
before
a

second
manager,
Itaú,
entered
this
niche
market.

Further
SRI
products
did
not
arrive
in
the
market

until
the
launch
of
the
ISE
in
December
2005,
which
raised
the
awareness
of
retail
investors
and

prompted
several
other
asset
managers
to
enter
the
market.




At
the
peak
of
the
market
(December
2007),
the
combined
net
asset
value
of
the
SRI
products

available
at
that
time
was
around
R$1.6
billion,
equivalent
to
US$691
million
at
the
current
exchange

rate.

The
dramatic
contraction
over
the
last
12
months
appears
to
be
the
result
of
the
falling
stock

market
rather
than
redemptions.


20
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Despite
several
new
entrants
to
the
market
since
the
launch
of
the
ISE,
market
share
in
the
SRI
niche

continues
to
be
dominated
by
the
early
pioneers,
Banco
Real
and
Itaú,
who
each
control
about
40
per

cent
of
total
SRI
net
assets
(Figure
12).









Table
5:

Brazil's
SRI
mutual
funds

NAV
 Cumulative
Performance

Fund
name
(CNJP
No.)

Launch

date

R$
m
 US$
m
 5
yr
 3
yr
 1
yr


 
 
 
 
 
 

BANCO
REAL
 
 
 
 
 
 

REAL
FUNDO
DE
INVESTIMENTO
EM
AÇÕES
ETHICAL

II

(04.736.006/0001‐82)

Nov
01
 
276.46
 119.15
 100.47%
 12.66%
 ‐37.60%

ITAU
 
 
 
 
 
 

ITAÚ
EXCELÊNCIA
SOCIAL
AÇÕES
‐
FUNDO
DE

INVESTIMENTO
(06.069.957/0001‐70)

Feb
04
 
235.00
 101.29
 ‐
 11.56%
 ‐43.76%

BANCO
DO
BRASIL
 
 
 
 
 
 

BB
TOP
AÇÕES
ÍNDICE
DE
SUSTENTABILIDADE

EMPRESARIAL
FUNDO
DE
INVESTIMENTO
EM
AÇÕES

(05.775.731/0001‐22)

Dec
05
 23.49
 10.13
 ‐
 14.97%
 ‐39.61%

BRADESCO
 
 
 
 
 
 

BRADESCO
FUNDO
DE
INVESTIMENTO
EM
AÇÕES
‐

ÍNDICE
DE
SUSTENTABILIDADE
EMPRESARIAL

(07.192.379/0001‐28)

Dec
05
 37.56
 16.19
 ‐
 22.47%
 ‐37.22%

HSBC
 
 
 
 
 
 

HSBC
FUNDO
DE
INVESTIMENTO
AÇÕES

SUSTENTABILIDADE
EMPRESARIAL
–
ISE

(07.535.827/0001‐49)

Jan
06
 64.39
 27.75
 ‐
 12.66%
 ‐44.38%

SAFRA
 
 
 
 
 
 

SAFRA
ISE
‐
FUNDO
DE
INVESTIMENTO
EM
AÇÕES

(07.470.273/0001‐49)

Jan
06
 5.04
 2.17
 ‐
 ‐
 ‐41.98%

UNIBANCO
 
 
 
 
 
 

UNIBANCO
SUSTENTABILIDADE
FUNDO
DE

INVESTIMENTO
EM
AÇÕES
(08.151.339/0001‐09)

Mar
07
 3.45
 1.49
 ‐
 ‐
 ‐35.16%

LEGG
MASON
WESTERN
ASSET
 
 
 
 
 
 

LEGG
MASON
AÇÕES
SUSTENTABILIDADE

EMPRESARIAL
FI

(1)

(29.413.945/0001‐17)

Jun
07

(1)

 76.63

(1)

 33.03

(1)

 ‐
 ‐
 ‐43.68%

CAIXA
 
 
 
 
 
 

FUNDO
DE
INVESTIMENTO
EM
AÇÕES
CAIXA

SUSTENTABILIDADE
EMPRESARIAL
–
ISE

(08.070.838/0001‐63)

Nov
07
 
5.44
 2.35
 ‐
 ‐
 ‐41.70%

VOTORANTIM
 
 
 
 
 
 

FUNDO
DE
INVESTIMENTO
VOTORANTIM

SUSTENTABILIDADE
EM
AÇÕES

(09.343.566/0001‐90)

Sep
08
 
2.29
 0.99
 ‐
 ‐
 ‐

TOTAL
 
 729.76
 314.53
 
 
 


Source:
CVM
Investors
Portal
(www.portaldoinvestidor.gov.br).

All
data
as
of
December
30,
2008.

(1)

The
Legg
Mason
Western
Asset
Management
fund
was
launched
in
1986
and
did
not
have
any
explicit
sustainability
strategy

until
it
was
re‐launched
in
June
2007
as
a
‘sustainability’
fund
tracking
the
ISE
index.






SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 21


Figure
11:

Retail
SRI
fund
assets
under
management
in
Brazil
(source:
CVM)




Figure
12:

Market
share
in
the
SRI
niche
by
NAV
(source:
CVM)


0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
M
a
r
-
0
2

J
u
n
-
0
2

S
e
p
-
0
2

D
e
c
-
0
2

M
a
r
-
0
3

J
u
n
-
0
3

S
e
p
-
0
3

D
e
c
-
0
3

M
a
r
-
0
4

J
u
n
-
0
4

S
e
p
-
0
4

D
e
c
-
0
4

M
a
r
-
0
5

J
u
n
-
0
5

S
e
p
-
0
5

D
e
c
-
0
5

M
a
r
-
0
6

J
u
n
-
0
6

S
e
p
-
0
6

D
e
c
-
0
6

M
a
r
-
0
7

J
u
n
-
0
7

S
e
p
-
0
7

D
e
c
-
0
7

M
a
r
-
0
8

J
u
n
-
0
8

S
e
p
-
0
8

R
$

m
i
l
l
i
o
n

LAUNCH OF ISE INDEX
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2003 2004 2005 2006 2007 2008
VOTORANTIM
CAIXA
LEGG MASON
UNIBANCO
SAFRA
HSBC
BRADESCO
BANCO DO BRASIL
ITAÚ
BANCO REAL
22
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Figure
13:

Cumulative
Performance
‐
3
Years
(source:
CVM)





Figure
14:

Cumulative
Performance
‐
1
Year
(source:
CVM)





The
six
products
with
three‐year
track
records
all
show
out‐performance
compared
to
the
ISE
over

the
same
period
(Figure
13).

The
best
performing
SRI
fund
over
three
years
is
managed
by
Bradesco,

which
beat
the
second‐best
performing
fund
by
750
basis
points
and
delivered
a
return
almost
double

that
of
the
lowest
performing
fund,
managed
by
Itaú.




All
ten
funds
have
recorded
significant
negative
performance
over
the
last
12
months,
reflecting
the

falling
IBovespa
index
and
market
conditions
in
Brazil
as
a
whole
and
globally
(Figure
14).

Unibanco’s

SRI
fund
shows
the
‘least
worst’
performance
over
this
period,
dropping
35
per
cent
in
value

compared
to
a
fall
of
40
per
cent
in
the
ISE
and
beating
the
bottom
performer,
HSBC,
by
940
basis

points.




0% 5% 10% 15% 20% 25%
ISE
ITAÚ
BANCO REAL
HSBC
SAFRA
BANCO DO BRASIL
BRADESCO
HSBC
ITAÚ
LEGG MASON
SAFRA
CAIXA
ISE
BANCO DO BRASIL
BANCO REAL
BRADESCO
UNIBANCO
-50% -45% -40% -35% -30% -25% -20% -15% -10% -5% 0%
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 23


Banco
Real’s
Ethical
Fund
is
based
on
its
own
ESG
research
and
sustainability
methodology,
including

an
independent
ethical
advisor
on
the
investment
committee.

The
fund
has
always
differed

significantly
from
the
IBovespa
and
ISE
due
to
the
absence
(for
sustainability/ethical
reasons)
of

Petrobras
from
its
portfolio.




All
of
the
other
SRI
funds
on
the
market
use
the
ISE
index
to
guide
their
portfolio
construction.

Most

of
these
funds
are
passively
managed
with
respect
to
ESG
issues:
only
HSBC
has
an
active
strategy

with
in‐house
ESG
research.

Shareholder
engagement
on
ESG
issues
has
not
been
a
common
feature

of
Brazil’s
SRI
mutual
funds
to
date.

However,
several
of
the
fund
managers
joined
forces
in

September
2008
to
launch
a
shareholder
engagement
campaign
on
labour
standards
(specifically,

modern‐day
slavery
in
sectors
such
as
charcoal
production)
under
the
auspices
of
the
Latin
American

Sustainable
Finance
Forum
(LASFF).


In
terms
of
their
ESG
strategies
and
sustainability
‘selling
points’,
the
ten
funds
are
relatively

homogeneous,
especially
now
that
the
absence
of
Petrobras
from
the
ISE’s
2008/2009
portfolio

eliminates
one
of
the
main
historical
differentiators
between
Banco
Real’s
Ethical
Fund
and
the
other

nine
products.




The
ten
funds
represent
the
first
generation
of
SRI
mutual
fund
products
in
Brazil.

To
date,
there
are

no
‘second
generation’
products.

There
has
been
little
or
no
product
innovation
(either
around
alpha‐
seeking
ESG
strategies
or
high
environmental/social
development
impact
strategies)
since
Banco
Real,

Itaú
and
the
ISE
index
provided
the
‘blueprint’
for
others
to
follow.

Similarly,
retail
appetite
for
the

existing
SRI
products
appears
to
have
begun
to
level
out
in
the
middle
of
2007,
although
this

obviously
coincides
with
the
decline
in
retail
appetite
for
variable
income
products
in
general

following
the
onset
of
the
current
global
economic
downturn.




Figure
15
provides
an
additional
insight
into
the
Brazilian
SRI
mutual
fund
market
and
the
importance

of
this
niche
to
the
asset
managers
competing
for
business
in
Brazil.

As
noted
earlier
in
this
chapter,

investment
in
equities
represents
only
15
per
cent
or
so
of
total
assets
under
management
at
the

current
time.

Figure
10
presented
information
on
the
20
asset
managers
who
dominate
this
segment

in
terms
of
having
the
largest
equity
portfolios.


For
each
of
these
asset
managers,
Figure
15
shows

assets
invested
in
equities
through
SRI
strategies
as
a
proportion
of
assets
invested
in
equities

through
all
strategies.




Although
10
of
the
top
20
equity
managers
offer
SRI
products,
these
products
are
a
very
small
(and,

arguably,
commercially
insignificant)
part
of
the
overall
equity
management
business
at
most
of
these

firms.

Even
at
Itaú,
which
has
a
40
per
cent
share
of
the
SRI
mutual
fund
market,
SRI
accounts
for
less

than
2
per
cent
of
total
assets
in
equities.


The
exception
is
Banco
Real,
which
pioneered
Brazil’s
sustainable
investment
movement
in
2001
and

today
also
has
a
40
per
cent
market
share.

The
analysis
shown
in
Figure
15
implies
that
SRI
has
a

much
greater
commercial
and
strategic
significance
for
Banco
Real
and
is
perhaps
a
more
integral
part

Banco
Real’s
asset
management
business.



24
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Figure
15:

SRI
funds
as
%
of
AUM
in
equities
(source:
ANBID,
CVM)



4.93%
0.31%
0.13%
9.19%
0.06%
1.04%
0.07%
0.27%
1.41%
0.05%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
LEGG MASON
BANCO SAFRA
VOTORANTIM ASSET
ALFA
CITIBANK
BANCO REAL
BEM
GERACAO FUTURO CORRETORA
BNP PARIBAS
UNIBANCO
SANTANDER BRASIL
OPPORTUNITY
HSBC
CREDIT SUISSE
CAIXA
UBS PACTUAL
BRADESCO
ITAU
BNY MELLON
BANCO DO BRASIL
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 25


6.

PENSION
FUNDS

Market
overview


Pension
fund
assets
have
grown
significantly
in
recent
years
(Figure
16)
and
currently
represent
about

18
per
cent
of
GDP.

As
of
September
2008,
total
pension
fund
assets
amounted
to
R$428
billion

(US$185
billion)
with
around
32
per
cent
(R$137
billion,
US$59
billion)
invested
in
equities
and
equity

investment
funds.

Table
6
lists
the
25
largest
pension
funds,
which
together
represent
over
75
per

cent
of
the
total
pension
corpus.

The
three
largest
funds
are:



 PREVI,
the
US$55
billion
pension
fund
of
Banco
do
Brasil;

 Petrobras’
US$17
billion
pension
fund,
PETROS;
and

 FUNCEF,
the
Caixa
Economica
Federal
pension
fund,
with
assets
of
US$14
billion.




Many
pension
funds
–
including
PREVI,
PETROS
and
FUNCEF
–
manage
their
equity
portfolios
in‐house

rather
than
through
external
managers.


PREVI,
the
country’s
largest
pension
fund,
is
widely
acknowledged
in
the
region
as
a
setter
of
best

practice
standards
across
a
range
of
fiduciary,
pensions
administration,
investment
management
and

corporate
governance
issues.

It
exercises
considerable
leadership
influence
over
other
Brazilian

pension
funds
and
in
Brazil’s
economy
as
a
whole.



Figure
16:
Brazilian
pension
fund
assets,
2001‐2008
(source:
ABRAPP)


Status
of
sustainable
investment


18
pension
funds
–
including
9
of
the
top
25
‐
are
signatories
to
the
PRI.

Together
they
represent

combined
assets
of
US$110
billion
as
of
September
2008,
about
60
per
cent
of
total
pension
fund

assets.

As
noted
above,
on
average,
Brazil’s
pension
funds
allocate
about
32
per
cent
of
assets
to

listed
equities.

The
total
value
of
PRI
pension
fund
investment
on
the
Brazilian
stock
market
can

therefore
be
estimated
at
around
US$35
billion.

Further
information
on
the
PRI
Brazil
Network
is

provided
on
pages
47‐48.


PREVI
was
a
founding
signatory
to
the
UNPRI
and
the
President
of
PREVI,
Mr
Sergio
Rosa,
is
one
of
11

elected
representatives
on
the
international
PRI
Board.

PREVI
is
at
the
centre
of
ongoing
PRI

implementation
efforts
in
Brazil’s
pension
fund
community.

Figure
17
provides
an
overview
of

PREVI’s
implementation
of
the
UNPRI.



-
100
200
300
400
500
2001 2002 2003 2004 2005 2006 2007 2008
R
$

m
i
l
l
i
o
n

26
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Table
6:

The
25
largest
pension
funds
in
Brazil

Rank
 Pension
fund
 R$
million
 US$
million
 
 PRI

 CDP
2008

1
 PREVI

 
128,388

 
55,459

  
2
 PETROS

 
40,199

 
17,365

  
3
 FUNCEF

 
32,574

 
14,071

  
4
 FUNDACAO
CESP

 
15,307

 
6,612


5
 VALIA

 
9,975

 
4,309

  
6
 ITAUBANCO

 
9,530

 
4,116


7
 SISTEL

 
9,325

 
4,028

 
8
 BANESPREV

 
8,817

 
3,809

  
9
 CENTRUS

 
8,154

 
3,522

 
10
 FORLUZ

 
7,034

 
3,038

 
11
 REAL
GRANDEZA

 
6,008

 
2,595

 
12
 FAPES

 
4,995

 
2,158

 
13
 FUNDACAO
COPEL

 
4,473

 
1,932


14
 POSTALIS

 
4,219

 
1,822


15
 HSBC
FUNDO
DE
PENSAO

 
3,839

 
1,658


16
 TELOS

 
3,698

 
1,598


17
 VISAO
PREV

 
3,676

 
1,588

 
18
 FUNDACAO
ATLANTICO

 
3,374

 
1,458

 
19
 ELETROCEEE

 
3,337

 
1,442


20
 CX
EMPR
USIMINAS

 
3,260

 
1,408


21
 IBM

 
3,166

 
1,368


22
 ECONOMUS

 
3,050

 
1,318

  
23
 FACHESF

 
2,860

 
1,235


24
 CBS

 
2,747

 
1,186

 
25
 FUNBEP

 
2,669

 
1,153


Total
(top
25
pension
funds)
 324,674
 140,248

Total
(278
pension
funds)
 427,485
 184,659

Source:
ABRAPP,
September
2008




The
ISE
index
is
currently
used
by
PREVI
as
a
proxy
indicator
for
companies’
environmental
and
social

performance,
although
it
should
be
noted
that
the
permitted
investment
universe
extends
across
the

entire
market.

PREVI
has
indicated
that
it
is
keen
to
see
the
development
of
a
more
sophisticated

tool
than
the
ISE,
which
can
only
be
used
for
screening
purposes
and
does
not
enable
comparison
or

ranking
of
companies
and
industry
sectors.




PREVI
has
recently
been
involved
in
a
PRI‐wide
engagement
campaign
focusing
on
modern‐day

slavery
in
the
Brazilian
charcoal
production
sector
which
supplies
pig
iron
to
the
iron
and
steel

industry
in
Brazil
and
abroad.

PREVI
is
also
involved
in
engagement
at
other
levels,
including
dialogue

with
boards
and
promoting
GRI
to
Brazilian
companies
under
the
framework
of
the
international

Emerging
Markets
Disclosure
Project
(EMDP).





PREVI
and
other
leading
pension
funds
are
increasing
their
portfolio
allocations
to
private
equity
and

are
participating
in
several
new
funds
in
the
infrastructure,
‘greentech’
and
climate
change
arenas:


unlike
listed
equities,
these
private
equity
mandates
are
managed
by
external
firms
and
PREVI
is

actively
engaging
with
such
general
partners
on
the
incorporation
of
ESG
factors
into
the
investment

cycle.




29
pension
funds
–
including
11
of
the
top
25
–
were
signatories
to
CDP
Brazil
in
2008.

Their

combined
assets
are
about
60
per
cent
of
the
total
pension
fund
corpus.


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 27


It
is
important
to
note
that
PREVI
and
most
other
pension
funds
use
in‐house
managers
for
their

investment
in
listed
equities.

There
is
therefore
little
or
no
know‐how
transfer
between
the
pension

funds
and
asset
managers
such
as
Banco
Real
that
have
pioneered
SRI
in
Brazil
and
developed
in‐
house
research
capacity.

PREVI
itself
does
not
appear
to
have
any
in‐house
ESG
analysts
and
does
not

out‐source
ESG
research.




Although
the
commitment
of
PREVI
and
other
leading
PRI
signatories
in
Brazil
is
strong,

implementation
by
those
pioneers
is
still
at
a
relatively
early
stage.

Other
pension
funds
that
have

followed
PREVI’s
example
in
a
more
passive
way
are
likely
to
still
be
at
the
internal
awareness
raising

stage.




ABRAPP,
the
Brazilian
Association
of
Pension
Funds,
is
actively
engaged
on
sustainable
investment

issues
on
behalf
of
its
members.

As
well
as
serving
on
the
ISE
Deliberative
Board,
it
acts
as
one
of
the

main
Brazilian
partners
for
the
Carbon
Disclosure
Project
(CDP)
and
works
closely
with
the
UNPRI.

















28
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Figure
17:

Responsible
investment
in
focus:
PREVI

Following
its
signing
the
UNPRI
in
2006,
PREVI
is
in
the

process
of
developing
a
socio‐environmental

responsibility
policy
that,
alongside
its
corporate

governance
policy,
will
apply
to
all
investment

activities.

The
main
elements
of
PREVI’s
responsible

investment
strategy
are
as
follows:





Voting


PREVI
votes
shareholder
resolutions
in
accordance

with
its
corporate
governance
code.
It
views
the
code

as
a
crucial
instrument
in
guiding
the
relationships

among
agents
operating
in
the
companies
in
which
it

has
interests.
The
code
states
the
behaviours
and

practices
that
PREVI
expects
from
invested
companies.





Transparency,
disclosure
and
accountability


A
company’s
corporate
governance
framework
must

promote
the
timely
and
accurate
disclosure
of

financial
and
non‐financial
information
to
allow
the

interested
parties
to
obtain
a
fully
integrated

understanding
of
a
company’s
performance.

Disclosure
should
be
in
accordance
with
the
directives

presented
in
the
Global
Reporting
Initiative
(GRI)
and

Brazilian
CSR
groups
the
Ethos
Institute
and
IBASE.




In
addition
to
financial
statements,
PREVI
encourages

companies
to
submit
annually:


 A
statement
indicating
adopted
corporate

governance
practices.

 The
policies
applied
to
the
management
of

insurance
agreements
and
the
result
of
systematic

risk
management
including,
but
not
limited
to,

equity,
environmental,
technological
and

regulatory
risks.

 Performance
indicators
for
corporate
social

responsibility.

 Policy
on
and
the
global
amount
of
compensation

paid
to
directors
and
executive
officers,
including

variable
compensation
and
stock
option
plans.

 Shareholder
rights.


A
company’s
corporate
governance
framework
must

guarantee
the
rights
and
interests
of
all
shareholders

and
be
aligned
with
the
rights
of
clients,
employees,

suppliers,
the
government
and
community
in
general.




Corporate
ethics
and
social
responsibility


PREVI
invests
in
profitable
and
socially
responsible

companies
that,
in
addition
to
fulfilling
their
legal

obligations,
promote
actions
to
the
benefit
of
the

communities
in
which
they
operate,
offer
their

workers
adequate
safety,
health
and
development

conditions
and
care
for
environmental
preservation

and
social
and
economic
development.

PREVI
expects

the
boards
of
invested
companies
to
engage
with

stakeholders
to
establish
corporate
ethics
and

standards
of
behaviour
that
must
be
then
approved

and
implemented.



Engagement


PREVI
will
frequently
assign
a
representative
to
attend
the

board
meetings
of
companies
in
which
it
has
significant

holdings.
This
practice
is
driven
by
issues
relating
to

performance,
business
strategy,
returns
and
dividends,

long‐term
value,
corporate
governance
and,
most
recently,

the
management
of
ESG
issues.

PREVI
will
meet
with

board
representatives
to
raise
any
concerns
it
might
have

with
a
company
and
discuss
possible
risks
and
areas
for

improvement.
The
representative’s
role
is
to
transmit

PREVI’s
view
to
the
board
and
accordingly
seek

improvements
in
the
company’s
behaviour.



PREVI
has
a
process
in
place
to
assess
the
performance
of

its
board
representatives,
and
currently
employs
28
people

to
undertake
this
activity
internally.
Employees
monitor

and
assess
the
performance
of
177
representatives
in
90

companies.
All
PREVI
representatives
meet
on
an
annual

basis,
and
a
training
process
has
been
put
in
place
to
better

align
them
with
ESG
issues.




Divestment


In
instances
where
PREVI
is
concerned
about
the
impact
of

a
company’s
activities
on
society,
it
may
take
the
decision

to
disassociate
itself
from
that
company,
adopting
a

negative
screening
approach.




External
investment
manager
requirements


PREVI
is
in
the
process
of
selecting
five
new
external

private
equity
investment
managers.
The
consideration
of

ESG
issues
is
a
mandatory
part
of
the
RFP.
PREVI
will

monitor
its
external
investment
managers
on
the
basis
of

their
implementation
of
a
responsible
investment
strategy

and
it
intends
to
participate
in
the
investment
decision‐
making
process
by
sitting
on
its
fund
managers’
investment

committees.




Socio‐environmental
responsibility
policy


PREVI
is
currently
developing
a
socio‐environmental

responsibility
policy
that
will
apply
to
all
its
activities.

The

Pension
Fund
intends
to
implement
the
policy
in
2007.

The

policy
will
include
the
consideration
of
environmental
and

social
issues
in
investment
decision‐making,
including

engagement
and
corporate
governance
activities.

PREVI’s

goal
is
for
ESG
issues
to
be
fully
integrated
into
its
stock

selection
process.
In
addition,
the
Pension
Fund
is

developing
methodologies
and
tools
to
measure
the
social

and
environment
impact
of
its
investments.


Furthermore,
PREVI
will
review
its
investment
policy
in
an

attempt
to
further
align
it
with
each
of
the
Principles
of
the

UNPRI.


www.previ.com.br

Reproduced
and
adapted
from
the
2007
report
Responsible
Investment
in
Focus
by
UNEPFI
&
UKSIF

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 29


7.

FOREIGN
INVESTMENT



Market
overview


Foreign
portfolio
investment
in
Brazil
has
increased
approximately
ten‐fold
in
the
last
decade.

The

country’s
total
stock
of
foreign
portfolio
investments
as
of
the
end
of
August
2008
stood
at
about

US$232
billion,
with
around
two‐thirds
of
this
corpus
(about
US$120
billion)
invested
in
publicly

quoted
companies
(Table
7).


A
significant
number
of
Brazilian
companies
issue
American
Depository
Receipts
(ADRs)
which
are

traded
on
the
NYSE
or
other
US
markets.

The
25
largest
such
ADRs
are
listed
in
Table
8
and
have
a

total
value
of
US$110
billion:
the
leading
issuers
of
ADRs
include
Petrobras,
Vale,
Unibanco,
Bradesco

and
Itaú.

Ten
companies
in
this
list
are
in
the
current
ISE
portfolio.

Table
9
identifies
some
of
the

main
US
and
non‐US
investors
that
hold
the
ADRs
of
Brazilian
companies.

Investors
include
JP

Morgan,
Fidelity,
BlackRock,
Templeton
and
AllianceBernstein
(the
latter
being
one
of
CalPERS’
three

emerging
market
managers).


Status
of
sustainable
investment


Possibly
the
most
significant
development
in
recent
years
has
been
the
April
2006
launch
of
the
ABN

AMRO
Asset
Management
Brazil
Equity
Fund,
a
Luxembourg‐incorporated
vehicle
for
European

investment
in
Brazilian
stocks.

The
investment
strategy
included
an
extensive
set
of
sustainability

standards
(e.g.
environmental,
social,
ethical,
corporate
governance)
applied
to
individual
companies

in
order
to
assess
their
socially
responsible
characteristics
and
select
or
exclude
them
or
their
relevant

sector.




By
May
2008,
the
Brazil
Equity
Fund
had
assets
of
nearly
US$400
million.

However,
following
the

break‐up
of
the
ABN
AMRO
Group
and
the
acquisition
of
its
investment
management
business
by

Fortis,
the
Brazil
Equity
Fund
was
absorbed
into
the
Fortis
L
Equity
Brazil
Fund
in
November
2008.


The
prospectus
for
the
Fortis
fund
suggests
that
sustainability
criteria
no
longer
form
a
part
of
the

investment
strategy
(although
it
should
be
acknowledged
that
Fortis
is
a
signatory
to
the
UNPRI).


There
are
insufficient
data
to
estimate
what
proportion
of
foreign
portfolio
assets
in
Brazil
are

currently
managed
under
‘sustainable’
or
‘socially
responsible’
mandates.

In
the
absence
of
hard

data,
it
may
be
legitimate
to
make
a
conservative
educated
guess
that
investors
who
take

environmental,
social
and/or
governance
(ESG)
issues
into
account
in
a
formal
way
represent
less

than
1
per
cent
of
the
US$120
billion
corpus,
i.e.
about
US$1.2
billion.




Anecdotal
evidence
indicates
that
most
foreign
portfolio
investors
are
focusing
on
the
governance

element
of
ESG
by,
for
example,
investing
only
in
stocks
listed
on
the
Novo
Mercado
and/or
by

shareholder
engagement
as
illustrated
by
F&C’s
involvement
in
a
recent
case
involving
the
rights
of

owners
of
preference
shares
in
relation
to
VCP’s
acquisition
of
Aracruz.


Nevertheless,
some
foreign

investors
have
recently
begun
to
join
forces
on
environmental
and
social
issues
in
Brazil
under
the

auspices
of
the
UNPRI.

A
recent
example
is
the
recent
engagement
led
by
the
UK’s
Hermes
on
labour

standards
in
the
iron
and
steel
industry
(see
box,
page
32).


With
regard
to
ADRs,
some
of
the
fund
managers
listed
in
Table
19
are
signatories
to
the
UNPRI.


However,
in
the
absence
of
hard
facts
on
the
actual
policies
of
specific
funds,
an
educated
guess
that

ESG
strategies
account
for
less
than
1
per
cent
of
total
portfolio
suggests
that
the
stock
of
sustainable

investment
in
Brazilian
ADRs
might
be
in
the
order
of
US$1
billion.

30
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Table
7:

Foreign
portfolio
investment
in
Brazil,
1999‐2008
(source:
CVM)

Period
 Stock
of
Assets
(US$
m)
 %
in
Stocks
 %
in
Fixed
Income
 Net
Flows
(US$
m)

1999
 23,110
 99.0
 ‐
 1,100

2000
 18,528
 91.9
 7.0
 ‐1,835

2001
 15,532
 88.5
 9.3
 ‐728

2002
 10,373
 74.7
 21.5
 ‐336

2003
 20,120
 86.8
 11.6
 2,421

2004
 29,066
 90.1
 8.3
 270

2005
 53,439
 91.0
 6.8
 707

2006
 101,601
 81.7
 16.9
 8,585

2007
 214,111
 77.4
 19.0
 33,878

2008
(Jan‐Aug)
 232,280
 67.3
 29.8
 12,205







Table
8:

Top
25
Brazilian
ADRs
as
of
Dec
31,
2008
(source:
adr.com)

ADR

Ownership
value
(US$

million)

ISE

PETROBRAS
‐
PETROLEO
BRASILEIRO
SA
[PBR]

 25,057.08

PETROBRAS
‐
PETROLEO
BRASILEIRO
SA
[PBR
A]

 21,767.39

CIA
VALE
DO
RIO
DOCE
[RIO
PR]

 13,917.62

CIA
VALE
DO
RIO
DOCE
[RIO]

 10,938.46

UNIBANCO
‐
UNIAO
DE
BANCOS
BRASILEIROS
SA
[UBB]

 6,985.41
 
BANCO
BRADESCO
SA
[BBD]

 5,154.56
 
BANCO
ITAU
HOLDING
FINANCEIRA
SA
[ITU]

 4,473.93
 
EMPRESA
BRASILEIRA
DE
AERONAUTICA
SA
[ERJ]

 2,846.40
 
VIVO
PARTICIPACOES
SA
[VIV]

 2,362.24

TELE
NORTE
LESTE
PARTICIPACOES
SA
[TNE]

 2,248.32

CIA
DE
BEBIDAS
DAS
AMERICAS
[ABV]

 2,244.69

CIA
SIDERURGICA
NACIONAL
SA
[SID]

 1,864.28

GERDAU
SA
[GGB]

 1,630.17
 
CIA
ENERGETICA
DE
MINAS
GERAIS
[CIG]

 1,458.40
 
ARACRUZ
CELULOSE
SA
[ARA]

 1,373.37

TAM
SA
[TAM]

 938.73

BRASIL
TELECOM
PARTICIPACOES
SA
[BRP]

 874.06

TIM
PARTICIPACOES
SA
[TSU]

 737.31
 
GAFISA
S.A.
[GFA]

 736.10

CIA
DE
SANEAMENTO
BASICO
DO
ESTADO
DE
SAO
PAULO
[SBS]

 709.92
 
VOTORANTIM
CELULOSE
E
PAPEL
SA
[VCP]

 601.46
 
CIA
BRASILEIRA
DE
DISTRIBUICAO
GRUPO
PAO
DE
ACUCAR
[CBD]

 478.62

SADIA
SA
[SDA]

 304.71
 
NET
SERVICOS
DE
COMUNICACAO
SA
[NETC]

 293.55

ULTRAPAR
PARTICIPACOES
SA
[UGP]

 255.09
 

TOTAL
(top
25)
 110,251.87
 






SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 31


Table
9:

Key
investors
in
Brazilian
ADRs
(source:
adr.com)

TOP
10
HOLDERS
OF
BRAZILIAN
ADRs

Value


(US$
m)

%
of

portfolio

Filing

date

PRI

Fidelity
Management
&
Research
 US
 6,253.92
 1.21
 31‐Oct‐08

Barclays
Global
Investors,
N.A.
 US
 5,079.43
 0.86
 31‐Oct‐08

Capital
World
Investors
 US
 4,097.64
 1.16
 30‐Sep‐08

BlackRock
Investment
Management
(UK)
Ltd.
 UK
 3,544.87
 4.31
 30‐Sep‐08
 
Baillie
Gifford
&
Co.
 UK
 3,497.31
 12.05
 30‐Sep‐08
 
AllianceBernstein
L.P.
 US
 3,104.38
 1.33
 31‐Mar‐08

T.
Rowe
Price
Associates,
Inc.
 US
 2,968.97
 1.33
 30‐Sep‐08

Wellington
Management
Company,
LLP
 US
 2,897.78
 1.14
 31‐Oct‐08

J.P.
Morgan
Investment
Management
Inc.
(New

York)

US
 2,879.29
 2.74
 31‐Oct‐08
 
Templeton
Asset
Management
(Singapore)
Ltd.
 Singapore
 2,397.09
 10.54
 30‐Sep‐08

TOTAL
 
 36,720.68
 
 
 

TOP
10
US
MUTUAL
FUND
HOLDERS
OF
BRAZILIAN
ADRs

Value

(US$
m)

%
of

portfolio

Filing

date

PRI

BGF
Latin
American
Fund
 US
 2,809.84
 45.26
 29‐Feb‐08
 
iShares
MSCI
Emerging
Markets
Index
Fund
 US
 2,338.97
 13.86
 31‐Oct‐08

American
Funds
EuroPacific
Growth
Fund
 US
 1,860.26
 2.45
 30‐Sep‐08

Fidelity
Latin
America
Fund
 US
 1,790.49
 48.61
 30‐Sep‐08

American
Funds
Growth
Fund
of
America
 US
 1,379.52
 1.09
 30‐Sep‐08

CGM
Focus
Fund
 US
 1,224.37
 16.89
 30‐Sep‐08

Fidelity
Low‐Priced
Stock
Fund
 US
 1,133.93
 4.39
 31‐Jul‐08

American
Funds
New
Perspective
Fund
 US
 1,025.25
 2.73
 30‐Sep‐08

Dodge
&
Cox
International
Stock
Fund
 US
 772.11
 2.09
 30‐Sep‐08

iShares
S&P
Latin
America
40
Index
Fund
 US
 758.07
 61.81
 31‐Oct‐08

TOTAL
 
 15,092.81
 
 
 

TOP
10
NON‐US
MUTUAL
FUND
HOLDERS
OF
BRAZILIAN
ADRs

Value

(US$
m)

%
of

portfolio

Filing

date

PRI

BGF
World
Mining
Fund
 UK
 1,381.70
 8.52
 29‐Feb‐08
 
JPMorgan
Funds
‐
Emerging
Markets
Equity
Fund
 UK
 1,200.75
 18.36
 30‐Jun‐08
 
Templeton
Emerging
Markets
Investment
Trust
 Singapore
 1,125.47
 26.5
 30‐Apr‐08

T.
Rowe
Price
Latin
America
Fund
 UK
 906.40
 40.64
 30‐Sep‐08

Templeton
BRIC
Fund
 Singapore
 672.30
 25.73
 30‐Jun‐08

DWS
Invest
Bric
Plus
 Germany
 627.08
 14.81
 30‐Jun‐08
 
Schroder
Intl
Selection
Fd
Bric
 UK
 584.93
 23.63
 30‐Jun‐08
 
Templeton
Latin
America
Fund
 Singapore
 577.25
 23.69
 30‐Jun‐08

Harbor
International
Fund
 Bermuda
 568.88
 2.54
 30‐Sep‐08

Vanguard
International
Growth
Fund
 UK
 509.04
 3.17
 31‐Aug‐08

TOTAL
 
 8,153.80
 
 
 











32
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


JOINT
INVESTOR
ENGAGEMENT
ON
SLAVE
LABOUR
IN

THE
BRAZILIAN
IRON
&
STEEL
INDUSTRY



In
late
2006,
allegations
surfaced
about
slave
labour
practices
in
the
iron
and
steel
industry
in
Brazil.
The

operations
involved
were
potentially
part
of
the
supply
chains
of
the
largest
manufacturers
and
users
of
iron
and

steel
in
the
world,
companies
in
which,
jointly,
the
signatories
had
sizeable
holdings.
The
allegations
were
that

these
large
global
users
of
steel
were
inadvertently
supporting
the
use
of
forced
labour
at
charcoal
plants
in

Brazil.
Charcoal
is
an
important
raw
material
used
in
the
manufacture
of
pig
iron.


PRI
signatory
Hermes
used
the
PRI
Clearinghouse
to
bring
together
a
group
of
fellow
signatories
(including
PREVI

and
other
Brazilian
pension
funds)
for
a
collaborative
engagement.
The
investor
group
identified
a
list
of
target

firms,
and
then
jointly
wrote
to
those
companies
setting
out
their
concerns,
focusing
on
the
negative
impact
on

reputation
due
to
any
association
with
inappropriate
labour
practices.
Follow
up
telephone
calls
and
meetings

were
also
conducted
with
the
companies.


There
was
a
wide
range
of
responses.
A
number
of
companies
had
already
put
into
place
an
audit
system
to

ensure
they
were
not
sourcing
steel
from
these
operations.
However,
there
were
also
companies
that
had
not

considered
the
impact
of
such
allegations
on
their
business
and
were
surprised
by
shareholder
interest
in
this

area.
These
firms
undertook
to
examine
the
investors’
concerns,
and
the
group
had
further
conversations
with

these
companies
to
ensure
they
had
addressed
the
issue.


Source:
UNPRI


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 33


8.

OTHER
MARKET
PARTICIPANTS

Brazilian
Development
Bank

Overview


The
Brazilian
Development
Bank
(BNDES)
plays
a
key
role
in
the
country’s
sustainable
development,

including
support
for
private
sector
development
through
its
equity
investment
arm
(BNDESPAR),

infrastructure
and
SME
financing,
and
management
of
the
recently
announced
US$21
billion
Brazil

Amazon
Fund.




BNDESPAR
owns
sizeable
equity
stakes
in
many
of
Brazil’s
leading
publicly
quoted
companies
in

strategic
industries
such
as
oil
&
gas,
railroads,
mining,
energy,
iron
&
steel,
pulp
&
paper
and

agribusiness.

Table
10
lists
these
holdings
as
of
June
30,
2008
based
on
BNDESPAR’s
published

financial
statements
for
the
first
six‐month
reporting
period
of
2008.


Using
these
June
30,
2008
shareholding
data
and
the
average
quotation
by
share
for
the
January
23,

2009
trading
session
of
the
São
Paolo
stock
exchange,
the
market
value
of
BNDESPAR’s
equity
interest

in
listed
shares
can
be
estimated
at
R$37.4
billion
(US$16.2

billion).




For
comparison,
this
is
50
times
the
combined
net
asset
value

of
Brazil’s
SRI
mutual
funds
and
is
in
the
same
order
of

magnitude
as
PREVI’s
listed
equity
portfolio,
illustrating
the

relative
significance
of
the
development
bank’s
role
as
a

market
participant
and
its
potential
influence
in
corporate

boardrooms.

Status
of
sustainable
investment


BNDES
has
not
adopted
the
Equator
Principles
(as
the

country’s
main
commercial
banks
have
done),
although

projects
financed
by
BNDES
are
subject
to
environmental
and

social
policies
and
procedures
including
environmental
impact

assessment
and
verification
of
compliance
with
national

legislation.

BNDES
is
a
long‐standing
member
of
UNEPFI
and

an
active
participant
in
UNEPFI’s
Latin
American
Task
Force.




Exactly
how
BNDES’s
environmental
and
social
policies
and

procedures
are
applied
to
the
portfolio
illustrated
in
Table
10

is
unclear.

For
example,
there
is
little
or
no
readily
available

information
on
how
BNDESPAR
integrates
ESG
considerations

into
active
share
ownership
and
voting.

BNDES
is
not
a

member
of
the
ISE
Advisory
Board
and,
other
than
UNEPFI,


does
not
appear
to
be
directly
involved
with
key
sustainable

investment
initiatives
in
Brazil
such
as
the
UNPRI,
CDP
and

LASFF.


A
number
of
the
companies
listed
in
Table
10
are
constituents

of
the
ISE.

Together
they
represent
25
per
cent
of
the
total

estimated
market
value
of
the
BNDESPAR
listed
equity

portfolio.

BNDES
SUPPORTS
SETUP
OF

THE
LARGEST
EUCALYPTUS

PULP
COMPANY
IN
THE
WORLD


January
20,
2009
(BNDES
press
release)


BNDES
entered
an
Investment
Agreement

with
Votorantim
Celulose
e
Papel
S.A.
(VCP)

and
its
controlling
companies,
which
expect

the
support
of
BNDESPAR
to
the
corporate

reorganization
in
the
acquisition
of
Aracruz

Celulose
S.A.
by
VCP,
for
the
face
value
of
R$

5.4
billion.



This
operation
will
allow
the
incorporation
of

the
largest
short
fiber
pulp
company
in
the

world.
BNDESPAR
may
invest
nearly
R$
2.4

billion
in
the
new
company,
of
which
R$
1.8

billion
represent
preferred
stock
issued
by

VCP
and
R$
580
million
in
debentures
issued

by
Votorantim
Industrial
S.A.
(VID
–
VCP’s

controlling
company),
exchangeable
into

common
stock
issued
by
VCP.
BNDESPAR’s

interest
in
the
new
company
may
reach
one

third
of
the
total
capital
stock.


According
to
a
Material
Event
disclosed
by

VCP,
VCP’s
acquisition
of
Aracruz

shareholding
control
will
depend
on

Arainvest,
one
of
Aracruz’s
shareholders,

exercising
its
tag
along
rights.


The
new
company
will
be
a
global
leader
in

short
fiber
pulp,
with
production
capacity
of

5.8
million
tons
and
680
thousand
hectares

of
planted
area.
It
will
employ
15
thousand

people
and
will
deliver
estimated
annual

revenues
of
R$
7
billion.


34
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



Table
10:

BNDESPAR
equity
interests
in
publicly
listed
companies

Estimated
market
value
based
on
average
share
price

for
January
23,
2009
trading
session

2

Company
 ISE

BNDESPAR
equity

interest
as
of

June
30,
2008

1

(%)


R$
million
 US$
million

ALL
AMER
LAT
 11.4
 655.50
 283.15

ARACRUZ
 5.51
 711.58
 307.38

BANCO
DO
BRASIL
  2.52
 997.21
 430.76

BEMATECH
 8.21
 25.23
 10.90

BRASIL
TELECOM
PART
 3.51
 250.00
 107.99

BRASKEM
  5.42
 164.82
 71.20

CEG
 34.56
 484.52
 209.29

CEMIG
  1.7
 263.46
 113.81

CESP
  5.71
 243.06
 104.99

COPEL
 23.96
 1,401.93
 605.58

COTEMINAS
 10.35
 48.52
 20.96

CPFL
ENERGIA
  5.72
 825.63
 356.64

ELETROBRAS
  11.81
 3,469.68
 1,498.78

EMBRAER
  5.05
 365.15
 157.73

GERDAU
  3.38
 638.39
 275.76

INDUSTRIAS
ROMI
 6.78
 37.52
 16.21

JBS
 13
 852.23
 368.13

KLABIN
 20.25
 613.34
 264.94

LIGHT
S/A
  33.69
 1,535.65
 663.35

MARFRIG
 2.94
 41.40
 17.88

METALFRIO
 7.59
 20.68
 8.93

PARANAPANEMA
 7.06
 42.69
 18.44

PETROBRAS
 7.62
 16,089.01
 6,949.90

REDE
ENERGIA
 21.07
 385.42
 166.49

SID
NACIONAL
 3.77
 1,046.39
 452.00

SPRINGS
GLOBAL
 4.28
 12.54
 5.42

SUZANO
PAPEL
  1.89
 69.37
 29.96

TELEMAR
  1.63
 182.99
 79.05

TRACTEBEL
  2.8
 335.18
 144.79

USIMINAS
 1.73
 251.14
 108.48

VALE
R
DOCE
 4.1
 5,231.05
 2,259.63

VCP
  3.1
 89.03
 38.46

TOTAL
ESTIMATED
MARKET
VALUE
 37,380.33
 16,147.01

Sources:


1

BNDESPAR
Financial
Statements
for
the
Six
Month
Periods
Ended
June
30,
2008
and
2007
and
Independent
Auditors’
Report

2

BM&F
Bovespa
trading
data
for
January
23,
2009


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 35



High
Net
Worth
Individuals

Overview


High
Net
Worth
Individuals
(HNWIs)
are
defined
as
those
holding
at
least
US$1
million
in
financial

assets,
excluding
collectibles,
consumables,
consumer
durables
and
primary
residences.

A
further

distinction
is
often
made
at
the
upper
end
of
this
market,
where
Ultra‐High
Net
Worth
Individuals

(Ultra‐HNWIs)
are
those
holding
at
least
US$30
million
in
financial
assets.

The
World
Wealth
Report

2008
by
Cap
Gemini/Merrill
Lynch
highlights
the

following
headlines:


 10.1
million
individuals
worldwide
held
at
least

US$1
million
in
financial
assets,
an
increase
of
6.0

per
cent
over
2006.


 Global
HNWI
wealth
totalled
US$40.7
trillion,
a

9.4
per
cent
gain
from
2006,
with
average
HNWI

wealth
surpassing
US$4
million
for
the
first
time.


 The
Ultra‐HNWI
wealth
band
experienced
the

strongest
growth,
gaining
8.8
per
cent
in

population
size
and
14.5
per
cent
in
accumulated

wealth.


 Emerging
markets,
especially
those
in
the
Middle

East
and
Latin
America,
scored
the
greatest

regional
HNWI
population
gains.


 India,
China
and
Brazil
had
the
highest
HNWI

population
growth
at
the
country
level
in
2007.



 HNWI
financial
wealth
is
projected
to
reach

US$59.1
trillion
by
2012,
advancing
at
an
annual

growth
rate
of
7.7
per
cent.


The
market
in
2008
and
outlook
for
the
next
1‐2
years

may
not
be
as
robust
as
suggested
by
the
above

observations
and
forecasts,
given
the
global
financial

crisis,
market
uncertainty
and
investors’
flight
to
low‐risk

portfolios.


Amongst
these
global
headlines
are
some
interesting

data
on
Latin
America
and
Brazil.

The
HNWI
population

in
Brazil
grew
an
impressive
19.1
per
cent
in
2007,
up

significantly
from
10.1
per
cent
growth
in
2006.

There

are
now
some
143,000
HNWIs
in
Brazil.

Forecasts
in
the

World
Wealth
Report
2008
were
made
before
the
onset

of
the
current
global
financial
and
economic
downturn,

although
it
may
still
be
useful
to
note
that
the
HNWI

forecast
for
Latin
America
by
the
year
2012
was
US$10.3

trillion,
compared
to
US$6.2
trillion
in
2007.




Information
from
Private
Banking
World
Brasil
2009

suggests
that
the
HNWI
market
in
Brazil
is
currently

worth
around
US$1.4
trillion.


Between
them,
the
40
asset
management
firms
listed
in
Table
3
manage
assets
of
R$152
billion

(US$66
billion
on
behalf
of
private
(HNWI)
clients.

The
ten
leading
firms
(by
size
of
assets)
are
shown

in
Table
11
and
represent
over
80
per
cent
of
this
US$66
billion
corpus.

Main
wealth
management

companies
operating
in
the

Brazilian
market


Amicorp
do
Brasil

Banco
Alfa
de
Investimento

Banco
Banif
Primus

Banco
BNP
Paribas
Brasil

Banco
Bradesco

Banco
Citibank

Banco
de
Investimentos
Credit
Suisse

Banco
do
Brasil

Banco
do
Estado
do
Rio
Grande
do
Sol

Banco
Fator

Banco
Itaú
Europa
International

Banco
Itaú

Banco
J
Safra

Banco
J
P
Morgan

Banco
Safra

Banco
Santander
Banespa

Banco
UBS
Pactual

BBM
Gestao
de
Recursos

Ciano
Investimentos
Gestao
de

Recursos

Credit
Agricole
Brasil

Deutsche
Bank
‐
Banco
Alemao

Fabiano
Calil
‐
Gestao
Financeira
Pessaol

Gavea
Gestao
de
Investimentos

GWI
Consultoria
Participacoes
e

Servicos

Hedging‐Griffo
Corretora
de
Valores

HSBC
Bank
Brasil
–
Banco
Multiplo

Itaú
Private
Bank

Maua
Investimentos

Merrill
Lynch
Representacoes

Opus
Gestao
de
Recursos

Rio
Bravo
Investimentos

Safdie
Dristribuidora
de
Titulos
e

Valores

Votorantim
Asset
Management

36
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Table
11:

Private
(wealth
management)
assets
under
management

Top
10
managers
 
R$
million

 US$
million

1
 ITAU

 33,962
 14,670

2
 UNIBANCO

 17,387
 7,510

3
 CREDIT
SUISSE
HEDGING
GRIFFO
 12,552
 5,422

4
 UBS
PACTUAL

 12,430
 5,369

5
 BNY
MELLON

 11,712
 5,059

6
 SANTANDER
BRASIL

 9,458
 4,086

7
 BRADESCO

 8,412
 3,634

8
 OPPORTUNITY

 6,761
 2,920

9
 BANCO
DO
BRASIL

 6,150
 2,657

10
 VOTORANTIM
ASSET
MANAGEMENT
 5,178
 2,237

Total
(40
managers)
 152,058
 65,684

Source:
ANBID
(data
as
of
October
2008)




Status
of
sustainable
investment




There
are
no
readily
available
data
on
the
sustainability
segment
of
the
Brazilian
wealth
management

industry.


The
Merrill
Lynch/Cap
Gemini
survey
identified
that,
globally,
HNWIs
and
Ultra‐HNWIs
have
a
large

and
growing
interest
in
“green
investing”.

Roughly
12
per
cent
of
HNWIs
and
14
per
cent
of
Ultra‐
HNWIs
around
the
world
allocate
part
of
their
investment
portfolio
to
green
technologies
and

alternative
energy
sources
(Figure
18).




Regionally,
the
most
environmentally
attuned
HNWI
and
Ultra‐HNWI
populations,
as
measured
by
the

percentage
of
affluent
investors
allocating
to
green
investing,
were
found
in
the
Middle
East
and

Europe—with
participation
rates
ranging
from
around
17
per
cent
to
21
per
cent
in
2007,
all

exceeding
global
averages.




Latin
American
participation
rates
were
also
relatively
high,
at
15‐17
per
cent
(the
report
does
not

provide
more
detailed
data
specifically
on
Brazil).

By
comparison,
only
5
per
cent
of
HNWIs
and
7
per

cent
of
Ultra‐HNWIs
in
North
America
allocated
part
of
their
portfolio
holdings
to
green
investing.





Further
insights
can
be
gleaned
indirectly
from
Eurosif’s
2008
report,
High
Net
Worth
Individuals
and

Sustainable
Investment.

Eurosif
estimates
that
sustainable
investments
represent
approximately
8

per
cent
of
European
HNWIs’
portfolios
as
of
December
2007.

Overall
European
HNWI
financial

wealth
in
2007
was
estimated
at
€6.7
trillion
(US$8.6
trillion
at
current
exchange
rates),
which

translates
into
an
EU
HNWI
sustainable
investment
market
of
€540
billion
(US$690
billion).
For

context
into
the
significance
of
this
size,
the
HNWI
sustainable
investment
segment
corresponds
to

between
20
to
30
per
cent
of
the
European
institutional
SRI
market.

Eurosif
predicts
that
by
2012
the

share
of
sustainable
investments
in
HNWIs’
portfolios
will
have
increased
to
12
per
cent.



Based
on
the
above,
it
may
be
reasonable
to
guess
that
the
potential
stock
of
sustainable
investment

(in
a
variety
of
asset
classes)
by
Brazilian
HNWIs
is
about
5
per
cent
of
the
country’s
total
HNWI

market
i.e.
in
the
order
of
US$70
billion.




SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 37


Figure
18:

HNWI
investment
in
green
technologies
and
alternative
energy



12%
5%
13%
15%
17%
20%
14%
7%
14%
17%
20%
21%
Global North America Asia-Pacific Latin America Europe Middle East
Source: Capgemini/Merrill Lynch Financial Advisor Survey, April 2008
Percentage of HNWIs who allocate part of portfolio to green technologies and alternative energy sources
Percentage of Ultra-HNWIs who allocate part of portfolio to green technologies and alternative energy sources
38
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



9.

ENABLING
ENVIRONMENT


Regulatory
and
policy
frameworks


Environmental
legislation
and
enforcement


Brazil
has
an
advanced
framework
of
environmental
legislation
and
inspection
at
both
the
federal
and

state
levels
(see
box).

However,
enforcement
standards
vary
from
state
to
state
and
between
federal

and
state
agencies
for
reasons
ranging
from
lack
of
resources
to
the
influence
of
corruption.

In

addition
to
federal
and
state
environmental
protection
agencies,
federal
and
state
public
prosecutors

are
able
to
take
independent
action
to
deal
with
environmental
problems,
and
do
so
frequently
and

effectively.



ENVIRONMENTAL
LAW
IN
BRAZIL


Under
the
Federal
Constitution,
the
federal
government
and
the
states
have
the
power
to
legislate
concurrently

on
(i)
the
protection
of
the
natural
environment,
which
includes
forests,
hunting,
fishing,
wildlife,
conservation
of

nature,
protection
of
the
soil
and
natural
resources
and
pollution
control;
(ii)
the
protection
of
the
cultural

environment,
involving
protection
of
historical,
artistic,
touristic
and
landscape
heritage;
and
(iii)
liabilities
for

damages
to
the
environment.



Those
public
bodies
and
institutions
responsible
for
protecting
and
improving
the
quality
of
the
environment

make
up
the
National
Environmental
System
(SISNAMA).
Some
of
the
most
important
components
of
SISNAMA

are:
(i)
the
National
Council
for
the
Environment
(CONAMA),
a
decision‐making
and
consultative
body

empowered
to
establish
environmental
rules
and
standards;
(ii)
the
Brazilian
Institute
for
the
Environment
and

Natural
Renewable
Resources
(IBAMA),
whose
purpose
is
to
execute
governmental
policy
and
directives
aimed
at

the
environment,
to
impose
the
penalties
set
forth
by
law
on
those
that
violate
federal
environmental
legislation

and
to
license
activities
that
could
cause
environmental
damages
on
a
regional
or
national
level
or
in
areas
under

federal
domain;
(iii)
state
environmental
agencies;
and
(iv)
local
environmental
inspection
and
control
agencies.



Although
they
are
not
part
of
SISNAMA,
the
Federal
and
State
Ministries
of
Public
Prosecution
have
institutional

powers
under
the
Federal
Constitution
to
initiate
civil
inquiries
and
to
bring
public
civil
actions
with
respect
to

environmental
damages,
as
well
as
penal
actions
for
crimes
against
the
environment.

Public
prosecutors

(Ministério
Público)
file
enforcement
lawsuits
independently
of
environmental
agencies
based
on
civil
and

criminal
investigations
of
environmental
harms.
In
addition
to
enforcing
environmental
laws,
public
prosecutors

have
become
a
primary
actor
in
other
areas
of
public
interest
law
such
as
disability
rights,
consumer
protection,

and
anti‐corruption.


Under
the
Federal
Constitution,
environmental
liability
may
occur
in
civil,
administrative
and
criminal
levels.

Civil

liability
for
environmental
damages
is
strict
(i.e.
it
occurs
irrespective
of
fault
or
intent
by
those
that
have
caused

the
damage)
and
the
law
also
provides
for
joint
and
several
liability.

Penalties
for
administrative
violations
can

include
fines
of
up
to
R$50
million
(approximately
US$20
million).



Criminal
liability
extends
to
both
individuals

and
legal
entities
with
penalties
including
fines,
imprisonment
and
facility
closure.


Environmental
licensing
requirements
and
procedures
include
Environmental
Impact
Assessment
(EIA)
for
major

developments
and
conditions
and
restrictions
for
the
installation
and
operation
of
licensed
activities
and

facilities.





SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 39


Pension
fund
transparency


Internationally,
a
number
of
countries
have
taken
public
policy
measures
to
promote
sustainable

investment
thorough
government
legislation
on
pension
fund
transparency.

For
example,
a
July
2000

amendment
to
the
UK
Pensions
Act
now
requires
UK
occupational
pension
funds
to
disclose
the

extent
to
which
they
take
account
of
social,
environmental
or
ethical
issues
in
their
investment

decisions.

Many
other
countries
in
Europe
and
the
Asia‐Pacific
region
have
followed
the
example
set

by
the
UK.


Brazil
has
not
taken
steps
in
this
direction.

However,
it
should
be
noted
that
60
per
cent

of
the
country’s
pension
fund
assets
are
already
managed
by
UNPRI
signatories.

Non‐financial
disclosure
requirements


At
the
international
level,
policy‐makers,
regulators,
institutional
investors
and
other
key
stakeholders

in
many
countries
are
placing
an
increasing
emphasis
on
non‐financial
information
in
management

reports
(including,
where
relevant,
environmental
issues
such
as
climate
change).

In
December
2008,

for
example,
the
International
Corporate
Governance
Network
(ICGN)
ratified
the
ICGN
Statement

and
Guidance
on
Non‐financial
Business
Reporting,
which
encourages
companies
to
disclosure

information
on
potentially
material
issues
such
as
climate
change;
matters
affecting
employees,

customers,
suppliers
and
host
communities;
and
ethics.




In
some
cases,
the
approach
has
included
legislative
measures
in
addition
to
voluntary
momentum.

Denmark,
for
example,
has
recently
amended
its
Financial
Statements
Act
to
require
an
estimated

1,100
of
the
largest
Danish
companies,
both
listed
and
state
owned,
to
include
information
on
their

corporate
responsibility
policies
and
practices
in
their
annual
financial
reports.

Sweden,
China,

Malaysia
and
South
Africa
are
among
other
countries
that
have
introduced
similar
regulations
and

directives,
often
referencing
the
GRI
guidelines.


Brazilian
companies
have
a
relatively
long
tradition
of
non‐financial
disclosure.

The
current
emphasis

in
Brazil
is
on
voluntary
GRI
reporting
(see
overleaf).

Mandatory
sustainability
reporting
is
not
on
the

political
or
legislative
agenda.

Brazil
does
not
currently
have
any
legislation
specifically
concerned

with
non‐financial
reporting
and
assurance
related
to
potentially
material
environmental
and
social

issues.


Arguably,
a
sound
framework
for
sustainable
investment
includes
disclosure
and
discussion
of

potentially
material
sustainability
issues
in
IPO
prospectuses.

There
is
no
published
research
on
the

extent
and
quality
of
this
kind
of
disclosure
in
recent
Brazilian
IPOs.

However,
it
is
probable
that,
in

common
with
the
rest
of
the
world,
this
is
an
important
gap
in
Brazil.


Around
35
of
Brazil’s
largest
companies
–
including
Vale
R
Doce
and
Petrobras
–
are
listed
in
New
York

with
the
US
Securities
&
Exchange
Commission
(SEC)
and
are
subject
to
the
SEC’s
transparency
and

disclosure
rules.

Items
101
and
103
of
SEC
Regulation
S‐K
require
disclosure
of
relevant

environmental
issues.

Again,
there
is
no
published
research
on
the
extent
and
quality
of
this
kind
of

disclosure
by
Brazilian
companies.

However,
selective
sampling
of
Form
6‐K
filings
suggests
that

Brazilian
companies
are
proactive
in
filing
positive
environmental
news
(such
as
winning
awards
or

being
included
in
sustainability
indices);
but
rather
less
forthcoming
with
information
on
issues
such

as
environment‐related
law
suits,
major
pollution
incidents,
plant
closure
or
project
delays
due
to

community
protests,
and
major
capital
expenditure
to
meet
environmental
standards
for
production

facilities
and
end‐products.


Developments
in
the
US
are
increasing
pressure
for
climate
change
disclosure
under
SEC
regulations.


Actions
over
the
last
several
years
by
the
New
York
State
Attorney
General
and
by
coalitions
of

institutional
investors,
environmental
groups
and
state
government
agencies
with
regard
to
climate

change
disclosure
have
received
considerable
media
coverage.

Other
recent
developments
in
the
US

include
the
issuance
of
draft
standards
for
climate
change
disclosure
by
ASTM
International
and

proposed
revisions
by
the
Financial
Accounting
Standards
Board
(FASB)
to
its
FAS
5,
Accounting
for

Contingencies.





40
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Changes
in
the
interpretation
or
letter
of
SEC
regulations
and/or
financial
accounting
standards
in
the

US
could
therefore
have
important
implications
for
Brazilian
firms
listed
in
New
York;
in
turn
this

could
also
have
implications
for
sustainability
disclosure
in
general
in
Brazil.


Listing
rules
and
guidelines


It
is
important
to
note
that,
like
most
of
the
world’s
stock
exchanges,
BM&F
Bovespa
is
not
a

regulator.

The
regulator
in
Brazil
is
CVM,
together
with
other
government
agencies
and
departments

dealing
with
matters
such
as
company
law.

Nevertheless,
exchanges
can
and
do
play
an
important

role
in
improving
company
standards
and
increasing
access
to
information,
either
by
issuing

guidelines
to
companies
and/or
by
setting
listing
rules
that
go
beyond
the
regulatory
baseline.

A

powerful
example
of
the
latter
in
Brazil
is
provided
by
the
2001
introduction
of
the
Novo
Mercado,

which
has
been
very
successful
in
raising
corporate
governance
standards,
market
profile
and
investor

confidence.


Internationally,
a
small
but
growing
number
of
exchanges
are
taking
measures
to
improve
non‐
financial
disclosure,
including
disclosure
of
environment‐
and
social‐related
business
issues
such
as

climate
change
and
community
relations.

In
rare
cases
–
such
as
the
Johannesburg
Stock
Exchange

(JSE)
–
this
is
being
done
though
listing
rules.

The
majority
of
exchanges
that
are
leading
such

improvements
are
doing
so
via
corporate
governance
guidelines,
which
are
strongly
promoted
and

monitored,
often
on
a
“comply
or
explain”
basis
as
in
the
case
of
the
Australian
Securities
Exchange

(ASX).


BM&F
Bovespa’s
listing
rules
do
not
expressly
mention
non‐financial
reporting
or
sustainability
issues,

and
the
exchange
has
not
currently
issued
formal
guidance
on
these
matters.


Voluntary
non‐financial
reporting

Sustainability
reporting


A
growing
number
of
Brazilian
companies
are
producing
annual
sustainability
reports,
many
using
the

Global
Reporting
Initiative
(GRI)
guidelines
(Figure
19).


Publicly
listed
companies
account
for
over

half
the
sustainability
reports
published
in
Brazil
in
2007
(the
latest
year
for
which
a
reasonably

complete
dataset
is
available).


This
increase
in
sustainability
reporting
in
recent
years
coincides
with
the
2005
launch
of
the
Bovespa

ISE
Index;
adoption
of
the
Equator
Principles
by
Brazil’s
banks
and
the
Principles
for
Responsible

Investment
(PRI)
by
Brazil’s
pension
funds;
the
extension
of
the
Carbon
Disclosure
Project
(CDP)
to

Brazil;
and
the
on‐going
efforts
of
numerous
non‐governmental
organisations
and
other
advocates

including
GRI,
the
Ethos
Institute,
FGV‐CES
and
several
consulting
firms.




Overall,
the
supply
of
awareness
raising
and
capacity
building
initiatives
for
sustainability
reporting,

along
with
the
local
availability
of
consulting
expertise
on
this
topic,
appears
to
at
least
match
the

current
level
of
demand
from
companies.





About
60
per
cent
of
the
59
companies
in
the
current
IBovespa
Index
publish
sustainability
reports

(Table
12).


Almost
all
of
these
reports
are
available
in
English
as
well
as
Portuguese.

Most

companies
produce
stand‐alone
sustainability
reports,
although
a
sizeable
minority
are
integrating

this
information
into
their
annual
reports.

18
companies
make
use
of
the
GRI
guidelines
(including

the
latest
G3
guidelines).
Seven
IBovespa
companies
publish
sustainability
reports
that
are
subject
to

some
form
of
external
assurance.


Outside
of
the
IBovespa
index,
few
listed
companies
currently
publish
sustainability
reports.




SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 41


Table
12:

Sustainability
reporting
by
IBOVESPA
companies

Company
 Industry
 ISE
 Report
 English
 GRI
 Verification

ALL
AMER
LAT
(N2)
 Railroads

AMBEV
 Beer
&
soft
drinks
   
ARACRUZ
(N1)
 Pulp
&
paper
    
B2W
VAREJO
(NM)
 Retail

BMF
BOVESPA
(NM)
 Diversified
financial
services

BRADESCO
(N1)
 Financial
intermediaries
     
BRADESPAR
(N1)
 Holdings
‐
diversified

BRASIL
(NM)
 Financial
intermediaries
    
BRASIL
T
PAR
(N1)
 Telecommunications
 
 

BRASIL
TELEC
(N1)
 Telecommunications

BRASKEM
(N1)
 Petrochemicals
   
CCR
RODOVIAS
(NM)
 Toll
roads
&
highways
   
CELESC
(N2)
 Electric
utilities
 
CEMIG
(N1)
 Electric
utilities
    
CESP
(N1)
 Electric
utilities
 
COMGAS
 Gas
utilities
   
COPEL
(N1)
 Electric
utilities
  
COSAN
(NM)
 Sugar
‐
alcohol

CPFL
ENERGIA
(NM)
 Electric
utilities
    
CYRELA
REALT
(NM)

Residential
building

construction



DURATEX
(N1)
 Wood
    
ELETROBRAS
(N1)
 Electric
utilities
 
ELETROPAULO
(N2)
 Electric
utilities
    
EMBRAER
(NM)
 Aerospace
 
GAFISA
(NM)
 Residential
construction

GERDAU
(N1)
 Steel
   
GERDAU
MET
(N1)
 Steel
  (see
GERDAU)
 

GOL
(N2)
 Airlines
  
ITAUBANCO
(N1)
 Financial
intermediaries
    
ITAUSA
(N1)
 Financial
intermediaries
 (see
ITAUBANCO)
 

JBS
(NM)
 Meat,
poultry
&
others

KLABIN
S/A
(N1)
 Pulp
&
paper
  
LIGHT
S/A
(NM)
 Electric
utilities
  
LOJAS
AMERIC
 Retail

LOJAS
RENNER
(NM)
 Retail

NATURA
(NM)
 Cosmetics
     
NET
(N2)
 Cable
TV

NOSSA
CAIXA
(NM)
 Financial
intermediaries

P.ACUCAR‐CBD
(N1)
 Retail
  
PERDIGAO
S/A
(NM)
 Meat,
poultry
&
others
   
PETROBRAS
 Oil,
gas
&
biofuels
    
REDECARD
(NM)
 Diversified
financial
services

ROSSI
RESID
(NM)
 Residential
construction

SABESP
(NM)
 Water
utilities
    
SADIA
S/A
(N1)
 Meat,
poultry
&
others
   
SID
NACIONAL
 Steel
  
SOUZA
CRUZ
 Tobacco
   
TAM
S/A
(N2)
 Airlines

TELEMAR
 Telecommunications
 
TELEMAR
N
L
 Telecommunications

TELESP
 Telecommunications
   
TIM
PART
S/A
 Telecommunications
   
TRAN
PAULIST
(N1)
 Electric
utilities

ULTRAPAR
(N1)
 Holdings
‐
diversified
  
UNIBANCO
(N1)
 Financial
intermediaries
   
USIMINAS
(N1)
 Steel
   
V
C
P
(N1)
 Pulp
&
paper
    
VALE
R
DOCE
(N1)
 Mining
    
VIVO
 Telecommunications

42
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


The
consulting
firm
SustainAbility
has
recently
published
independent
research
on
sustainability

reporting
by
Brazilian
corporations
6
.

This
included
a
ranking
of
ten
leading
reports
using
a

standardised
scoring
methodology,
the
results
of
which
are
reproduced
in
Table
13.


They
identified

several
areas
for
improvement.

In
particular,
the
report
concluded
that
Brazilian
companies
need
to

deepen
the
strategic
value
of
reporting
and
demonstrate
how
sustainability
is
being
embedded

throughout
the
business.

Weaknesses
in
reporting
include
a
lack
of
information
on:


 Governance:

Board
level
leadership
and
governance
structures
to
deliver
on
sustainability

aspirations

 Materiality:

Methods
to
identify
and
prioritize
material
issues
being
used
to
help
focus

reports
on
priority
topics

 Targets:

Specific,
measurable
and
comparable
targets
(rather
than
qualitative
statements
of

intent).


Figure
19:

Corporate
sustainability
reports
in
Brazil
(source:

©

CorporateRegister.com)




Table
13:

Top
10
sustainability
reports
(SustainAbility/FBDS
survey)

Rank
 Company
 Industry
 Year

1
 Natura
 Personal
care
products
 2007

2
 Suzano
Petroquimica
 Chemicals
 2006

3
 Ampla
 Electric
utilities
 2007


 Coelce
 Electric
utilities
 2007

5
 Banco
Real
 Financial
services
 2007

6
 Energias
do
Brasil
 Electric
utilities
 2007

7
 Sabesp
 Water
utilities
 2007

8
 Bunge
 Food
processing
 2007


 Celulose
Irani
 Forestry
&
paper
 2007

10
 Banco
Itaú
 Financial
services
 2007

Source:

The
Road
to
Credibility:
a
survey
of
sustainability
reporting
in
Brazil
SustainAbility,
FBDS
&
UNEPFI
(2008)




































































6

The
Road
to
Credibility:

a
survey
of
sustainability
reporting
in
Brazil

SustainAbility
(2008)

0
10
20
30
40
50
60
70
80
90
100
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
N
u
m
b
e
r

o
f

c
o
m
p
a
n
i
e
s

r
e
p
o
r
t
i
n
g

LISTED NON-LISTED
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 43


Table
14:

CDP6
disclosure
by
IBOVESPA
companies
(omits
companies
not
included
in
CDP6)

Company
 Industry
 ISE
 Response
 
GHG
data
disclosed

ALL
AMER
LAT
(N2)
 Railroads
 AQ
 
AMBEV
 Beer
&
soft
drinks
 AQ
 
ARACRUZ
(N1)
 Pulp
&
paper
 AQ
 
B2W
VAREJO
(NM)
 Retail
 AQ

BRADESCO
(N1)
 Financial
intermediaries
  AQ
 
BRADESPAR
(N1)
 Holdings
–
diversified
 (see
CPFL
ENERGIA)
BRASIL
(NM)
 Financial
intermediaries
  AQ

BRASIL
T
PAR
(N1)
 Telecommunications
 (see
BRASIL
TELEC)
BRASIL
TELEC
(N1)
 Telecommunications
 AQ
 
BRASKEM
(N1)
 Petrochemicals
  AQ

CCR
RODOVIAS
(NM)
 Toll
roads
&
highways
 AQ
 
CELESC
(N2)
 Electric
utilities
  AQ

CEMIG
(N1)
 Electric
utilities
  AQ
 
CESP
(N1)
 Electric
utilities
  AQ

COMGAS
 Gas
utilities
 AQ
 
COPEL
(N1)
 Electric
utilities
 AQ

COSAN
(NM)
 Sugar
–
alcohol
 NP

CPFL
ENERGIA
(NM)
 Electric
utilities
  AQ
 
CYRELA
REALT
(NM)
 Residential
building
construction
 AQ

DURATEX
(N1)
 Wood
  AQ
 
ELETROBRAS
(N1)
 Electric
utilities
  AQ
 
ELETROPAULO
(N2)
 Electric
utilities
  (see
AES)
EMBRAER
(NM)
 Aerospace
  NP

GAFISA
(NM)
 Residential
building
construction
 DP

GERDAU
(N1)
 Steel
  AQ
 
GERDAU
MET
(N1)
 Steel
  (see
GERDAU)
GOL
(N2)
 Airlines
 NP

ITAUBANCO
(N1)
 Financial
intermediaries
  AQ
 
ITAUSA
(N1)
 Financial
intermediaries
 (see
ITAUBANCO)
KLABIN
S/A
(N1)
 Pulp
&
paper
 NP

LIGHT
S/A
(NM)
 Electric
utilities
  NR

LOJAS
AMERIC
 Retail
 AQ

LOJAS
RENNER
(NM)
 Retail
 DP

NATURA
(NM)
 Cosmetics
  AQ
 
NET
(N2)
 Cable
TV
 AQ

PERDIGAO
S/A
(NM)
 Meat,
poultry
&
others
  NP

PETROBRAS
 Oil,
gas
&
biofuels
 NP

ROSSI
RESID
(NM)
 Residential
building
construction
 DP

SABESP
(NM)
 Water
utilities
  AQ

SADIA
S/A
(N1)
 Meat,
poultry
&
others
  AQ
 
SID
NACIONAL
 Steel
 DP

SOUZA
CRUZ
 Tobacco
 AQ
 
TAM
S/A
(N2)
 Airlines
 NP

TELEMAR
 Telecommunications
  AQ

TELEMAR
N
L
 Telecommunications
 AQ

TELESP
 Telecommunications
 NP

TIM
PART
S/A
 Telecommunications
  AQ

TRAN
PAULIST
(N1)
 Electric
utilities
 AQ

ULTRAPAR
(N1)
 Holdings
–
diversified
 NP

UNIBANCO
(N1)
 Financial
intermediaries
  AQ

USIMINAS
(N1)
 Steel
 DP

V
C
P
(N1)
 Pulp
&
paper
  AQ

VALE
R
DOCE
(N1)
 Mining
 AQ
 
VIVO
 Telecommunications
 AQ

AQ
–
answered
questionnaire;

NP
–
answered
questionnaire
but
response
not
made
publicly
available;

DP
–
declined
to
participate;

NR
–
no

response



44
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Carbon
Disclosure
Project


The
international
Carbon
Disclosure
Project
(CDP)
has
been
increasing
its
focus
on
Brazil
in
recent

years
with
the
support
of
its
local
partners,
ABRAPP
and
Banco
Real
7,8
.

The
CDP
questionnaire
went

to
50
of
Brazil’s
largest
quoted
companies
in
2006
(CDP4).

In
2007
(CDP5)
this
increased
to
60

companies,
and
75
companies
were
surveyed
in
2008
(CDP6).


The
response
rate
of
Brazilian
companies
is
high
(Figure
20).

Nevertheless,
27
per
cent
of
companies

in
the
current
IBovespa
index
that
were
surveyed
by
CDP
2008
either
did
not
respond,
declined
to

participate
or
answered
the
questionnaire
but
withheld
permission
for
their
responses
to
be
made

publicly
available.

In
terms
of
index
weighting,
this
gap
in
public
disclosure
represents
about
33
per

cent
of
the
current
IBovespa
notional
portfolio
and
notably
includes
companies
such
as
Petrobras,

Klabin
and
Usiminas,
where
climate
change
business
issues
might
be
expected
to
be
important

factors.

A
detailed
breakdown
is
provided
in
Table
14.


Figure
21
summarises
some
of
the
key
trends
picked
out
by
CDP’s
analysis
of
the
2008
survey.


Overall,
the
results
paint
a
largely
encouraging
picture
of
corporate
activity
and
management
quality

in
relation
to
climate
change,
although
further
progress
is
needed.

Areas
identified
by
CDP
for
further

improvement
and
development
in
2009
include:


 Improving
the
extent
of
qualitatitive
information
in
companies’
responses,
particularly
in

relation
to
supply
chains

 Formulation
of
emission
reduction
targets

 Maturing
climate
change
governance
among
Brazilian
companies

 Inclusion
of
climate
change
policy
in
short,
medium
and
long‐term
sustainability
strategies.



Figure
20:

CDP
response
rates








































































7

Carbon
Disclosure
Project
Report
2008
–
Brasil
CDP
(2008)

8

Carbon
Disclosure
Project
Report
2008
–
Global
500
CDP
(2008)

0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Brazil India China Global
CDP4 (2006)
CDP5 (2007)
CDP6 (2008)
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 45


Figure
21:

Trends
revealed
by
company
responses
to
CDP6
(Brazil)


Global
Compact
Communications
on
Progress


Many
pension
funds
and
asset
managers
that
are
members
of
the
PRI
are
now
communicating
their

expectation
that
the
companies
they
invest
in
should
be
committed
to
the
Global
Compact
principles.




One
of
the
explicit
commitments
that
a
company
makes
when
it
participates
in
the
Global
Compact
is

to
produce
an
annual
Communication
on
Progress
(COP).

In
2000,
the
year
when
the
UN
Global

Compact
was
launched,
over
600
Brazilian
companies
signed
on
to
the
initiative.

Today,
the
Global

Compact
lists
110
business
signatories
in
Brazil
(excluding
SMEs);
only
six
companies
submitted
COPS

in
2008,
according
the
Compact’s
online
database.


Indices,
equity
research
and
ratings

Specialised
indices
in
addition
to
the
ISE


Apart
from
the
ISE
and
BM&F
Bovespa’s
corporate
governance
index
(the
IGC),
there
are
no
other

sustainability
or
similar
indices
focusing
specifically
on
Brazilian
or
Latin
American
stocks.




As
noted
on
page
14,
BM&F
Bovespa
is
considering
the
possibility
of
changing
the
ISE
by
introducing
a

two‐tier
system
that
would
bring
more
Brazilian
companies
into
the
scope
of
the
Index.




Consideration
is
also
being
given
to
the
concept
of
a
regional
sustainability
index
modelled
on
the
ISE

but
covering
countries
such
as
Chile
and
Mexico
as
well.

Both
of
these
concepts
are
at
an
early
stage

of
discussion.

Dow
Jones
Sustainability
Index


A
small
number
of
Brazilian
companies
are
included
in
the
international
Dow
Jones
Sustainabilty

Index
(DJSI).

For
the
2007/08
period,
these
companies
were
Aracruz
Celusose;
Banco
Bradesco;

Banco
Itaú;
Itausa;
CEMIG;
and
Petrobras.

The
DJSI
was
re‐balanced
in
Q4
2008
for
the
2008/09

period.

No
Brazilian
companies
were
dropped
from
the
index;

Usiminas
and
VCP
were
admitted
for

the
first
time.


It
is
noteworthy
that
Petrobras
kept
its
place
in
the
DJSI
while
being
dropped
from
the

ISE
at
the
same
time.

21%
60%
43%
19%
49%
57%
83%
77%
49%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Participation in emissions trading
Board Committee for climate change
GHG emissions reduction plan
GHG emissions data externally verified
Disclose GHG emissions data
See physical opportunities
See regulatory opportunities
See physical risks
See regulatory risks
46
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Independent
sustainability
research
and
rating
products


None
of
the
US
or
European
sustainable
investment
research
firms
have
a
permanent
presence
or

full‐time
research
capability
in
Brazil.

Although
coverage
of
Brazilian
stocks
is
relatively
limited,
firms

such
as
Innovest
Strategic
Value
Advisors
and
KLD
Research
&
Analytics
Inc.
(amongst
others)
do

provide
some
research
on
approximately
25
of
Brazil’s
leading
companies.


Innovest
has
also
undertaken
research
for
the
IADB
on
the
extent
to
which
selected
Latin
American

companies
participate
in
markets
at
the
“base
of
the
pyramid”,
also
referred
to
as
Opportunities
for

the
Majority
(OM).

This
study
included
26
Brazilian
companies
ranging
from
Banco
Bradesco
and

Unibanco
to
Natura,
CEMIG
and
GOL

9
.



Brazil’s
sustainable
investment
market
has
not
yet
led
to
the
establishment
of
an
indigenous
SRI

research
and
rating
industry.

The
expertise
exists
in
Brazil
but
has
not
been
formed
into
a
commercial

offering
due
to
the
lack
of
commercial
demand
from
the
buy‐side,
who
thus
far
have
limited

themselves
to
using
the
publicly‐available
ISE
index,
supplemented
in
a
few
cases
by
one
or
two
in‐
house,
part‐time
sustainability
analysts.

Similarly,
there
are
no
solicited
‘sustainability’
rating
services

in
Brazil,
suggesting
there
is
little
or
no
demand
for
such
solutions
in
Brazil’s
corporate
community.




One
exception
to
this
may
be
the
Brazilian
firm
Serasa,
a
credit
rating
and
business
information
firm

recently
acquired
by
Experian.


Serasa
has
apparently
been
offering
an
“Environmental
Responsibility

Report”
product
on
Brazilian
firms
since
2006
and
reportedly
introduced
a
“Social
Responsibility

Report”
product
in
2007.


However,
beyond
a
short
statement
to
this
effect,
the
company’s
website

does
not
provide
any
further
information
on
these
products.

The
Serasa
products
do
not
appear
to

have
a
high
profile
with
the
asset
managers,
pension
funds
and
other
stakeholders
contacted
during

this
project.

Sell‐side
equity
research
on
sustainability
issues


Brazilian
sell‐side
broker/dealers
do
not
produce
any
equity
research
focusing
on
environmental
and

social
sustainability
issues.

This
is
despite
the
efforts
of
the
LASFF,
which
developed
analytical

methodologies
for
three
sectors
in
2007/08
and
disseminated
them
through
APIMEC,
the
Brazilian

equity
analysts
association.

Again,
the
primary
barrier
is
not
a
lack
of
expertise,
but
a
lack
of

commercial
demand
from
the
buy‐side.





Although
international
investment
firms
such
as
HSBC
have
recently
begun
to
produce
sustainability

research
on
emerging
markets
such
as
India,
emerging
markets
like
Brazil
are
still
under‐researched

and
certainly
have
not
received
any
coverage
of
the
kind
being
promoted
in
Europe
and
the
US
under

programmes
such
as
the
Enhanced
Analytics
Initiative
(EAI).

Some
Brazilian
companies
are
covered

by
global
sector
research:

for
example,
Petrobras
is
covered
by
Goldman
Sachs’
recent
research
on

sustainability
issues
in
the
energy
sector.


Networks
and
associations

Industry
bodies


As
noted
throughout
this
report,
many
of
Brazil’s
investment
industry
associations
and
professional

bodies
are
involved
in
sustainable
investment
issues
of
behalf
of
their
members.

This
includes

participation
in
the
ISE
Advisory
Board,
awareness‐raising
activities,
and
involvement
in
initiatives

such
as
CDP.

The
key
organisations
that
are
active
in
this
respect
are
the
Brazilian
Association
of

Pension
Funds
(ABRAPP);
the
National
Association
of
Investment
Banks
(ANBID);
and
the
Association

of
Capital
Markets
Analysts
and
Investment
Professionals
(APIMEC).




































































9

Innovest
Strategic
Value
Advisors
Opportunities
for
the
Majority
Index:
Analysis
of
Corporate
Performance
in
Latin
America

and
the
Caribbean
Inter‐American
Development
Bank
(December
2007)

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 47


UNEPFI


Brazilian
financial
institutions
are
very
active
members
of
UNEPFI’s
Latin
America
Task
Force.

The

Task
Force
focuses
mainly
on
the
banking
sector
and
on
building
awareness
and
capacity
for

sustainable
banking
outside
Brazil,
and
is
therefore
not
considered
further
in
this
chapter.

It
should

be
noted
that
UNEPFI’s
Geneva‐based
Emerging
Markets
Responsible
Investment
Project
is
closely

involved
in
the
PRI
Brazil
Network
(see
below)
and
that
UNEPFI
itself
is
a
member
of
the
ISE
Advisory

Board.

LASFF


The
LASFF
(www.lasff.org)
was
formed
in
2006
by
CES‐FGV
with
seed
funding
from
IFC
and
is
currently

supported
by
FEBRABAN.

Members
include
BM&F
Bovespa,
APIMEC,
Banco
Real,
Banco
Itaú,
Banco

Bradesco,
Unibanco,
Citi
and
HSBC.

The
Forum
was
created
to:


 Support
opportunity‐detection
and
investment
strategies
on
regional
level;

 Influence
policy‐making
and
public
sector
awareness
of
the
financial
industry’s
potential
role

in
the
promotion
of
sustainable
development;

 Create
an
on‐line
system
(or
clearing
house)
containing
a
thorough
database
on
SF
to
be

used
for
research,
professional
education
and
exchange;

 Foster
the
development
of
high
quality
products
and
services
as
well
as
training
and

research;

 Promote
career
opportunities
in
sustainable
finance
as
a
field
for
professional
development

through
training,
communication
and
networking;

 Coordinate
efforts
to
enlarge
sustainable
finance
markets
regionally,
through
global

networking
with
key
global
market
makers.


The
LASFF
Capital
Markets
Working
Group
is
comprised
of
the
main
asset
managers
who
currently

run
retail
SRI
funds
(Chapter
5)
and
deals
with
the
type
of
issues
covered
by
this
report.

Other

thematic
working
groups
exist
for
topics
such
as
the
Equator
Principles,
microfinance
and
reporting.



The
Working
Group’s
activities
include
collaboration
with
APIMEC
to
provide
sustainability
training
for

analysts
(see
previous
page),
and
a
recent
sign‐on
campaign
urging
listed
companies
to
remove
forced

labour
from
their
supply
chains.




CES‐FGV
hosts
an
LASFF
web
site
which
is
available
in
both
English
and
Portuguese,
although
the

majority
of
materials
and
downloads
are
in
Portuguese
only.




The
Forum
is
essentially
a
project
of
the
CES‐FGV
and
is
not
constituted
as
a
separate
legal
entity
with

its
own
staff,
membership
structure
or
budget.

The
LASFF
does
not
have
a
full‐time
coordinator
or

director.

The
Forum
cannot
be
considered
to
be
analogous
to
sustainable
investment
professional

membership
bodies
such
as
the
US
Social
Investment
Forum
(SIF),
the
UK
Sustainable
Investment

Forum
(UKSIF)
or
the
Association
for
Sustainable
&
Responsible
Investment
in
Asia
(ASrIA).


UNPRI


The
PRI
Brazil
Network
was
launched
in
late
2008
and
is
emerging
as
a
major
force
for
sustainable

investment
in
Brazil.

The
Network
benefits
from
a
part‐time
co‐ordinator
based
in
São
Paolo
and

strong
support
from
the
PRI
Secretariat
and
UNEPFI’s
Emerging
Markets
Responsible
Investment

project.

A
summary
of
the
PRI
Brazil
Network’s
organisation
and
work
programme
is
provided
in
the

box
overleaf.

Initial
efforts
focused
on
gaining
more
Brazilian
signatories
in
both
the
asset
owner
and

asset
manager
categories.

The
emphasis
is
now
on
support
for
implementation.

PREVI
and
other

Brazilian
UNPRI
signatories
are
also
able
to
draw
on
PRI’s
centralised
services
including
the
PRI

Engagement
Clearinghouse
and
the
PRI
Enhanced
Research
Portal.



48
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


PRI
BRAZIL
NETWORK



Background



The
PRI
Brazil
Network
was
launched
in
November
2008
in
response
to
strong
signatory
demand
for
a
local

Portuguese
language
platform.
PREVI,
the
largest
pension
fund
in
Brazil,
was
leading
this
with
support
from
the

PRI
Secretariat.
The
purpose
of
the
PRI
Brazil
Network
is
to
facilitate
implementation
of
the
Principles
in
Brazil

and
to
promote
collaboration
among
signatories
on
a
range
of
material
ESG
issues
in
the
local
Brazilian
context.

The
PRI
Secretariat
employs
a
part
time
coordinator
in
Sao
Paolo
who
supports
key
network
activities
and

translates
PRI
materials
into
Portuguese.
The
Network
has
monthly
calls
chaired
by
PREVI.
During
the
first
call

signatories
set
up
three
working
groups
Engagement,
Recruitment
and
Integration,
which
all
currently
have

monthly
calls.



Engagement


In
2009
the
focus
of
the
Engagement
Group
is
on
promoting
disclosure
and
improving
quality
of
sustainability

reports
in
Brazil.
This
is
done
in
the
context
of
the
Emerging
Markets
Disclosure
project
and
the
group
is
working

closely
with
the
Global
Reporting
Initiative
(GRI)
in
Brazil.
In
order
to
select
companies
with
which
to
engage,
the

group
is
planning
to
analyse
corporate
sustainability
reports
for
the
2008
financial
year
and
identify
companies

that
need
to
improve
reporting
quality
and
those
companies
that
do
not
report
at
all.
Signatories
will
then

collectively
engage
in
dialogue
with
these
companies
to
improve
the
quality
of
disclosure.
In
addition
to
the

disclosure
focus,
there
are
several
other
potential
engagements
being
considered,
including
the
elimination
of

slave
labour
in
the
supply
chain,
and
engagements
in
construction
and
in
agribusiness
sectors.



Banco
Real
Asset
Management
coordinates
the
Engagement
group.
Active
participants
include
Luz
Engenharia,

Funcef,
Unibanco
Asset
Management,
Astra
Investimentos,
HSBC
Global
Asset
Management,
Valia,
Sustain

Capital,
PREVI,
ARUS,
Santa
Fé
Portfólios
and
NSG
Capital.



Integration
of
ESG
issues
into
investment
analysis


Members
of
the
Integration
group
plan
to
share
methodologies
for
ESG
integration
into
investment
analysis.
The

goal
is
to
compare
different
methodologies
and
to
create
a
common
methodology
for
integrating
ESG
issues
into

valuations,
which
can
be
used
by
all
PRI
signatories
in
Brazil.
The
group
would
also
like
to
identify
and
select
ESG

indicators
that
are
most
relevant
and
material
for
investors
in
Brazil.
Based
on
this
selection,
the
group
plans
to

create
a
questionnaire
to
send
to
companies.
The
group
will
also
compare
the
most
commonly
used
indicators
in

Brazil
with
the
GRI
indicators.


The
group
is
coordinated
by
Astra
Investimentos
and
its
participants
include
Funcef,
Infraprev,
Unibanco
Asset

Management,
Banco
Real
Asset
Management,
Valia,
Sustain
Capital,
Centrus,
PREVI,
Santa
Fé
Portfólios
and
NSG

Capital.


Recruitment


This
working
group
aims
to
promote
PRI
among
investors
that
are
not
yet
signatories.
To
facilitate
recruitment

and
implementation,
the
PRI
Secretariat
is
working
on
overcoming
the
language
barrier
by
making
key
PRI

materials
available
in
Portuguese.
For
example
a
‘sign
up
kit’
has
been
developed,
with
all
key
information
about

the
PRI
and
a
description
of
the
sign
up
process
in
Portuguese.



The
Recruitment
group
is
coordinated
by
Infraprev
and
has
participants
from
Luz
Engenharia,
Banco
Real
Asset

Management,
Funcef,
Unibanco
Asset
Management,
PREVI,
Mauá
Investimentos,
Santa
Fé
Portfólios
and
NSG

Capital.



Source:
UNPRI


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 49


Development
finance
institutions


IFC
has
helped
to
develop
the
sustainable
investment
market
in
Brazil
since
2002.

In
addition
to
the

current
report,
IFC’s
technical
assistance
and
advisory
services
have
included
support
for:


 a
CES‐FGV
market
intelligence
briefing
(2003)

 a
major
São
Paulo
conference
on
emerging
market
sustainable
investment
(2004)

 the
development
of
the
ISE
index
(2005)

 the
creation
of
the
LASFF
(2006)

 GRI
reporting
by
corporations
(2008)


In
addition,
IFC
has
been
providing
occasional
training
courses
on
sustainable
investment
for
private

equity
funds
in
Latin
America
since
the
late
1990s.


The
IADB
also
runs
sustainable
investment
training
courses
for
private
equity
funds
and
plays
a
key

role
in
the
INOVAR
program
discussed
in
Appendix
D.




BNDES’
role
in
building
Brazil’s
venture
capital
industry
(including
“cleantech”
funds
such
as
those

launched
recently
by
Stratus
and
Sustain
Capital)
is
also
discussed
in
Appendix
D.

BNDES
has
US$16

billion
worth
of
investments
in
publicly
listed
companies
but
is
not
involved
in
Brazil’s
sustainable

investment
movement
(see
page
33).


Language
barriers


The
availability
of
information,
reports,
conference
materials
and
training
programs
in
both

Portuguese
and
English
(and,
ideally,
Spanish)
is
an
important
factor
in
the
operation
and
further

development
of
Brazil’s
sustainable
investment
market
and
its
interaction
with
foreign
investors.

It
is

widely
agreed
that
the
language
barrier
can
be
a
significant
problem.




There
is
a
large
body
of
English‐language
sustainable
investment
material
that
is
relevant
to
Brazilian

professionals.

Much
of
this
is
now
being
translated
by
the
PRI
Brazil
Network.

Similarly,
there
is
a

substantial
body
of
Brazilian
material
is
relevant
to
international
investors
and
analysts.

Although

most
corporate
sustainability
reports
are
available
in
English
as
well
as
Portuguese,
other
key

materials
(such
as
statistical
data
and
information
on
legislation)
are
difficult
for
a
non‐Portuguese

speaker
to
access.

This
is
an
unnecessary
impediment
to
engaging
with
foreign
portfolio
investors
on

sustainability
issues
in
Brazil’s
capital
market.


Green
consumerism


According
to
research
conducted
by
the
National
Geographic
Society
and
the
international
polling

firm
GlobeScan,
consumers
in
Brazil
are
amongst
the
“greenest”
in
the
world
in
terms
of
sustainable

consumption
and
ethical
consumer
choices

10
.


GlobeScan
conducted
Internet
surveys
of
consumers

in
14
countries
to
compare
the
behaviours
of
individuals
in
four
key
areas:
housing,
transportation,

food,
and
consumer
goods.

The
index
measures
both
discretionary
and
essential
consumption.


Consumers
in
Brazil
and
India
tied
as
most
"green,"
with
each
scoring
60
on
the
100‐point

sustainable‐consumption
scale.

Those
in
the
United
States
scored
lowest,
or
most
wasteful
(Figure

22).

Although
the
survey
does
not
cover
consumer
attitudes
and
behaviour
with
respect
to
financial

products
and
investment
services,
the
results
suggest
a
favourable
retail
environment
for
sustainable

investment
in
Brazil.





































































10

Greendex
2008:
Consumer
Choice
and
the
Environment—A
Worldwide
Tracking
Survey

National

Geographic/GlobeScan
(May
2008)

50
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



Figure
22:

Green
consumerism
in
Brazil
(source:
National
Geographic/GlobeScan)








44.9
48.5
48.7
49.1
50.0
50.2
50.2
50.2
52.4
53.2
54.3
56.1
60.0
60.0
USA (14)
Canada (13)
France (12)
Japan (11)
Spain (10)
Great Britain (7)
Germany (7)
Australia (7)
Russia (6)
Hungary (5)
Mexico (4)
China (3)
Brazil (1)
India (1)
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 51


10.

BUILDING
ON
SUCCESS



Overall
market
size


Consolidated
estimates
of
SRI
assets
under
management


Table
15
aggregates
the
various
data,
estimates
and
educated
guesses
from
Chapters
4‐9
on
the
stock

of
sustainable
investment
in
Brazil
at
the
current
time.

It
should
be
emphasised
that
this
exercise
is

based
on
numerous
assumptions
and
estimates
as
stated
in
the
report,
as
well
as
data
from
different

sources
and
time
periods:
it
provides
only
a
rough
approximation
but
one
which
may
nevertheless
be

useful.


Overall,
the
total
stock
of
investment
that
may
be
classifiable
as
“sustainable”
could
be
in
the
order
of

US$75
billion.

The
total
domestic
market
capitalisation
of
the
São
Paulo
stock
exchange
at
the
end
of

October
2008
was
US$585
billion.

“Sustainable”
investment
could
therefore
be
at
least
10
per
cent
of

market
cap.

Taking
a
conservative
approach,
TERI‐Europe
believes
an
estimate
of
US$40
billion
(<7

per
cent
of
total
market
cap)
may
be
more
useful
for
comparative
and
decision‐making
purposes.



Table
15:

TERI‐Europe’s
estimates
of
the
stock
of
sustainable
investment
(SI)
in
Brazil

Segment

Estimated
stock
of
SI


(US$
billion)

Percentage
of

segment
total




Basis
for
%
comparison

Asset
manager
signatories
to

UNPRI
(excluding
NAV
of
SRI

funds,
below)

US$7.9
 11%

ANBID
data
(Oct
2008);
estimating

15%
allocation
to
equities;
assuming

UNPRI
implementation

Retail
SRI
mutual
funds
 US$0.3

 2%

ANBID
data
(Oct
2008)
and
CVM
data

(Jan
2009);
estimating
that
15%
of

total
retail
AUM
are
allocated
to

equities

Pension
fund
signatories
to

UNPRI

US$35.0
 60%

ABRAPP
data
(Sep
2008);
estimating

32%
allocation
to
equities;
assuming

UNPRI
implementation

BNDES

(US$16
billion
in
listed
equities)

Unknown
 Unknown


BNDESPAR
holdings
as
of
June
30,

2008;
Bovespa
trading
data
as
of
Jan

23,
2009

Foreign
investment
under
SI

management

US$1.2

 <1%

CVM
data
(Aug
2008);
guessing
that

1%
of
total
stock
is
SI

ADR
investment
under
SI

management

US$1.0

 <1%

ADR
data
as
of
Jan
2009;
guessing

that
1%
of
total
stock
is
SI

HWNI
assets
available
for

sustainable
investment


US$24.5
 <5%

Independent
estimates
of
HNWI

wealth;
guessing
that
allocation
to

equities
is
35%
and
SI
could
be
5%
of

this

TOTAL
excluding
BNDES
 US$70
billion
 12%

TOTAL
including
BNDES
 US$86
billion
 15%

Percentage
of
total
domestic
market

cap
(US$585
billion
as
of
Oct
2008)

(World
Federation
of
Exchanges
data)


52
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Brazilian
SRI
in
a
global
context


Europe
and
the
US
provide
useful
international
benchmarks.

Eurosif
estimates
that
SRI
assets

represent
over
17
per
cent
of
the
asset
management
industry
in
Europe
11
.

According
to
the
US
Social

Investment
Forum,
roughly
11
per
cent
of
assets
under
professional
management
in
the
US
are
now

involved
in
SRI
12
.


Strengths
and
weaknesses


Appendix
B
provides
a
detailed
analysis
of
the
strengths
and
weaknesses
identified
by
TERI‐Europe

across
the
overall
“ecosystem”
of
sustainable
investment
in
Brazil.






Strong
commitment


Brazil
has
made
significant
progress
in
developing
a
sustainable
investment
market
over
the
last

decade
and
rightly
deserves
its
reputation
as
the
leader
among
emerging
economies
in
this
regard.


These
achievements
are
attributable
to
the
long‐term
vision
and
commitment
of
a
relatively
small

number
of
individuals
and
organisations
in
Brazil
(particularly
BM&F
Bovespa,
Banco
Real,
PREVI,
CES‐
FGV
and
the
Ethos
Institute),
supported
at
key
moments
by
external
change
agents
such
as
IFC,
CDP,

GRI
and
UNPRI.



In
addition
to
what
has
been
achieved
for
the
country
itself,
the
evolution
of
a
sustainable
investment

market
by
Brazil
has
led
other
emerging
markets
to
focus
on
the
same
issues
and
goals.

Strong
business
case




Taken
in
combination,
the
many
positive
trends
described
in
this
report
add
up
to
a
strong
prima
facie

case
for
the
mainstream
importance
of
sustainability
in
business
and
investment
in
Brazil
today,
even

if
the
current
body
of
empirical
data
does
not
yet
allow
the
business
case
to
be
proved
by
impeccable

quantitative
evidence.



Contribution
to
sustainable
development


Brazil’s
sustainable
investment
movement
is
now
just
beginning
to
move
into
the
evolutionary
phase

where
its
development
impact
can
start
to
go
deeper
as
a
result
of
efficient
capital
allocation
to

private
enterprises
that
create
real,
on‐the‐ground,
benefits
to
people’s
livelihoods
and
the

environment.




For
example:



 the
ISE
index
is
gradually
becoming
more
rigorous
and
assertive
in
holding
companies
to

account;


 shareholder
engagement
is
(slowly)
beginning
to
evolve
from
an
emphasis
on
sustainability

reporting
to
direct
pressure
on
issues
such
as
forced
labour
in
the
supply
chain;


 there
are
opportunities
to
create
new
investment
products
with
high
development
impact

themes
such
as
climate
change,
SME
finance,
blended
value
investment,
biodiversity
and

indigenous
peoples.






































































11

2008
European
SRI
Study
(Eurosif,
2008)

12

2007
Report
on
Socially
Responsible
investing
trends
in
the
United
States
(Social
Investment
Forum,
2007)


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 53


Strategic
challenges
and
risks


Despite
the
many
positive
things
that
can
be
said
about
Brazil’s
sustainable
investment
market,
the

movement
is
still
relatively
small
and
somewhat
fragile,
especially
given
current
market
conditions.



Economic
turmoil
aside,
the
main
challenges
that
lie
in
front
of
Brazil
with
respect
to
sustainable

investment
over
the
next
two
to
three
years
are:


 Stagnation
(especially
relevant
to
asset
managers
competing
in
the
non‐institutional
investor

market)


 Fragmentation
(especially
between
the
LASFF/ANBID
and
UNPRI/ABRAPP
“cliques”)

 Possible
corporate
push‐back
(especially
in
relation
to
a
more
assertive
ISE
and
early
efforts

at
shareholder
engagement)

 Excessive
risk
aversion,
reluctance
to
deviate
from
the
IBovespa
benchmark
and
internal

resistance
to
new
concepts
and
practices

 Internalising
the
costs
of
sustainability
research
as
well
as
the
benefits


 Meeting
raised
expectations
(especially
relevant
to
UNPRI
pension
funds)

 Planning
and
adapting
market
architecture
to
meet
evolving
needs,
including
investment
in

human
capital


Issues
on
the
horizon

The
ISE
paradox


The
ISE
index
has
been
very
successful.

Amongst
other
things,
it
has:


 significantly
increased
the
amount
of
SRI
assets
under
management;


 increased
choice
for
retail
investors;


 stimulated
competition
between
asset
management
firms;


 raised
companies’
awareness
and
influenced
their
behaviour;


 shown
that
sustainable
investment
strategies
can
match
the
performance
of
conventional

benchmarks;


 encouraged
BM&F
Bovespa
to
introduce
other
sustainability
services;
and

 prompted
the
creation
of
similar
indices
in
other
countries.




Going
forward,
however,
the
ISE
also
presents
some
complex
challenges
that
have
critical

implications.

If
these
issues
are
not
resolved,
Brazil’s
sustainable
investment
market
could
potentially

end
up
in
an
evolutionary
cul‐de‐sac.

They
basically
boil
down
to
the
commercial
business
model

adopted
for
the
index.


As
discussed
in
Chapter
3,
all
BM&F
Bovespa
indices,
including
the
ISE,
are
made
available
to
investors

free
of
charge.

Companies
wishing
to
be
included
in
the
ISE
pay
an
evaluation
fee
of
US$2,000;

companies
admitted
to
the
ISE
can
also
purchase
a
license
to
use
the
ISE
brand
for
a
fee
of
US$7,000

per
annum.

These
income
streams
are
the
only
source
of
revenue
to
cover
the
ISE’s
maintenance

costs,
which
are
largely
incurred
by
CES‐FGV.




Assuming
that
CES‐FGV
analyses
50
companies
a
year
(see
Table
2,
page
12)
and
that
all
of
the
40

companies
admitted
to
the
ISE
pay
for
a
license
to
use
the
brand
image,
annual
gross
income
is
likely

to
be
in
the
region
of
US$300,000.


By
comparison,
assuming
that
management
fees
on
the
ten
SRI

funds
listed
in
Table
5
(page
20)
are
a
conservative
1
per
cent,
gross
income
on
those
ISE‐based
funds

could
be
about
US$3
million
per
annum
at
the
bottom
of
the
market.

At
the
height
of
the
market
in

December
2007,
this
figure
may
have
been
closer
to
US$7
million
per
annum.






Although
these
are
“back
of
the
envelope”
calculations,
it
should
also
be
noted
that
they
do
not
take

into
account
the
economic
value
of
the
ISE
to
beneficiaries
such
as
PREVI
and
other
Brazilian
pension

funds,
for
whom
the
ISE
is
currently
one
of
the
main
tools
available
for
implementation
of
the
PRI

across
a
total
equity
portfolio
of
around
US$35
billion
(page
25).


54
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



The
long‐term
durability
and
equitability
of
ISE’s
business
model
therefore
deserves
particular

attention,
especially
given
the
need
to
support
further
innovation
and
capacity
building
in
this
field.



The
key
points
for
consideration
are
as
follows:


 The
entities
that
benefit
most
from
the
index
(the
SRI
fund
managers
and
–
to
a
less
extent
‐

the
UNPRI
pension
funds)
do
not
remunerate
those
who
provide
the
service
and
carry
the

risk
(BM&F
Bovespa
and
especially
CES‐FGV).


 The
entities
that
do
pay
for
the
index
are
the
companies
that
apply
to
join
it
and
the

companies
that
are
ultimately
admitted.

This
could
pose
a
potential
or
actual
conflict
of

interest.


 Gross
income
earned
by
the
index
(i.e.
by
CES‐FGV)
is
effectively
capped
by
the
ISE

regulations
on
the
number
of
companies
that
can
be
included
in
the
notional
portfolio,

regardless
of
how
successful
the
index
is
in
terms
of
adding
value
to
its
customers
(the
SRI

fund
managers
and
pension
funds).


Not
only
is
this
basically
unfair
and
commercially

irrational,
it
also
creates
the
theoretical
risk
that
regulations
might
be
changed
to
expand
the

portfolio
simply
to
increase
revenue
at
the
expense
of
quality.


 CES‐FGV’s
overheads
as
data
provider
to
the
ISE
are
not
a
topic
for
this
study
but
it
may
be

reasonable
to
assume
that
net
income
is
not
large
and
leaves
little
scope
for
human
capital

development,
investor
education,
corporate
outreach,
marketing
or
research
&

development.


 The
underlying
data
collected
and
maintained
by
CES‐FGV
are
potentially
very
useful
to

investors,
analysts
and
other
organisations
and
could
generate
additional
revenues
that

could
be
used
for
strategic
development.

However
there
is
no
commercial
or
even
not‐for‐
profit
outlet
for
this
data.

This
may
be
partly
attributable
to
confidentiality
agreements

between
CES‐FGV
and
companies
responding
to
the
ISE
questionnaire.


 Investors
can
use
the
ISE
free
of
charge
and
it
meets
their
basic
needs
at
the
current
time.


This
may
create
a
disincentive
for
investors
to
pay
for
the
development
or
purchase
of
more

advanced
sustainable
investment
tools.

Arguably,
it
also
seriously
distorts
the
potential

market
for
the
commercial
provision
of
more
advanced
tools.

In
a
worst
case
scenario,
a

monopoly
situation
then
develops
with
no
incentive
or
financial
means
for
innovation
in
a

marketplace
that
has
become
accustomed
to
subsidised
externalisation
of
the
costs
of

investing
responsibly.


A
related
issue
is
the
fact
the
ISE
methodology
(and
cost/revenue
structure)
relies
on
collecting
data

by
means
of
a
questionnaire
and
the
response
rate
to
this
questionnaire
has
fallen
every
year
since

the
ISE’s
launch
in
2005
(Table
2,
page
12).

Given
the
success
of
the
index
and
the
increase
in

sustainability
reporting
(Figure
19,
page
42),
the
response
rate
trend
should
be
strongly
positive.


Questionnaire
fatigue
is
a
well‐known
facet
of
the
sustainable
investment
industry
around
the
world

and
requires
prompt
mitigation
or
adaptation.

Falling
company
interest
in
or
cooperation
with
the

ISE
is
a
matter
of
concern
that
should
be
given
priority
attention
as
soon
as
possible.




The
matter
is
further
complicated
by
the
possibility
that
PRI
pension
funds
in
Brazil
may
develop
their

own
ESG
questionnaire
that
they
would
jointly
send
to
Brazilian
companies
(see
pages
12
and
48).

Limited
research
coverage



As
discussed
on
page
46,
ESG
research
on
Brazilian
equities
is
relatively
limited
at
the
current
time.

In

particular,
Brazilian
sell‐side
analysts
do
not
produce
ESG
research
(despite
initiatives
by
LASFF
and

APIMEC)
and
Brazil
does
not
have
any
local
sustainable
investment
research
firms.


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 55


Brazil
has
proven
that
it
has
expertise
to
produce
such
‘advanced’
sustainable
investment
tools,
or
at

least
the
capability
to
create
or
acquire
such
expertise.

Although
corporate
sustainability
reporting
is

still
far
from
perfect,
it
provides
a
reasonably
good
dataset
for
such
research
and
is
improving.


Moreover,
CES‐FGV
collects
and
maintains
an
extensive
database
of
relevant
information,
as
a
result

of
its
work
on
the
ISE
index:
this
knowledge
bank
could
be
made
available
to
commercial
research

providers,
for
example
through
licensing
agreements
or
some
form
of
commercial
partnership.


The
expertise
and
information
exists
in
Brazil
but
has
not
been
formed
into
a
commercial
offering
for

a
simple
reason:
there
is
little
or
no
commercial
demand
from
the
buy‐side.

In
turn,
this
is

attributable
to
four
factors:



 The
disincentive
created
by
a
“free”
ISE
index,
as
discussed
above.


 Investors
like
PREVI
are
only
just
beginning
to
work
out
what
their
needs
are
for
the
kind
of

“advanced”
analytical
tools
that
require
good
quality
ESG
research.


 Moreover,
pension
funds
and
asset
managers
in
Brazil
have
a
relatively
strong
ethos
of

developing
and
using
in‐house
expertise
–
out‐sourcing
is
not
a
strong
part
of
the
culture.


 The
Brazilian
sustainable
investment
community
as
a
whole
has
not
leveraged
the

purchasing
power
of
foreign
portfolio
investors
by
sensitizing
them
to
the
advantages
(and

potential
availability
of)
good
quality
ESG
research
provided
by
in‐country
experts
with
deep

local
insight.

Stagnation
in
the
asset
management
sector


Chapter
5
describes
the
remarkable
emergence
of
SRI
mutual
funds
in
Brazil,
beginning
with
Banco

Real’s
Ethical
Fund
in
2001
and
expanding
over
the
2005‐2007
boom
years.

Several
issues
suggest

that
there
is
a
risk
of
stagnation
in
this
small
but
important
section
of
the
Brazilian
sustainable

investment
market.



At
US$315
million,
the
ten
SRI
funds
still
represent
a
very
small
proportion
of
total
assets
under

management.

For
example,
Banco
do
Brasil
dominates
the
market
in
terms
of
assets
under

management
that
are
invested
in
equities,
with
more
than
twice
the
business
of
its
two
closest

competitors
put
together
(see
Figure
10,
page
16):

SRI
is
only
0.05
per
cent
of
this
business
(Figure

15,
page
24).




Amongst
those
asset
management
firms
with
SRI
funds,
the
“mainstreaming”
of
sustainable

investment
practices
across
“conventional”
strategies
and
products
appears
to
be
rather
limited

(page
18).

Several
firms
that
manage
SRI
funds
are
not
yet
signatories
to
the
UNPRI.

None
of
the

asset
management
firms
employs
full‐time
ESG
analysts,
and
five
do
not
even
have
part‐time
ESG

analysts.


Despite
several
new
entrants
to
the
market
since
the
launch
of
the
ISE,
market
share
in
the
SRI
niche

continues
to
be
dominated
by
the
early
pioneers,
Banco
Real
and
Itaú,
who
each
control
about
40
per

cent
of
total
SRI
net
assets
(Figure
12,
page
21).

The
ten
SRI
funds
are
all
“first
generation”
products

that
are
similar
to
one
another
in
terms
of
their
sustainability
features
(page
23)
and
financial

performance
(Figures
13
and
14).

There
has
been
almost
no
product
innovation
(either
around
alpha‐
seeking
ESG
strategies
or
high
environmental/
social
development
impact
strategies)
since
Banco

Real,
Itaú
and
the
ISE
index
provided
the
“blueprint”
for
others
to
follow.




Retail
appetite
for
these
somewhat
homogenous
sustainability
products
appears
to
have
begun
to

level
out
in
the
middle
of
2007,
although
this
obviously
coincides
with
the
recent
decline
in
retail

appetite
for
variable
income
products
in
general.

This
potential
stagnation
is
exacerbated
by
the

asset
managers’
relative
isolation
from
the
main
driving
force
for
sustainable
investment
in
Brazil

today,
i.e.
PREVI
and
the
other
pension
fund
signatories
to
the
UNPRI.



56
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


The
pension
funds
largely
manage
their
equity
portfolios
in‐house
and
until
recently
there
has

therefore
been
little
or
no
know‐how
transfer
or
cross‐fertilization
of
ideas
between
the
pension

funds
and
asset
managers
such
as
Banco
Real
that
have
pioneered
SRI
in
Brazil
and
developed
in‐
house
research
capacity.



Limited
involvement
of
foreign
portfolio
investors


The
ISE
index
and
Brazil’s
sustainable
investment
movement
in
general
do
not
yet
seem
to
have

captured
the
imagination
of
foreign
portfolio
investors
or
investors
in
Brazilian
ADRs
(page
11).

With

some
exceptions
(such
as
collaborative
engagement
on
the
issue
of
forced
labour)
(page
32),
foreign

portfolio
investors
have
had
relatively
little
active
involvement
in
Brazil’s
sustainable
investment

activities,
especially
since
the
“loss”
of
ABN
AMRO’s
Luxembourg‐registered
Brazil
Equity
Fund
(page

29).




In
part,
this
reflects
the
fact
that
sustainable
investment
is
only
just
now
beginning
to
mature
in
Brazil

and
is
still
a
relatively
new
concept
for
the
majority
of
foreign
investors
in
emerging
markets.


However,
it
also
highlights
the
absence
of
a
coordinated
international
marketing
strategy
by
all
those

involved
in
Brazil’s
sustainable
investment
community.

Fragmentation
and
overlap
in
market
leadership


Unibanco,
Banco
Real
and
HSBC
are
members
of
both
the
LASFF
and
PRI
Brazil
Network,
with
the

latter
two
firms
playing
a
particularly
active
role.

Other
than
this,
there
is
little
or
no
membership

overlap
or
interaction
between
LASFF
and
the
UNPRI
network
in
Brazil.

Until
very
recently,
the
two

networks
appear
to
have
had
relatively
little
to
do
with
one
another
and
to
some
extent
they

compete
for
members
and
influence.

At
the
current
time
the
PRI
Brazil
Network
appears
to
have

significantly
more
momentum
than
the
LASFF.


Recommendations

Update
the
ISE’s
commercial
business
model


BM&F
Bovespa
and
CES‐FGV
should
consider
changes
to
the
ISE’s
commercial
business
model
that

would:


 encourage
sustainability
investors
(asset
managers
and
pension
funds)
to
begin
to
internalise

the
costs
of
sustainable
investment;
and


 provide
stronger
foundations
for
continuous
improvement
to
the
ISE’s
regulations
and

methodology,
for
international
marketing
and
promotion,
and
for
the
possible
later

development
of
new
products
such
as
the
idea
of
a
regional
index.


The
rationale
for
changing
the
ISE’s
commercial
business
model
would
be
as
follows:


 Reduce
the
index’s
financial
reliance
on
companies,
in
order
to
eliminate
the
risk
of
conflicts

of
interest.


 Create
income
that
is
linked
to
the
value
that
the
index
provides
to
investors,
not
the

number
of
companies
in
the
index
basket.


 Allocate
more
resources
for
marketing
and
promotion,
especially
at
the
international
level

(thus
enhancing
the
brand
value
of
the
ISE
for
companies).


 Create
incentives
to
find
commercial
outlets
for
the
underlying
database
and
knowledge

bank
held
by
CES‐FGV.


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 57


 Remove
the
risk
that
the
index
could
be
inadvertently
holding
back
progress
by
distorting
the

commercial
market
for
complementary
research
and
rating
services.


The
assessment
fee
currently
paid
by
companies
‘applying’
for
admission
to
the
index
could
be

reduced
or
phased
out
completely
(the
license
fee
paid
by
ISE
companies
for
the
right
to
use
the
ISE

logo
should
probably
be
maintained).


The
names
and
weightings
of
ISE
portfolio
companies
have
always
been
in
the
public
domain,
as
with

all
BM&F
Bovespa
indices.

Changing
this
may
be
counter‐productive
as
well
as
impractical.




However,
some
type
of
fee
structure
could
be
phased
in
for
those
asset
managers
who
currently
use

the
ISE
to
manage
and
market
existing
SRI
products.

At
the
simplest
level,
this
could
be
a
license
fee

for
the
right
to
use
the
ISE
name
and
logo
in
fund
prospectuses,
fact‐sheets
and
related
marketing

materials,
perhaps
with
a
simple
sliding
scale
based
on
NAV.

For
existing
ISE‐based
funds
(and
given

current
market
conditions),
it
may
be
appropriate
to
make
this
a
voluntary
arrangement
in
2009‐2010

on
the
understanding
that
their
contributions
will
be
passed
on
to
BRASIF
(see
pages
61‐64).

More

robust
arrangements
could
be
developed
as
and
when
asset
managers
start
to
develop
new
SRI
funds

under
more
favourable
economic
conditions.

Make
greater
use
of
ISE
data


There
are
probably
various
ways
to
create
commercial
outlets
for
the
ISE
database
held
by
CES‐FGV,

as
well
as
a
number
of
potential
barriers
to
market
entry.

The
best
way
to
explore
and
test
these

possibilities
is
to
put
the
concept
to
the
test
of
entrepreneurialism,
whilst
also
looking
at
the
lessons

that
can
be
learned
from
other
markets.

The
options
could
include:


 A
solicited
ESG
or
CSR
rating
product,
i.e.
companies
pay
to
be
rated
by
an
independent
firm

and
are
then
able
to
use
this
rating/report
in
their
investor
relations
and
public
relations.


Examples
include
Reputex’s
recent
work
in
China,
and
the
European
solicited
ratings

business
of
the
French
firm,
Vigeo.


 An
on‐line
database
of
historical
GRI‐type
indicator
data.

In
theory,
companies
would
pay
to

have
their
information
on
this
database
(as
a
way
to
deal
with
questionnaire
fatigue)
and

investment
analysts
would
pay
to
access
it.

The
London
Stock
Exchange
developed
a
similar

product
(the
Corporate
Responsibility
Exchange)
several
years
ago.

Although
their
particular

business
format
did
not
find
commercial
success
at
the
time,
it
may
provide
useful
lessons

and
ideas.


 A
joint
venture
or
similar
arrangement
between
CES‐FGV
and
an
established
SRI
research

house
in
Europe
or
North
America.

CES‐FGV
could
license
its
database
to
the
research

house,
which
would
then
be
able
to
offer
much
better
coverage
of
Brazilian
stocks
for
its

off‐the‐shelf
products
and
customised
research.

The
Johannesburg
Stock
Exchange’s

Socially
Responsible
Investment
(SRI)
Index
(where
the
data
provider
is
the
UK‐based
firm

EIRIS)
may
provide
some
useful
lessons
and
ideas
in
this
regard.


PREVI
has
commented
that
it
needs
tools
that
go
beyond
the
in/out
screening
represented
by
the
ISE

(pages
11
and
26).

It
needs
to
be
able
to
drill
down
into
companies
based
on
ESG
issues
and
carry
out

horizontal
comparisons
between
companies
and
sectors.

In
light
of
this,
the
UNPRI
pension
funds

may
be
the
main
initial
audience
for
new
information
products
based
on
the
underlying
database
and

knowledge
bank
that
CES‐FGV
has
built
up
by
being
the
data
provider
for
the
ISE
since
2005.




As
discussed
on
page
12,
the
PRI
Brazil
Network’s
Integration
Working
Group
is
examining
the
ESG

indicators
that
are
most
relevant
and
material
for
investors
in
Brazil
and
consideration
is
being
given

to
developing
a
joint
questionnaire
that
the
PRI
pension
funds
will
send
to
Brazilian
companies.

The

relationship
between
this
initiative
and
the
ISE
index
is
currently
unclear.

Clarifying
this
issue
will
also

be
important
in
taking
forward
the
idea
that
greater
use
can
be
made
of
the
ISE
database.




58
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Create
a
commercial
market
for
ESG
research


The
key
mechanism
for
creating
a
business
environment
that
favours
commercial
ESG
and
SRI

research
providers
consists
of
updating
ISE’s
commercial
business
model
and
exploiting
the
latent

value
of
the
underlying
ISE
database,
as
discussed
above.

This
involves
a
major
but
necessary
change

in
mind‐set:
the
costs
of
investing
sustainably
should
be
internalized
in
order
to
drive
the
next
phase

of
progress.

These
costs
should
be
regarded
as
an
investment
in
the
future,
not
just
an
overhead.



Willingness
to
make
this
shift
in
mind‐set
and
practice
is
an
important
test
of
Brazil’s
commitment
to

sustainable
investment,
especially
in
relation
to
the
possibility
of
new
support
from
DFIs.


Consideration
should
also
be
given
to
complementary
initiatives
that
would
help
to
encourage
ESG

research
and
rating
providers.

For
example,
competitive
forums
could
be
created
to
showcase
good

research.

The
Enhanced
Analytics
Initiative
(recently
absorbed
into
the
UNPRI)
and
UNEPFI’s
2004‐
2005
“Materiality”
project
provide
models
that
might
be
adapted
in
this
regard.

Develop
human
capital


There
are
probably
fewer
than
a
dozen
individuals
in
Brazil
at
the
current
time
with
substantial
hands‐
on
experience
in
ESG
analysis
and
SRI
portfolio
management.

These
experts
are
located
mainly
in
the

asset
management
arms
of
organisations
like
Banco
Real,
Votorantim
and
HSBC.

These
organisations

also
have
relevant
expertise
in
their
corporate
banking
and
project
finance
business
units
as
a
result

of
initiatives
such
as
the
Equator
Principles.



There
is
therefore
a
great
deal
of
asymmetry
between
human
and
financial
capital
for
sustainable

investment.

The
human
capital
is
mainly
located
in
asset
managers,
the
financial
capital
is
mainly

located
in
pension
funds;
there
is
not
a
lot
of
interaction,
and
the
human
capital
is
spread
thinly.


This
report
has
already
emphasised
the
need
for
closer
cooperation
on
sustainable
investment

between
Brazil’s
pension
funds
and
leading
asset
managers.

Human
capital
development
can
be
part

of
this,
for
example
through
joint
workshops
or
even
secondment
of
staff.

This
could
be
done
on
a

domestic
only
basis
(between
Brazilian
organisations)
or
a
mutually
beneficial
international
basis
(for

example,
with
European
and
North
American
counterparts
and/or
with
DFIs
such
as
IFC).


It
may
be
useful
to
prepare
an
inventory
of
existing
human
capital
and
survey
key
organisations
about

their
current
and
future
needs.

Training
and
employment
opportunities
could
be
advertised
on

relevant
websites,
and
appropriate
plans
for
training
and
qualifications
could
be
developed
with

organisations
such
as
the
FGV
business
school,
APIMEC
and
other
bodies.

Human
capital

development
with
other
market
actors
may
also
be
useful.

For
example,
there
may
be
value
in

holding
workshops
or
seminars
with
CVM
officials,
the
Brazilian
Institute
of
Investor
Relations
(IBRI)

and
similar
stakeholders.



Implement
an
international
strategy


Brazil’s
sustainable
investment
community
should
develop
an
international
communications
and

technical
cooperation
strategy
with
the
following
main
objectives:



 Raise
the
international
profile
of
the
ISE
Index
and
ISE
companies
(in
cooperation
with

BM&F
Bovespa)


 Help
“mainstream”
international
investors
in
Brazil
to
understand
the
importance
of
ESG

issues
and
the
resources
that
are
available
to
assist
them.


 Encourage
international
sustainability
investors
to
invest
in
Brazil
and
to
develop
products

similar
to
the
former
ABN
AMRO
Brazil
Equity
Fund
discussed
on
page
29.


 Import
and
export
of
news,
information,
new
research
and
market
intelligence.

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 59


Such
a
strategy
should
focus
on
a
targeted
range
of
foreign
stakeholders
including
institutional

investors,
investment
consultants,
asset
managers
and
SRI
research
houses.

The
strategy
should

address
the
language
barriers
discussed
on
page
49
and
help
to
provide
a
single
focal
point
for

international
access
to
relevant
information
from
multiple
Brazilian
sources
and
organisations.

Apart

from
a
good
quality
website
and
a
bi‐lingual
communications
officer,
this
strategy
could
include:


 Blogging.

 Monthly
or
quarterly
newletters/e‐mail
bulletins.

 Annual
or
biennial
reports
on
the
state
of
sustainable
investment
in
Brazil
(similar
to
the

annual
Eurosif
reports
on
SRI
in
Europe,
and
perhaps
taking
this
TERI‐Europe
report
as
a

starting
point
for
future
updates).

 Participation
in
relevant
international
networks
in
addition
to
the
UNPRI
and
regular

attendance
at
appropriate
overseas
conferences.

 Capital
markets
events/analyst
presentations
on
sustainable
investment
in
Brazil.

 Annual
or
biennial
surveys
of
foreign
institutional
investors’
views
and/or
activities
in

relation
to
sustainable
investment
in
Brazil.

Invest
in
research
and
development


This
report
identifies
several
areas
where
there
are
significant
and
important
data
gaps.

In
order
of

likely
priority,
the
four
main
topics
that
merit
further
investigation
are:


1.

ESG
Issues
Mapping





At
the
current
time,
there
is
no
single
source
that
provides
(and
updates)
an
investor‐friendly

synthesis
of
key
ESG
issues
relevant
to
shareholder
value
in
Brazil’s
main
industry
sectors
(page
4).


These
sectors
are
financial
services;
oil
&
gas;
mining;
steel;
utilities;
telecommunications
and

transportation
(see
Figure
1).

Pulp
&
paper
and
biofuels
should
probably
also
be
added
to
the
list.




IFC
is
currently
sponsoring
a
similar
mapping
exercise
on
the
Indian
market
by
WRI,
and
this
could

provide
a
model
for
the
kind
of
research
that
is
suggested
here.

LASFF
and
APIMEC
have
already

developed
relevant
materials
on
three
sectors
(page
46)
and
these
may
also
provide
a
valuable

foundation
for
this
activity.

Amongst
other
things,
such
an
ESG
mapping
exercise
should
pay
special

attention
to
climate
change,
particularly
the
economic
and
commercial
implications
of
Brazil’s

recently
published
National
Plan
on
Climate
Change
(see
Appendix
A).


2.

ESG
Footprint
of
Foreign
Institutional
Investors





It
is
currently
difficult
to
form
an
accurate
picture
of
the
foreign
portfolio
investors
who
are
the
main

investors
in
Brazilian
stocks,
although
good
data
are
publicly
available
in
relation
to
ADRs.

In
both

cases,
information
on
the
extent
to
which
such
investors
take
ESG
considerations
into
account
in
one

way
or
another
is
mainly
anecdotal
(Chapter
7).




Further
studies
to
answer
these
types
of
questions
would
probably
have
synergy
with
the
work
of
the

UNPRI,
as
well
as
a
forthcoming
Mercer
Investment
Consultants
report
(commissioned
by
IFC)
on
ESG

practices
in
the
world’s
leading
asset
managers
for
the
emerging
markets
asset
class.




Together
with
the
suggested
“ESG
Mapping”
project,
this
research
would
be
valuable
for
the

international
strategy
described
earlier.


3.

Non‐financial
disclosure
practices





As
discussed
in
Chapter
9,
Brazilian
companies
have
a
good
and
continually
improving
record
of

voluntary
non‐financial
disclosure,
in
the
form
of
annual
sustainability
reports
(largely
following
GRI

guidelines)
and
the
number
(if
not
necessarily
the
quality)
of
responses
to
the
Carbon
Disclosure

Project.




60
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


On
the
other
hand,
these
activities
still
appear
to
be
coloured
by
public
relations
objectives
rather

than
the
governance
of
material
ESG‐related
risks
(for
example,
see
SustainAbility’s
observations
on

page
43).

This
impression
is
reinforced
by
a
cursory
review
of
IPO
prospectuses
and
Form
6‐K
filings

with
the
US
SEC
(pages
39‐40).


Arguably,
it
may
now
make
sense
to
capitalise
on
the
strengths
of
current
practice
and
make
progress

on
remaining
gaps
by
institutionalising
non‐financial
disclosure
through
some
type
of
formal
code.


This
would
reinforce
the
kind
of
corporate
governance
leadership
represented
by
the
Novo
Mercado,

and
would
need
to
take
into
account:


 emerging
best
practice
as
illustrated
by
the
recent
ICGN
statement
(page
39)
and
related

measures
being
taken
by
exchanges
in
other
markets
such
as
Australia
(page
40);


 possible
developments
in
relation
to
climate
change
disclosure
under
US
SEC
rules
(page
39);


 expectations
for
an
eventual
recovery
in
Brazilian
IPO
activity
(see
Appendix
A
for

information
on
capital
raising
prior
to
the
current
global
economic
downturn).








However,
further
research
on
the
current
baseline
is
needed
in
order
to
weigh
up
the
potential

business
case
for
such
an
initiative.

The
starting
point
should
probably
be
a
detailed
review
of
the

treatment
of
ESG
risk
issues
in
regulatory
filings
and
recent
IPO
prospectuses,
perhaps
in
conjunction

with
research
into
Brazilian
and
international
buy‐side
views
on
this
subject.


4.

HNW
Opportunities





Brazil’s
rapidly
growing
HNW
population
forms
a
wealth
management
market
of
over
US$1
trillion.


Although
“green
investment”
trends
in
the
HNW
market
have
been
researched
at
a
global
level
(by

CapGemini
and
Merrill
Lynch),
there
is
no
detailed
information
on
this
market
niche
in
Brazil
(page

36).


An
educated
guess
is
that
the
potential
stock
of
HNW
sustainable
investment
in
Brazil
could
be

roughly
US$70
billion.

For
comparison,
the
total
stock
of
retail
assets
under
management
is
about

US$110
billion
(page
19),
and
the
sustainability
component
of
this
is
only
US$315
million
and
appears

to
be
stagnating
(page
23).


Given
that
the
Brazilian
pension
funds
with
the
most
interest
in
sustainable
investment
tend
to
use
in‐
house
equities
managers
(page
25),
the
HNW
market
probably
represents
the
best
opportunity
for

Brazil’s
asset
managers
to
expand
their
sustainable
investment
product
range
and
market
share.

To

stimulate
competitive
thinking
on
this
theme,
it
may
be
useful
to
carry
out
market
research
into
this

area
along
the
lines
of
EUROSIF’s
assessment
of
the
European
market
(page
36).

This
might
even
be

combined
with
a
targeted
public
opinion
survey
on
“green
financial
consumerism”,
building
on
the

National
Geographic/GlobeScan
survey
(page
49).

Foster
competition
and
innovation


In
addition
to
the
market
research
outlined
above,
other
measures
can
be
taken
to
stimulate

renewed
competition
and
innovation
among
Brazil’s
asset
managers
in
the
SRI
field
once
economic

conditions
improve.

One
of
the
most
obvious
possibilities
is
to
encourage
better
differentiation

between
the
rival
products
in
relation
to
their
sustainability
credentials
as
well
as
their
financial

performance.



For
example,
Trucost,
the
London‐based
international
environmental
research
organisation,

calculates
an
annual
ranking
of
UK
investment
funds
based
on
their
carbon
emissions,
enabling

investors
and
others
to
compare
investments
on
an
environmental
basis
13
.


The
firm
has
also
recently

extended
this
kind
of
analysis
to
Australian
funds
and,
with
the
support
of
IFC,
to
emerging
Asian

funds.

Research
of
this
kind
on
Brazil
could
produce
some
very
interesting
and
useful
results.





































































13

Carbon
Counts
2007:
The
Carbon
Footprint
Ranking
of
UK
Investment
Funds
(Trucost,
2007)

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 61


Another
possible
route
that
might
be
suitable
for
Brazil
in
the
medium
term
is
illustrated
by
the

Eurosif
Transparency
Guidelines.

These
focus
on
retail
SRI
funds
in
order
to
increase
accountability
to

consumers.

Launched
in
November
2004
with
support
from
the
European
Commission,
as
of
April

2008,
there
were
about
50
signatories,
representing
more
than
140
SRI
funds.
Eurosif
has
created
a

logo
specific
to
the
Transparency
Guidelines
that
can
be
used
by
signatories
once
their
responses
to

the
Guidelines
have
been
updated
and
reviewed
by
their
national
Social
Investment
Forum.


Signatories
are
expected
to
disclose
information
on
a
number
of
questions,
including:


 How
does
the
fund
define
SRI?

 What
are
the
SRI
criteria
of
the
fund?

 What
is
the
SRI
research
methodology
and
process?

 How
are
the
results
of
research
integrated
into
the
investment
process?

 What
is
the
policy
and
procedure
for
divestment
on
SRI
grounds?

 What
methods
of
engagement
are
employed?

 What
engagement
activity
has
been
carried
out
on
behalf
of
the
fund
during
the
past
year?


 Does
the
fund
have
a
voting
policy
and
are
voting
practices
disclosed?

 What
voting
actions
occurred
that
were
related
to
the
SRI
fund
criteria?



Fostering
“second
generation”
sustainability
products
and
strategies
through
competition
and

innovation
among
Brazil’s
asset
managers
would
arguably
also
have
significant
benefits
for
pension

funds
implementing
PRI.

As
previously
noted,
PREVI
and
other
leading
UNPRI
signatories
have

historically
relied
on
in‐house
analysts
and
portfolio
managers,
and
there
have
been
few

opportunities
to
harness
the
SRI
experience
of
external
asset
managers.

By
working
together
under
a

more
collaborative
framework,
however,
creative
partnerships
could
be
developed.




For
example,
a
pension
fund
(or
consortium
of
pension
funds)
might
consider
putting
a
relatively

small
mandate
(say
US$100
million)
into
the
hands
of
an
external
manager
as
a
“one‐off”
strategic

learning
exercise
that
can
then
be
internalized.

The
RFP
would
invite
asset
managers
to
come

forward
with
innovative,
“second
generation”
SRI
strategies
(for
example,
based
on
engagement,

carbon
optimisation
or
sustainability
leaders).

Such
a
unique,
prestigious
and
strategically
important

mandate
is
likely
to
stimulate
a
high
level
of
competition
and
innovation,
both
among
the
asset

management
firms
and
internally
among
in‐house
portfolio
managers.


Organising
for
success


For
a
number
of
reasons,
2009
is
probably
a
milestone
year
in
the
development
and
evolution
of

Brazil’s
sustainable
investment
market.

The
last
ten
years
or
so
have
seen
a
number
of
building

blocks
fall
into
place
and
the
market
has
attained
a
new
level
of
maturity
and
mainstream

acceptance.

New
risks
and
opportunities
lie
ahead.

The
way
that
the
sustainable
investment

community
adapts
to
these
risks
and
opportunities
over
2009‐2010,
through
difficult
economic

conditions,
is
likely
to
shape
its
market
for
at
least
the
next
five
years.



The
issues
that
need
to
be
addressed
(and
their
potential
solutions)
are
inter‐related
and,
to
a
large

extent,
inter‐dependent.

A
strategic
vision
is
therefore
required.

The
ideal
development
path

involves
a
series
of
linked
and
mutually
reinforcing
actions
that,
in
combination,
will:


 help
Brazil’s
pension
funds
to
meet
their
UNPRI
objectives
in
a
cost‐effective
manner;


 encourage
and
enable
Brazil’s
asset
managers
to
develop
“second
generation”
sustainable

investment
products
for
their
clients,
especially
in
the
retail
and
HNW
market;




 unlock
the
latent
potential
of
sustainable
foreign
investment.


The
recommendations
in
this
report
form
the
main
elements
of
such
a
strategic
development

concept.

Such
a
strategic
vision
underlines
the
need
for
Brazil’s
sustainable
investment
community
to

improve
the
way
it
is
organised.

62
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



The
Latin
American
Sustainable
Finance
Forum
(LASFF)
has
played
an
important
role
since
its
creation

in
2006
and
its
significant
contribution
deserves
acknowledgement.

However,
LASFF
was
not

designed
as
an
analogue
to
organisations
such
as
the
UK
Social
Investment
Forum
(UKSIF)
or
Eurosif

that
are
vital
to
mature
sustainable
investment
markets
in
other
parts
of
the
world.

The
time
may

now
be
right
to
create
such
an
organisation
to
represent
and
support
Brazil’s
multi‐billion
dollar

sustainable
investment
industry.

One
option
might
be
to
create
a
Brazilian
Sustainable
Investment

Forum
(BRASIF).

This
concept
is
outlined
in
the
box
below
and
would
need
to
unify
the
interests
of

the
PRI
Brazil
Network,
the
retail
SRI
fund
managers
and
the
ISE.







Possible
concept
for
a
Brazilian
Sustainable
Investment
Association
(BRASIF)


The
geographic
focus
should
be
firmly
on
Brazil,
not
the
region.

Other
economies
in
the
region
are
too
far

behind
Brazil
in
relation
to
sustainable
investment;
given
the
important
needs
of
Brazil
itself,
other
organisations

such
as
UNEPFI
and
IFC
should
take
the
lead
in
sowing
the
seeds
for
sustainable
investment
in
those
countries.


Brazil
should,
of
course,
continue
to
support
regional
awareness
raising
and
capacity
building
on
this
subject
to

the
extent
possible,
especially
in
relation
to
sustainable
investment
issues
that
have
a
cross‐border
significance

such
as
climate
change,
regional
infrastructure
development
and
Brazilian
multinationals.


The
industry
focus
should
be
firmly
on
institutional,
retail
and
HNW
portfolio
investment
in
listed
equities,

expanding
as
and
when
appropriate
to
include
other
assets
classes
that
are
important
for
institutional
investors

(such
as
private
equity,
real
estate
and
corporate
bonds).

Sustainable
banking
and
the
Equator
Principles
are

already
well
served
by
organisations
like
FEBRABAN,
UNEPFI
and
IFC.


BRASIF
could
be
a
separate
legal
entity
constituted
as
a
not‐for‐profit
membership
organisation
with
an
elected

board
of
directors
and
a
full‐time
executive
director;
ideally
it
would
also
have
its
own
office
premises
and
a

small
staff
handling
administration
and
communications.

The
US
Social
Investment
Forum,
UKSIF
and
ASrIA
all

provide
good
models
for
BRASIF
to
adapt.

“Twinning”
with
an
organisation
like
UKSIF
or
the
US
Social

Investment
Forum
could
be
very
valuable.

This
approach
would
help
to
ensure
that
BRASIF’s
learns
from
the

successes
(and
mistakes)
of
other
sustainable
investment
membership
organisations.

In
addition,
it
would

provide
an
excellent
mechanism
for
raising
Brazil’s
profile
with
foreign
sustainability
investors.


Importantly,
BRASIF
would
need
to
be
a
coming
together
of
Brazil’s
pension
funds
and
leading
asset
managers,

who
have
thus
far
mainly
moved
in
separate
circles
as
far
as
sustainable
investment
is
concerned.

PRI
would
be
a

very
important
part
of
BRASIF’s
agenda
and
there
should
be
a
close
working
relationship
with
the
UNPRI
Brazil

Network.

UNPRI
and
UNEPFI
have
recruited
a
part‐time
PRI
coordinator
based
in
Brazil,
and
co‐location
could
be

considered.


BRASIF
would
continue
the
goals
set
out
for
LASFF
and
be
the
main
driving
force
and
monitor
of
the
strategic

development
vision
that
evolves
from
the
proposals
in
this
report.

Specific
priorities
and
possible
projects
would

include:


 Fostering
a
commercial
market
for
ESG
research;

 Human
capital
development;

 A
strategy
for
international
engagement
and
marketing
Brazil
overseas;

 Research
and
development
on
issues
of
common
interest
to
members;
and

 Fostering
“second
generation”
sustainability
products
and
strategies
through
competition
and

innovation
among
Brazil’s
asset
managers.


The
moral
support
(and
possibly
financial
support)
of
development
finance
institutions
such
as
IFC,
IADB
and

BNDES
would
help
to
refine
and
implement
this
strategic
development
vision.

In
BNDES’s
case,
involvement
is

also
relevant
in
view
of
BNDESPAR’s
own
significant
investments
in
publicly
quoted
companies.

One
option
could

be
for
BRASIF
to
have
some
type
of
DFI
Liaison
Group,
composed
of
the
development
banks
and
key
BRASIF

members,
to
provide
an
informal
framework
for
such
interaction
and
potential
support.




SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 63




Figure
23:

Possible
framework
for
funding
BRASIF




One
possible
disadvantage
of
the
BRASIF
concept
is
that
it
could
dilute
the
momentum
of
the
PRI

Brazil
Network
and,
in
particular,
lead
to
competition
for
membership
fees.

Weighing
against
this,

however,
are
the
significant
benefits
of
having
an
organisation
such
as
BRASIF
that
combines
the
PRI

Brazil
Network
with
other
Brazilian
organisations
that
are
not
currently
PRI
signatories
(or,
in
the
case

of
industry
associations
such
as
APIMEC,
are
not
eligible
to
become
signatories)
in
order
to
have
one

body
representing
Brazil’s
national
interests
in
sustainable
investment.


Work‐around
solutions
may

be
possible
to
avoid
competition
for
membership
fees
in
a
way
that
also
provides
organisational

clarity
and
win‐win
benefits
for
all
stakeholders.




One
such
possible
solution
is
illustrated
in
Figure
23.
This
takes
into
account
a
number
of
related

recommendations
made
earlier
in
this
chapter,
including
updating
the
ISE’s
business
model
and

exploring
opportunities
for
CES‐FGV
to
make
greater
commercial
use
of
the
underlying
data.

The

concept
involves
increasing
ISE
fee
revenues
to
BM&F
Bovespa;
the
stock
exchange
could
then
use

net
ISE
fee
income
to
sponsor
BRASIF.

Whilst
it
may
still
be
appropriate
for
BRASIF
members
to
pay
a

membership
fee
(to
discourage
‘free‐loaders’),
this
fee
could
be
relatively
low.




lSL-based reLall
S8l funds
(uS$0.313 bn)
Þenslon funds
(uS$33 bn)
AsseL manaaers
(uS$8 bn)
lorelan lnvesLors
(uS$2.2 bn)
ÞroducLs and
servlces
based on
underlvlna
LSC daLa
uaLa
Þrovlder
(CLS-lCv)
!"#$%&'
uevelopmenL llnance
lnsuLuuons and oLher
poLenual parLners
lSL companles
(llcense fee for
use of loao eLc)
AÞlMLC and
slmllar
lnvesLors noL
currenLlv slaned
up Lo unÞ8l
Þ8l 8razll
neLwork
Fees
Fees
F
e
e
s

Income
Income
I
n
c
o
m
e

I
P

r
i
g
h
t
s

Donation
P
o
t
e
n
t
i
a
l


g
r
a
n
t

f
u
n
d
i
n
g

Membership fees (low)
8CvLSÞA
64
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Ultimately,
the
right
way
forward
for
Brazil
must
come
from
a
bottom‐up,
demand‐driven
process

rather
than
through
a
top‐down
blueprint
imposed
from
outside.

The
analysis
and
recommendations

in
this
report
are
offered
for
consideration
and
discussion
by
all
participants
in
Brazil’s
sustainable

investment
market.




The
final
recommendation
of
this
report
is
therefore
to
suggest
that
it
might
be
useful
for
relevant

stakeholders
to
come
together
in
some
type
of
roundtable
discussion
that
takes
stock
on
the
progress

made
over
the
last
five
years
and
enables
debate
on
the
strategic
direction
and
needs
of
the
market

over
the
next
five
years
or
so.

Hopefully,
this
report
will
add
value
to
such
a
process.

Whether
and

how
this
happens
will
depend
on
the
right
people
taking
the
initiative
for
convening
and
shaping
the

discussion
going
forward.

Given
the
quality
of
leadership
for
sustainable
investment
in
Brazil,
there
is

an
encouraging
number
of
candidates
for
this
role.

TERI‐Europe
and
the
authors
of
the
report
look

forward
to
feedback
with
great
interest
and
will
be
pleased
to
lend
their
ongoing
support.








SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 65


APPENDIX
A:

COUNTRY
PROFILE


66
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Profile


Table
16
provides
information
on
selected
development
indicators
for
Brazil.

Based
on
the
IMF’s

2008
estimates
of
worldwide
GDP,
Brazil
is
today
the
world’s
10th
largest
economy
(Figure
24).


Characterized
by
large
and
well‐developed
agricultural,
mining,
manufacturing,
and
service
sectors,

Brazil's
economy
outweighs
that
of
all
other
South
American
countries
and
is
expanding
its
presence

in
world
markets.

Brazil
became
investment
grade
at
the
end
of
April
2008,
when
Standard
&
Poor’s

upgraded
Brazil’s
sovereign
debt
rating
to
BBB‐
from
BB+.




The
World
Bank/IFC
annual
Doing
Business
survey
of
181
countries
worldwide
provides
a
quantitative

measure
of
regulations
for
starting
a
business,
dealing
with
construction
permits,
employing
workers,

registering
property,
getting
credit,
protecting
investors,
paying
taxes,
trading
across
borders,

enforcing
contracts
and
closing
a
business.

Brazil
ranked
124
th

out
of
181
economies
in
the
2008

survey
(Table
17).

By
comparison,
the
other
BRIC
economies
of
Russia,
India
and
China
ranked
120
th
,

122
nd

and
83
rd

respectively.

(The
top
three
ranked
countries
globally
were
Singapore,
New
Zealand

and
the
US).




Figure
25
illustrates
Brazil’s
ranking
in
the
Doing
Business
Survey
and
in
several
other
commonly
used

international
benchmarks
covering
issues
such
as
corruption,
human
development
and

competitiveness.




Figure
24:
The
world's
20
largest
economies
(source:
IMF)








0

2
,
0
0
0

4
,
0
0
0

6
,
0
0
0

8
,
0
0
0

1
0
,
0
0
0

1
2
,
0
0
0

1
4
,
0
0
0

1
6
,
0
0
0

Saudi Arabia
Belgium
Poland
Turkey
Netherlands
Korea
Australia
Mexico
India
Canada
Brazil
Spain
Russia
Italy
UK
France
Germany
China
Japan
United States
GDP, current prices, US$ billions, 2008 estimates
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 67


Table
16:

Brazil
‐
selected
development
indicators

WORLD
VIEW
 
 

Population,
total
(millions)
 2007
 191.60

Population
growth
(annual
%)
 2007
 1.2

Surface
area
(sq.
km)
(thousands)
 2007
 8,514.9

Poverty
headcount
ratio
at
national
poverty
line
(%
of
population)
 2006
 25.6

GNI,
Atlas
method
(current
US$)
(billions)
 2007
 1,133.03

GNI
per
capita,
Atlas
method
(current
US$)
 2007
 5,910

GNI,
PPP
(current
international
$)
(billions)
 2007
 1,795.65

GNI
per
capita,
PPP
(current
international
$)
 2007
 9,370

PEOPLE
 
 

Income
share
held
by
lowest
20%
 2005
 2.9

Life
expectancy
at
birth,
total
(years)
 2006
 72

Mortality
rate,
under‐5
(per
1,000)
 2006
 20

Immunization,
measles
(%
of
children
ages
12‐23
months)
 2006
 99

School
enrolment,
primary
(%
net)
 2005
 94

Prevalence
of
HIV,
total
(%
of
population
ages
15‐49)
 2007
 0.6

ENVIRONMENT
 
 

Forest
area
(sq.
km)
(thousands)
 2005
 4,777.0

Agricultural
land
(%
of
land
area)
 2005
 31.2

Improved
water
source
(%
of
population
with
access)
 2006
 91

Improved
sanitation
facilities,
urban
(%
of
urban
population
with
access)
 2006
 84

Energy
use
(kg
of
oil
equivalent
per
capita)
 2005
 1,122

CO2
emissions
(metric
tons
per
capita)
 2005
 1.8001

Electric
power
consumption
(kWh
per
capita)
 2005
 2,008

ECONOMY
 
 

GDP
(current
US$)
(billions)
 2007
 1,314.17

GDP
growth
(annual
%)
 2007
 5.4

Inflation,
GDP
deflator
(annual
%)
 2007
 4.5

Agriculture,
value
added
(%
of
GDP)
 2007
 5

Industry,
value
added
(%
of
GDP)
 2007
 31

Services,
etc.,
value
added
(%
of
GDP)
 2007
 64

Exports
of
goods
and
services
(%
of
GDP)
 2007
 13

Imports
of
goods
and
services
(%
of
GDP)
 2007
 11

Gross
capital
formation
(%
of
GDP)
 2007
 22

STATES
AND
MARKETS
 
 

Time
required
to
start
a
business
(days)
 2007
 152

Market
capitalization
of
listed
companies
(%
of
GDP)
 2007
 104.3

Military
expenditure
(%
of
GDP)
 2007
 1.6

Fixed
line
and
mobile
phone
subscribers
(per
100
people)
 2007
 84

Internet
users
(per
100
people)
 2007
 26.1

High‐technology
exports
(%
of
manufactured
exports)
 2006
 12.0

GLOBAL
LINKS
 
 

Merchandise
trade
(%
of
GDP)
 2007
 22.0

Net
barter
terms
of
trade
(2000
=
100)
 2006
 104

External
debt,
total
(DOD,
current
US$)
(millions)
 2006
 194,150

Short‐term
debt
outstanding
(DOD,
current
US$)
(millions)
 2006
 20,325

Total
debt
service
(%
of
exports
of
goods,
services
and
income)
 2006
 37.3

Foreign
direct
investment,
net
inflows
(BoP,
current
US$)
(millions)
 2006
 18,782

Workers'
remittances
and
compensation
of
employees,
received
(US$)

(millions)

2007
 4,382

Official
development
assistance
and
official
aid
(current
US$)
(millions)
 2006
 82

Source:
World
Bank
–
World
Development
Indicators
database
 
 


68
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Table
17:

Doing
Business
2009
–
Brazil’s
profile

Doing
Business
rank
(out
of
181
countries)

Ease
of…

2009
 2008

Change
in
rank

Doing
Business
 125
 126
 +1

Starting
a
business
 127
 125
 ‐2

Dealing
with
construction

permits

108
 105
 ‐3

Employing
workers
 121
 120
 ‐1

Registering
property
 111
 115
 +4

Getting
credit
 84
 79
 ‐5

Protecting
investors
 70
 66
 ‐4

Paying
taxes
 145
 138
 ‐7

Trading
across
borders
 92
 98
 +6

Enforcing
contracts
 100
 103
 +3

Closing
a
business
 127
 134
 +7

Source:

Doing
Business
2009
(World
Bank/IFC)




Figure
25:

International
benchmarking


UNDP:
Human Development Report 2007/08
Transparency International:
Corruption Perception Index 2008
World Bank:
Doing Business 2009
World Economic Forum:
Global Competitiveness Report 2008-09
A T Kearney/Foreign Policy magazine:
Globalization Index 2007
World Economic Forum:
Financial Development Report 2008
Brazil’s ranking: 70/177
CORRUPTION PERCEPTIONS INDEX
Brazil’s ranking: 80/180
EASE OF DOING BUSINESS INDEX
Brazil’s ranking: 125/181
GLOBAL COMPETITIVENESS INDEX
Brazil’s ranking: 64/134
GLOBALIZATION INDEX
Brazil’s ranking: 67/72
Brazil’s ranking: 40/52
Lower performers Better performers
HUMAN DEVELOPMENT INDEX
FINANCIAL DEVELOPMENT INDEX
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 69


Millennium
Development
Goals


Brazil’s
progress
towards
achieving
the
Millennium
Development
Goals
(MDGs)
is
summarised
in

Table
18.

The
Government
of
Brazil
has
attached
great
importance
to
achieving
the
MDGs
and
has

produced
three
National
Monitoring
Reports
(2004,
2005
and
2007),
based
on
detailed
official
data.


In
addition
to
the
measurement
of
indicators,
these
reports
also
include
a
presentation
of
the
most

relevant
public
policies
and
analysis
of
the
prospect
of
achievement.




During
the
past
decade,
the
results
show
significant
improvement
in
most
indicators
and
clearly
show

that
Brazil
has
already
accomplished
some
targets
and
is
close
to
achieving
others.

However,

important
challenges
still
remain
primarily
due
to
the
great
levels
of
inequality
and
disparity
in

Brazilian
society
and
among
geographic
regions.

Income
inequality
has
been
decreasing
since
2001

and
reached
its
lowest
level
in
2005.




Table
18:
Millennium
Development
Goals
‐
summary
profile
for
Brazil

MDG
1:

Eradicate
extreme
poverty

and
hunger

Brazil
has
already
fulfilled
its
commitment
to
this
Goal.

MDG
2:

Achieve
universal
primary

education


Significant
improvements
have
been
registered
in
access
to
education,
resulting
in

nearly
universal
coverage
for
elementary
school.
But
the
quality
of
basic
education

still
lacks,
since
a
large
number
of
children
finish
grade
4
without
adequate
reading

and
writing
skills.

MDG
3:

Promote
gender
equality
and

the
empowerment
of
women


Women
have
reached
a
higher
schooling
level
than
men
in
Brazil.

However,

discrimination
is
revealed
in
high
levels
of
domestic
violence,
women’s
participation

in
the
labour
market
and
their
presence
among
political
leaders.
The
indicators
show

a
slight
improvement
but
challenges
still
remain.

MDG
4:

Reduce
child
mortality


Child
mortality
and
infant
mortality
have
been
decreasing
at
an
escalating
pace.
At

the
national
level
Brazil
is
likely
to
reach
the
Goal
if
present
trend
continues.

MDG
5:

Improve
maternal
health

Maternal
mortality
rate
fell
from
61.2
to
53.4
per
10,000
babies
born
between
1997

and
2005,
which
indicates
that
Brazil
is
on
track
to
achieve
this
Goal.
But
a
close

monitoring
of
maternal
mortality
is
still
difficult
because
of
poor
information
and

underreporting
of
cases.

MDG
6:

Halt
the
spread
of
HIV/AIDS,

malaria
and
other
diseases


The
number
of
people
living
with
HIV/AIDS
has
remained
steady
since
2000
and
the

number
of
AIDS‐caused
deaths
has
fallen
among
men
and
women.
This
indicates
a

reversal
of
the
trend
of
growing
death
rate,
resulting
in
fulfilment
of
this
Goal.

Similarly,
after
3
years
of
increase,
the
incidence
rate
for
malaria
dropped
in
2006.

MDG
7:

Ensure
environmental

sustainability

Brazil
has
reduced
its
deforestation
index,
reduced
the
CFC
consumption
and

increased
its
energy
efficiency
by
relying
on
renewable
energy
sources.
Expanding

water
supply
indicates
that
Brazil
will
reach
this
indicator
by
2015.
However,

improving
urban
and
rural
sanitation
depends
on
the
criterion
used
for
its
gauging

and
on
the
volume
of
investments.
Data
show
that
progress
has
already
been

achieved
in
many
Brazilian
cities
–
the
proportion
of
urban
domiciles
with
adequate

housing
conditions
increased
from
49.4%
in
1992
to
61.5%
in
2005.
To
rapidly

improve
the
situation,
the
Government
has
introduced
this
issue
as
a
national
priority

in
its
recently
approved
Accelerating
Growth
Plan
for
the
next
four
years.

MDG
8:

Develop
a
global
partnership

for
development


Brazil
has
had
a
leading
role
in
striving
to
achieve
fairer
trading
rules
and
is
making

considerable
efforts
towards
achieving
universal
access
to
AIDS
medicines.
The

Government
of
Brazil
has
been
very
proactive
and
innovative
in
promoting
global

partnerships
using
South‐South
Cooperation
as
a
vehicle.
Therefore,
Brazil
is
very

likely
to
achieve
this
Goal.

Source:

UN
MDG
Monitor
(Brazil
profile
last
updated
January
2008)


70
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Economy

GDP
growth


Economic
growth
in
Brazil
increased
from
3.8
per
cent
in
2006
to
exceed
expectations
at
5.4
per
cent

in
2007
(Figure
26).

This
trend
continued
over
the
first
seven
months
of
2008
when
GDP
grew
by

some
6.1
per
cent.

Growth
has
subsequently
been
impacted
by
the
global
financial
shocks
that
have

dominated
the
second
half
of
the
year,
and
the
final
figure
for
2008
is
expected
to
be
5.2
per
cent.




The
outlook
for
2009
is
rather
more
pessimistic,
with
the
IMF’s
latest
estimates
suggesting
that
GDP

growth
will
decline
to
3.0
per
cent
in
2009,
reflecting
global
economic
conditions.

Brazil’s
economy
is

nevertheless
expected
to
be
relatively
strong
compared
to
the
world’s
advanced
economies:
for

example,
US
‘growth’
is
expected
to
be
‐0.7
per
cent
in
2009
whilst
the
forecast
for
the
UK
is
even

worse
at
‐1.3
per
cent.



Figure
26:

Brazil
GDP
growth
trends
(source:
IMF)


Value‐added


The
services
sector
contributes
around
two‐thirds
of
the
value
added
to
Brazil’s
GDP.

Industry

accounts
for
31
per
cent;
Brazil’s
main
industries
include
textiles,
shoes,
chemicals,
cement,
lumber,

iron
ore,
tin,
steel,
aircraft,
motor
vehicles
and
parts
and
other
machinery
and
equipment.



Agricultural
production
–
which
consists
of
coffee,
soybeans,
wheat,
rice,
corn,
sugarcane,
cocoa,

citrus
and
beef
–
accounts
for
about
5
per
cent
of
GDP.



Foreign
trade


Brazil’s
main
trade
partners
are
the
US,
Argentina,
China,
Germany,
the
Netherlands
and
Nigeria

(Table
19).

Strong
external
demand,
high
commodity
prices
and
a
more
active
export
policy
have

contributed
to
booming
export
earnings
since
2003,
leading
the
trade
surplus
to
swell
and

transforming
the
current
account
from
a
deficit
of
4.6
per
cent
of
GDP
in
2001
to
a
surplus
for
several

years.

However,
this
surplus
has
been
steadily
declining
and
the
current
account
is
expected
to
be
in

deficit
in
2008.



0
1
2
3
4
5
6
7
1
9
9
8

1
9
9
9

2
0
0
0

2
0
0
1

2
0
0
2

2
0
0
3

2
0
0
4

2
0
0
5

2
0
0
6

2
0
0
7

2
0
0
8
e

2
0
0
9
e

2
0
1
0
e

2
0
1
1
e

2
0
1
2
e

2
0
1
3
e

G
D
P

g
r
o
w
t
h

%

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 71


Table
19:

Brazil
‐
main
import
and
export
markets
(2007
data)

Major
exports

 %
of
total
 Major
imports

 %
of
total

Transport
equipment
&
parts
 12.5
 Machinery
&
electrical
equipment
 26.1

Metallurgical
products
 11.6
 Chemical
products
 15.4

Soybeans,
meal
&
oils
 8.2
 Oil
&
derivatives
 16.6

Chemicals
 1.9
 Transport
equipment
&
parts
 12.0

Leading
markets

 %
of
total
 Leading
suppliers

 %
of
total

US
 16.1
 US
 15.7

Argentina
 9.2
 China
 10.5

China
 6.8
 Argentina
 8.6

Netherlands
 5.6
 Nigeria
 4.4

Germany
 4.6
 Netherlands
 0.9

Export
earnings
(est)
 US$161
billion
 Import
bill
(est)
 US$121
billion

Sources:

Economist
Intelligence
Unit,
CIA
World
Factbook


Private
capital
flows

International
context


Net
debt
and
equity
inflows
to
developing
countries
increased
by
US$269
billion
in
2007
to
reach
a

record
US$1.03
trillion,
according
to
the
World
Bank’s
Global
Development
Finance
2008
report.

This

marks
five
consecutive
years
of
strong
gains
in
net
private
flows,
which
averaged
over
44
per
cent
a

year
(however,
much
of
the
increase
in
dollar
terms
reflects
the
depreciation
of
the
US$
against
most

other
currencies).




The
rapid
expansion
in
private
flows
reflects
strong
gains
in
both
equity
and
debt
components.

Net

(foreign
direct
and
portfolio)
equity
inflows
reached
an
estimated
US$616
billion
in
2007
(Figure
27),

equal
to
a
record
4.5
percent
of
GDP,
up
from
4.1
per
cent
in
2006.

Figure
27
also
illustrates
how

portfolio
equity
inflows
have
become
increasingly
important
since
the
turn
of
the
millennium.

Brazil


Foreign
direct
investment
(FDI)
into
Brazil
has
averaged
at
just
over
US$22
billion
a
year
over
the
last

decade,
and
reached
a
high
of
US$35.5
billion
at
the
end
of
2007.

Net
foreign
portfolio
investment

flows
have
increased
dramatically
in
the
last
few
years
and
by
2007
they
reached
US$34
billion,

almost
matching
the
volume
of
FDI
(Figure
28).


Data
from
CVM
indicates
that
the
total
stock
of

foreign
portfolio
investment
amounted
to
some
US$214
billion
at
the
end
of
2007
and
by
the
end
of

August
2008
stood
at
US$232
billion
(Figure
29).




Brazil’s
share
of
total
FDI
flows
to
emerging
markets
has
been
in
decline
since
1998
and
is
estimated

at
just
under
6
per
cent
for
2007
(Figure
30).

Over
the
last
three
to
four
years,
foreign
portfolio

investment
has
become
increasingly
important
to
Brazil’s
economy;
Brazil’s
share
of
net
portfolio

equity
flows
to
all
developing
countries
surged
to
nearly
25
per
cent
in
2007
(Figure
31).









72
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Figure
27:
Net
equity
flows
to
developing
countries
(source:
World
Bank
Global
Development

Finance
2008)


Figure
28:

FDI
and
foreign
portfolio
investment
in
Brazil:
flows
(sources:
CVM,
UNCTAD)



Figure
29:

FDI
and
foreign
portfolio
investment
in
Brazil:
stock
(sources:
CVM,
UNCTAD)






(5,000)
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1997 1999 2001 2003 2005 2007
U
S
$

m
i
l
l
i
o
n

FDI
Foreign portfolio investment (net)
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1997 1999 2001 2003 2005 2007
U
S
$

m
i
l
l
i
o
n
s

FDI
Foreign portfolio investment
-
50
100
150
200
250
300
350
400
450
500
1999 2000 2001 2002 2003 2004 2005 2006 2007
U
S
$

b
i
l
l
i
o
n

Net portfolio equity inflows
Net FDI inflows
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 73


Figure
30:

Brazil's
share
of
total
FDI
flows
to
emerging
markets
(source:
UNCTAD)




Figure
31:

Brazil's
share
of
net
portfolio
equity
flows
to
developing
countries
(sources:
CVM;
World

Bank
Global
Development
Finance
2008)



The
stock
market

Market
size


The
São
Paolo
stock
exchange,
operated
by
BM&F
Bovespa,
is
the
13
th

largest
market
in
the
world
by

market
capitalization
(Figure
32),
following
a
dramatic
increase
in
size
over
the
last
two
decades

(Figure
33).



In
common
with
almost
all
other
markets,
Brazil’s
market
capitalisation
has
experienced
a
sharp

decrease
in
the
last
12
months
as
a
result
of
the
global
economic
crisis
and
the
worldwide
fall
in

equity
prices.

As
of
the
end
of
November
2008,
the
market
value
of
BM&F
Bovespa
listed
companies

came
to
R$1,355
billion
(US$585
billion).





0%
5%
10%
15%
20%
25%
30%
35%
1994 1996 1998 2000 2002 2004 2006
Brazil
Russia
India
China
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1999 2000 2001 2002 2003 2004 2005 2006 2007
74
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



Figure
32:

Domestic
market
capitalisation
of
the
world's
20
largest
exchanges
(USD
millions)

(source:
World
Federation
of
Exchanges)




Figure
33:

BM&F
Bovespa
domestic
market
capitalisation
(source:
World
Federation
of
Exchanges)




0 5,000,000 10,000,000 15,000,000 20,000,000
Taiwan SE Corp.
JSE
Korea Exchange
Borsa Italiana
National Stock Exchange India
OMX Nordic Exchange
Bombay SE
BM&FBOVESPA
Australian SE
Swiss Exchange
BME Spanish Exchanges
Deutsche Börse
TSX Group
Hong Kong Exchanges
Shanghai SE
London SE
Euronext
Nasdaq
Tokyo SE
NYSE Group
end Oct 2008 end Oct 2007
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
E
n
d

1
9
9
0

E
n
d

1
9
9
1

E
n
d

1
9
9
2

E
n
d

1
9
9
3

E
n
d

1
9
9
4

E
n
d

1
9
9
5

E
n
d

1
9
9
6

E
n
d

1
9
9
7

E
n
d

1
9
9
8

E
n
d

1
9
9
9

E
n
d

2
0
0
0

E
n
d

2
0
0
1

E
n
d

2
0
0
2

E
n
d

2
0
0
3

E
n
d

2
0
0
4

E
n
d

2
0
0
5

E
n
d

2
0
0
6

E
n
d

2
0
0
7

O
c
t
o
b
e
r

2
0
0
8

D
o
m
e
s
t
i
c

m
a
r
k
e
t

c
a
p

U
S
$

m
i
l
l
i
o
n
s

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 75


Table
20
shows
the
country
weighting
for
Brazil
in
the
three
main
emerging
market
indices
published

by
FTSE,
MSCI
and
Standard
&
Poor’s.

The
table
includes
data
for
India
for
comparison.


Table
20:

Country
weighting
in
key
emerging
market
indices

Index
 BRAZIL
 INDIA
 Reporting
date

FTSE
All‐World
Emerging
Index
 14.59%
 9.97%
 Jan
14,
2009

MSCI
Emerging
Market
Index
 13.36%
 6.65%
 Jan
14,
2009

S&P/IFCI
Composite
Index
 12.78%
 7.13%
 Nov
30,
2008


Corporate
governance
segments


There
are
different
listing
segments
for
companies
traded
on
the
stock
exchange.

In
addition
to
the

Traditional
Bovespa
segment,
these
include
the
Novo
Mercado
and
two
further
differentiated

corporate
governance
categories,
Level
(Nivel)
1
and
Level
(Nivel)
2.

The
key
features
of
these

corporate
governance
segments
are
summarised
in
Table
21.



Table
21:

Novo
Mercado
and
corporate
governance
levels

Requirements
 Level
1
 Level
2
 Novo
Mercado

Information
sharing

standards

Minimum
required
by

CVM

IFRS
or
US
GAAP
 IFRS
or
US
GAAP

Disclosure
of

Information

Other
requirements

Shareholding
position

of
the
Board
and

Senior
Management


Identity
of
any

shareholder
with

more
than
5%
of
total

shares


Income
statement,

balance
sheet
and

cashflow
of
the

company
and
the

controlling
company


Annual
public
meeting

for
presenting
results

and
perspectives

Shareholding
position

of
the
Board
and

Senior
Management


Identity
of
any

shareholder
with

more
than
5%
of
total

shares


Income
statement,

balance
sheet
and

cashflow
of
the

company
and
the

controlling
company


Annual
public
meeting

for
presenting
results

and
perspectives

Shareholding
position

of
the
Board
and

Senior
Management


Identity
of
any

shareholder
with

more
than
5%
of
total

shares


Income
statement,

balance
sheet
and

cashflow
of
the

company
and
the

controlling
company


Annual
public
meeting

for
presenting
results

and
perspectives

Stocks
without
voting

rights
permitted?

Yes
 Yes
 No

Minimum
free
floats
 25%
 25%
 25%

Tag
along
for
stocks

with
voting
rights

No
 100%
 100%

Tag
along
for
stocks

without
voting
rights

No
 80%
 N/A

Protection
to
minority

shareholders

Conflict
solving
via

arbitration
chamber

Optional
 Obligatory
 Obligatory

Management

Requirements

Requirements

regarding
the
Board

of
Directors

No

Minimum:
5
members

and
2
year
mandate

Minimum:
5
members

and
2
year
mandate





76
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Key
companies
and
industries


As
of
the
end
of
November
2008,
393
companies
were
listed
on
the
exchange
with
a
combined

market
capitalisation
of
R$1,355
billion
(US$570
billion).

Figure
34
shows
the
share
of
market

capitalisation
between
the
different
listing
segments:
Novo
Mercado
companies
represent
about
33

per
cent
of
total
market
cap.




Table
22
lists
the
companies
in
the
IBovespa,
the
market’s
main
benchmark
index.
The
five
industrial

sectors
with
the
highest
market
value
are
financial
institutions
(22
per
cent);
oil,
gas
and
biofuel
(20

per
cent);
mining
(15
per
cent);
steel
and
metallurgy
(11
per
cent);
and
electric
power
(7
per
cent)

(Figure
35).




The
market
is
highly
concentrated:

the
top
ten
companies
with
the
highest
market
value
make
up

about
50
per
cent
of
total
market
capitalisation.

Approximately
25
per
cent
of
the
total
value
of
the

market
is
concentrated
in
just
two
companies,
Petrobras
and
Vale
R
Doce;
these
two
firms
represent

34
per
cent
of
the
notional
IBovespa
portfolio.

The
capital
structure
of
both
Petrobras
and
Vale
R

Doce
includes
preference
as
well
as
common
shares;
neither
firm
is
listed
on
the
Novo
Mercado.




Figure
34:

Market
capitalisation
by
listing
segment





Figure
35:

Industry
breakdown
of
IBovespa
index
constituents


NOVO MERCADO
(32.6%)
NIVEL 2 (2.1%)
NIVEL 1 (47.2%)
TRADITIONAL
BOVESPA
(32.6%)
Source: BM&F BOVESPA (data as of end Nov 08)
Financial
21.6%
Oil and gas
19.8%
Mining 15.2%
Steel 11.1%
Electric utilities
7.3%
Telecom 4.8%
Transportation
4.1%
Other 16.1%
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 77


Table
22:

Companies
in
the
IBovespa
index

Company
 Industry
 ISE
?

Market
cap
US$

million

IBovespa
weight
(%)

ALL
AMER
LAT
(N2)
 Railroads
 2,868
 1.415

AMBEV
 Beer
&
soft
drinks
 24,219
 1.122

ARACRUZ
(N1)
 Pulp
&
paper
 1,409
 0.777

B2W
VAREJO
(NM)
 Retail
 1,156
 0.904

BMF
BOVESPA
(NM)
 Diversified
financial
services
 5,265
 4.360

BRADESCO
(N1)
 Financial
intermediaries
  27,966
 3.700

BRADESPAR
(N1)
 Holdings
‐
diversified
 2,834
 1.199

BRASIL
(NM)
 Financial
intermediaries
  15,969
 2.404

BRASIL
T
PAR
(N1)
 Telecommunications
 5,091
 0.721

BRASIL
TELEC
(N1)
 Telecommunications
 7,745
 0.420

BRASKEM
(N1)
 Petrochemicals
  1,207
 0.545

CCR
RODOVIAS
(NM)
 Toll
roads
&
highways
 4,076
 0.611

CELESC
(N2)
 Electric
utilities
  663
 0.121

CEMIG
(N1)
 Electric
utilities
  6,123
 1.642

CESP
(N1)
 Electric
utilities
  1,908
 1.215

COMGAS
 Gas
utilities
 1,652
 0.114

COPEL
(N1)
 Electric
utilities
 2,686
 0.651

COSAN
(NM)
 Sugar
‐
alcohol
 1,575
 0.603

CPFL
ENERGIA
(NM)
 Electric
utilities
  6,191
 0.522

CYRELA
REALT
(NM)
 Residential
building
construction
 1,400
 1.257

DURATEX
(N1)
 Wood
  773
 0.551

ELETROBRAS
(N1)
 Electric
utilities
  12,379
 1.903

ELETROPAULO
(N2)
 Electric
utilities
  1,704
 0.691

EMBRAER
(NM)
 Aerospace
  2,791
 0.656

GAFISA
(NM)
 Residential
building
construction
 597
 0.930

GERDAU
(N1)
 Steel
  8,584
 3.100

GERDAU
MET
(N1)
 Steel
  3,430
 0.916

GOL
(N2)
 Airlines
 858
 0.737

ITAUBANCO
(N1)
 Financial
intermediaries
  30,708
 3.471

ITAUSA
(N1)
 Financial
intermediaries
 15,437
 2.238

JBS
(NM)
 Meat,
poultry
&
others
 3,034
 0.658

KLABIN
S/A
(N1)
 Pulp
&
paper
 1,530
 0.355

LIGHT
S/A
(NM)
 Electric
utilities
  1,908
 0.203

LOJAS
AMERIC
 Retail
 1,915
 1.200

LOJAS
RENNER
(NM)
 Retail
 815
 0.858

NATURA
(NM)
 Cosmetics
  3,486
 0.638

NET
(N2)
 Cable
TV
 2,372
 0.946

NOSSA
CAIXA
(NM)
 Financial
intermediaries
 3,124
 0.397

P.ACUCAR‐CBD
(N1)
 Retail
 3,249
 0.553

PERDIGAO
S/A
(NM)
 Meat,
poultry
&
others
  2,634
 0.887

PETROBRAS
 Oil,
gas
&
biofuels
 95,846
 19.776

REDECARD
(NM)
 Diversified
financial
services
 7,401
 0.933

ROSSI
RESID
(NM)
 Residential
building
construction
 311
 0.569

SABESP
(NM)
 Water
utilities
  2,706
 0.403

SADIA
S/A
(N1)
 Meat,
poultry
&
others
  1,162
 1.139

SID
NACIONAL
 Steel
 9,845
 3.454

SOUZA
CRUZ
 Tobacco
 5,768
 0.487

TAM
S/A
(N2)
 Airlines
 1,145
 0.711

TELEMAR
 Telecommunications
  5,763
 1.511

TELEMAR
N
L
 Telecommunications
 5,773
 0.296

TELESP
 Telecommunications
 9,272
 0.191

TIM
PART
S/A
 Telecommunications
  3,628
 0.955

TRAN
PAULIST
(N1)
 Electric
utilities
 2,766
 0.371

ULTRAPAR
(N1)
 Holdings
‐
diversified
 3,103
 0.437

UNIBANCO
(N1)
 Financial
intermediaries
  15,755
 2.417

USIMINAS
(N1)
 Steel
 5,677
 3.667

V
C
P
(N1)
 Pulp
&
paper
  1,545
 0.618

VALE
R
DOCE
(N1)
 Mining
 60,142
 15.154

VIVO
 Telecommunications
 4,457
 0.722

78
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009



Capital
raising


The
amount
of
capital
raised
on
the
stock
exchange
by
Brazilian
companies
through
the
issuance
of

new
and
secondary
equity
offerings
has
increased
significantly
over
the
last
three
to
four
years

(Figures
36
and
37).

Although
the
number
of
IPOs
has
increased
since
2005
and
reached
a
record
high

in
2007,
the
longer
term
trend
is
dominated
by
secondary
public
offerings.


Table
23
provides
details
of
Brazilian
IPO
and
secondary
public
offerings
from
June
2007
to
June
2008

(new
deals
since
June
2008
have
all
but
dried
up
as
a
consequence
of
wider
economic
conditions).


Some
US$35
billion
of
new
deals
were
completed
during
this
period.

Key
IPOs
have
included
Bovespa

(US$3.7
billion
in
October
2007);
the
commodities
exchange
BM&F
(US$3.3
billion
in
November

2007);
the
electricity
generation
and
distribution
firm
MPX
Energia
(US$1.3
billion
in
December
2007);

and
the
oil
&
gas
company
OGX
(US$4.1
billion
in
June
2008).

The
majority
of
IPOs
in
recent
years

have
been
on
the
Novo
Mercado.




Figure
36:

Capital
raised
by
share
issues
on
BM&FBOVESPA
(US$
millions)
(source:
World

Federation
of
Exchanges)



Figure
37:

Number
of
IPOs
on
BM&FBOVESPA
(source:
World
Federation
of
Exchanges)


$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
U
S
$

m
i
l
l
i
o
n
s

Secondary public offerings
Initial public offerings
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008
N
u
m
b
e
r

o
f

n
e
w
l
y

l
i
s
t
e
d

c
o
m
p
a
n
i
e
s

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 79



Table
23:

Main
deals
completed
in
Brazil
since
June
2007

Size
(US$
million)

Company
 Industry
 Date

Primary
 Secondary
 Total

OGX
PETRÓLEO
 Oil
&
gas
 Jun
08
 4,100.0
 ‐
 4,100.0

GERDAU
 Materials
 Apr
08
 600.3
 ‐
 600.3

LE
LIS
BLANC
 Consumer
Staples
 Apr
08
 76.9
 ‐
 76.9

COPASA
 Utilities
 Apr
08
 239.8
 36.0
 275.8

METALURGICA
GERDAU
 Materials
 Apr
08
 601.0
 ‐
 601.0

ANHANGUERA
EDUC
 Consumer
Discretionary
 Apr
08
 266.6
 39.2
 305.8

HYPERMARCAS
 Consumer
Staples
 Apr
08
 367.0
 55.0
 422.0

GLOBAL
VILLAGE
 Telecommunications
 Feb
08
 156.8
 11.7
 168.4

GP
INVESTMENTS
 Financials
 Feb
08
 186.5
 557.2
 743.7

NUTRIPLANT
 Materials
 Feb
08
 11.8
 1.8
 13.5

TEMPO
 Financials
 Dec
07
 217.7
 47.1
 264.8

PERDIGAO
 Consumer
Staples
 Dec
07
 507.3
 94.9
 602.1

MPX
ENERGIA
 Utilities
 Dec
07
 1,080.3
 215.6
 1,295.9

BOLSA
BM&F
 Financials
 Nov
07
 2,890.7
 433.6
 3,324.2

BANCO
PANAMERICANO
 Financials
 Nov
07
 391.3
 55.9
 447.2

LAEP
INVESTMENTS
 Financials
 Oct
07
 286.8
 42.9
 329.7

AMIL
 Financials
 Oct
07
 457.5
 331.7
 789.2

BRASIL
BROKERS
 Real
Estate/Construction
 Oct
07
 171.3
 224.8
 396.1

BOVESPA
HOLDINGS
 Financials
 Oct
07
 3,218.6
 482.9
 3,701.5

HELBOR
 Real
Estate/Construction
 Oct
07
 129.9
 30.3
 160.2

AGRENCO
 Industrial
 Oct
07
 370.0
 55.5
 425.6

PDG
REALTY
 Real
Estate/Construction
 Oct
07
 277.7
 41.7
 319.4

MARISA
 Consumer
Discretionary
 Oct
07
 245.0
 ‐
 245.0

BR
MALLS
PARTIC
 Real
Estate/Construction
 Oct
07
 332.1
 ‐
 332.1

SEB
EDUCAC
 Consumer
Discretionary
 Oct
07
 159.2
 68.2
 227.5

TRISUL
 Real
Estate/Construction
 Oct
07
 176.5
 ‐
 176.5

CONSTRUTORA
TENDA
 Real
Estate/Construction
 Oct
07
 333.6
 ‐
 336.6

BANCO
INDUSTRIAL
E
COMER
 Financials
 Oct
07
 310.6
 139.7
 450.2

SATIPEL
INDUSTRIAL
 Real
Estate/Construction
 Sep
07
 114.4
 99.1
 213.5

GENERAL
SHOPPING
BRASIL
 Real
Estate/Construction
 Jul
07
 143.2
 7.2
 150.4

SPRINGS
GLOBAL
PARTIC
 Industrial
 Jul
07
 189.5
 109.7
 299.2

MULTIPLAN
EMP
IMOBIL
 Real
Estate/Construction
 Jul
07
 360.8
 124.7
 485.4

COMPANHIA
PROVIDENCIA
 Industrial
 Jul
07
 246.1
 ‐
 246.1

BANCO
DO
RIO
GRANDE
SUL
 Financials
 Jul
07
 428.8
 690.5
 1,119.2

BANCO
ABC
BRASIL
 Financials
 Jul
07
 328.7
 5.1
 333.8

AÇUCAR
GUARANI
 Consumer
Staples
 Jul
07
 357.8
 ‐
 357.8

MRV
ENGENHARIA
E
PARTIC
 Real
Estate/Construction
 Jul
07
 540.2
 30.1
 570.3

CIA
HERING
 Consumer
Staples
 Jul
07
 123.2
 44.4
 167.5

TRIUNFO
PARTIC
E
INVEST
 Industrial
 Jul
07
 163.7
 112.1
 275.8

KROTON
EDUC
 Consumer
Discretionary
 Jul
07
 191.7
 65.0
 256.7

MINERVA
S/A
 Consumer
Staples
 Jul
07
 199.7
 39.9
 239.6

INVEST
TUR
BRASIL
 Real
Estate/Construction
 Jul
07
 450.6
 59.0
 509.6

BANCO
INDUSVAL
 Financials
 Jul
07
 120.4
 17.2
 137.6

DROGASIL
 Healthcare/Pharma
 Jul
07
 106.8
 97.8
 204.6

BANCO
DAYCOVAL
 Financials
 Jun
07
 486.4
 81.2
 567.6

MARFRIG
FRIGORIFICOS
 Financials
 Jun
07
 305.2
 218.3
 523.5

BANCO
CRUZEIRO
DO
SUL
 Financials
 Jun
07
 222.1
 67.6
 289.7

EZ
TEC
 Real
Estate/Construction
 Jun
07
 245.9
 36.9
 282.7

TOTAL
 
 
 27,845
 7,216
 35,061

COUNT
 
 
 79%
 21%
 100%

Source:

Citigroup
Global
Markets
Equity
Research;
BM&F
Bovespa




80
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Performance


Figure
38
compares
the
performance
of
Brazil’s
benchmark
index,
the
IBOVESPA,
with
that
of
the

MSCI
Emerging
Market
Index
(MSCI
EM)
over
the
last
five
years.




The
IBOVESPA
steadily
gained
in
value
over
the
2005‐2007
period
and
began
to
outperform
the
MSCI

EM
in
Q3
2007
as
the
“sub‐prime”
problem
began
to
make
its
effects
felt
beyond
the
US.




Both
the
MSCI
EM
and
IBOVESPA
have
fallen
sharply
since
Q2
2008
as
the
international
credit
crunch

crisis
evolved
into
a
severe
global
financial
and
economic
downturn.




The
IBOVESPA,
while
falling
dramatically,
continues
to
be
ahead
of
the
MSCI
EM.





Figure
38:

IBOVESPA
performance
compared
to
MSCI
Emerging
Market
Index,
5
years
(source:

Bloomberg)



Market
participants


Figure
39
illustrates
trading
on
BM&F
Bovespa
by
different
classes
of
market
participants:
individuals

(including
investment
clubs),
institutional
investors,
international
investors,
companies
and
financial

institutions.




Trading
by
companies
has
declined
over
time
relative
to
other
types
of
market
participants,
whilst

trading
by
Brazilian
institutional
investors
and
international
investors
has
increased,
reflecting
the

increase
in
domestic
savings
and
foreign
portfolio
investment.





Figure
39
also
shows
how
individual
investors
and
investor
clubs
have
continually
been
a
very

important
component
of
the
buy‐side
in
Brazil.


-50%
0%
50%
100%
150%
200%
250%
J
a
n
-
0
4

M
a
r
-
0
4

M
a
y
-
0
4

J
u
l
-
0
4

S
e
p
-
0
4

N
o
v
-
0
4

J
a
n
-
0
5

M
a
r
-
0
5

M
a
y
-
0
5

J
u
l
-
0
5

S
e
p
-
0
5

N
o
v
-
0
5

J
a
n
-
0
6

M
a
r
-
0
6

M
a
y
-
0
6

J
u
l
-
0
6

S
e
p
-
0
6

N
o
v
-
0
6

J
a
n
-
0
7

M
a
r
-
0
7

M
a
y
-
0
7

J
u
l
-
0
7

S
e
p
-
0
7

N
o
v
-
0
7

J
a
n
-
0
8

M
a
r
-
0
8

M
a
y
-
0
8

J
u
l
-
0
8

S
e
p
-
0
8

N
o
v
-
0
8

IBOVESPA MSCI EM
SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 81


Figure
39:

Evolution
of
investors’
participation
on
BOVESPA's
Total
Trade
Value
(%)
(source:
BM&F

Bovespa)




Key
environmental
and
social
issues


Corporations
and
their
investors
in
Brazil
face
a
wide
and
often
complex
range
of
social
and

environmental
issues
that
present
potentially
significant
risks
and
opportunities
to
shareholder
value

and
corporate
reputation.


At
the
current
time
there
does
not
appear
any
single
source
that

synthesises
this
information
into
an
investor‐friendly,
comprehensive
analysis
of
key
sustainability‐
related
business
drivers
in
the
industries
that
make
up
Brazil’s
stock
market.

A
detailed
assessment
is

beyond
the
current
scope
of
this
report.

Principal
issues


The
main
environmental
and
social
issues
that
influence
business
and
investor
risk
in
Brazil
include:


 Poverty
and
inequality

 Access
to
finance
at
the
‘base
of
the
pyramid’

 Land
distribution
and
landless
workers

 Food
security

 Child
labour

 Forced
labour

 Indigenous
peoples
and
associated
land
rights

 Urban
air
pollution

 Biodiversity
protection

 Deforestation
and
land
use
change

 Greenhouse
gas
emissions

 Water
and
sanitation

 Energy
(including
oil
&
gas,
hydroelectricity
and
biofuels)

 Climate
change
adaptation

 Regional
(cross‐border)
infrastructure
development


Appendix
B
provides
a
selection
of
recent
press
articles
illustrating
the
relevance
of
these
issues
to

Brazil’s
leading
industries
and
corporations.


20.2
21.7
21.9
26
27.5
25.4
24.6
23
24.4
15.8
16
16.5
27.6
28.1
27.5
27.2
29.7
26.3
22
25.1
26
24.3
27.3
32.8
35.5
34.5
37.2
5.3
3.2
3.5
4.1
3.4
2.6
2.3
2.4
3.3
36.7
34
32.1
18
13.8
11.7
10.4
10.4
8.8
2000
2001
2002
2003
2004
2005
2006
2007
Jun-08
Individuals Institutional International Financial Institutions Companies
82
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


New
national
plan
on
climate
change


One
important
recent
development
is
the
Brazilian
Government’s
National
Plan
on
Climate
Change,

published
in
December
2008.

The
measures
in
this
action
plan
may
have
potentially
significant

implications
(both
positive
and
negative)
across
a
number
of
key
Brazilian
industry
sectors,
including

oil
&
gas,
biofuels,
mining,
steel,
power
and
pulp
&
paper.

Some
of
the
key
principles
and
actions
in

the
National
Plan
on
Climate
Change
are
summarised
in
the
box
below.




NATIONAL
PLAN
ON
CLIMATE
CHANGE
(DECEMBER
2008)

SELECTED
MEASURES


INCREASE
ENERGY
AND
CARBON
EFFICIENCY
IN
THE
PRODUCTIVE
SECTOR:

Achieve
gradual
energy
savings
up
to
106
TWh/year
by
2030,
avoiding
emissions
of
around
30
million
tons
of
CO2
in
that
year.

Increase
use
of
sustainable
charcoal
to
replace
coal
in
steel
plants,
mainly
through
the
encouragement
of
forestation
in

degraded
areas.

Encourage
use
of
water
solar
power
heating
systems,
reducing
electricity
consumption
in
2,200
GWh
per
year
by
2015.

Phase
out
use
of
fire
for
clearing
and
cutting
of
sugarcane
in
areas
where
harvesting
mechanization
can
take
place.


Integrated
agricultural
and
cattle
raising
systems
including
carbon
sinks
via
crop‐livestock
integration
and
agro‐forestry.

MAINTAIN
RENEWABLE
ENERGY’S
HIGH
SHARE
IN
THE
ELECTRIC
MATRIX:

Increase
electricity
supply
from
cogeneration,
mainly
from
sugarcane
bagasse,
to
11.4
per
cent
of
the
total
supply
in
the

country,
in
2030,
corresponding
to
136
TWh.

Reduce
non‐technical
losses
in
the
electricity
distribution
at
a
rate
of
1,000
GWh
per
year
over
the
next
ten
years.

34,460
MW
from
new
hydropower
plants
to
be
added
to
the
system
in
accordance
with
the
schedule
of
works
of
the
Ten
Year

Energy
Plan
(2007‐2016).

Increase
the
energy
matrix
share
of
renewable
energy
from
wind
and
sugarcane
bagasse
through
specific
auctions
of

renewable
energy.
More
than
7,000
MW
of
renewable
sources
will
be
implemented
by
2010.


Expand
national
solar
photovoltaic
industry
and
the
use
of
this
energy
source
in
systems
that
are
isolated
and
connected
to
the

grid.

INCREASE
BIOFUEL
USE
AND
WORK
TOWARDS
AN
INTERNATIONAL
MARKET
OF
SUSTAINABLE
BIOFUELS:

Encourage
industry
to
achieve
an
average
annual
ethanol
consumption
increase
of
11
per
cent
in
the
next
ten
years.


Stimulate
an
international
ethanol
market
through
technical
cooperation
with
other
countries
with
a
high
potential
for
growing

sugarcane.

ACHIEVE
ZERO
ILLEGAL
DEFORESTATION:

Amazon
Fund:

created
in
2008,
the
Amazon
Fund
aims
to
raise
financial
resources
nationally
and
internationally
from

governments
and
the
private
sector
for
the
reduction
of
deforestation,
sustainable
forest
use
and
conservation.

Climate
Fund:

submitted
to
the
National
Congress,
amongst
other
purposes
it
aims
to
finance
actions
concerned
with

preventing
deforestation.

Minimum
price
policies
for
non‐timber
forest
produces
(linked
to
traditional
communities
and
peoples).

ELIMINATE
NET
LOSS
OF
FOREST
COVERAGE
BY
2015:

Revision
of
current
banking
requirements
to
make
forestation
and
reforestation
activities
more
attractive,
including
areas
for

charcoal
production.

Development
of
forest
products
for
fuel
applications.

Prevention
of
the
use
of
illegal
timber
in
the
building
industry
–
starting
in
January
2009,
the
legal
origin
of
timber
will
have
to

be
proved
by
building
companies
and
companies
from
the
real
estate
sector.





SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 83




APPENDIX
B:

EXAMPLES
OF
ESG
ISSUES
IN
THE

INTERNATIONAL
MEDIA


84
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009






!"#$%&'(%)*('+,#&'-.',/0."-'(1(-#%*#!&,',-2#*.&'
Iune 2S, 2uu8 (Reuteis)

A gioup of Biazilian ethanol companies signeu a ueal to expoit ceitifieu sustainable ethanol to Sweuen, in the
woilu's fiist agieement of such a kinu, they saiu on Weunesuay. Biazilian gioups Cosan, uuaiani, NovAmeiica anu
Alcoeste agieeu sell to Sweuen's Sekab 11S million liteis of anhyuious ethanol that will auheie to ceitain social anu
enviionmental stanuaius.

"This initiative auuiesses Euiopean consumeis' conceins ielateu to the sustainability of ethanol," Naitinho Seiiti
0no, uiiectoi at tiauing company SCA that will manage the expoits, saiu. "It is the fiist piactical application of
veiifieu sustainable ethanol anu is a majoi step towaiu iealizing an inteinational stanuaiu," 0no tolu iepoiteis.

Nills will ieceive S to 1u peicent moie foi the ceitifieu piouuct than foi a similai ethanol without tiaceability, he
saiu, ueclining to give othei uetails. The ueal will be valiu foi at least nine months anu the fiist caigo was shippeu
eailiei in Iune. Among the stanuaius is zeio toleiance foi chilu oi slave laboi. Nills must use at least Su peicent
mechanizeu haivesting touay anu inciease this to 1uu peicent by 2u14. An inuepenuent inteinational company will
auuit all the gioups piouuction units twice a yeai.

!"#$%&'&#*+&,(('!&.34#+,'"#%&5#6'
Naich 11, 2uu8 (BBC)

Bunuieus of lanuless faimeis in Biazil blockaueu a iailway opeiateu by mining giant vale foi seveial houis.

The uemonstiatois occupieu the line in the state of Ninas ueiais to piotest against the constiuction of a uam by vale
anu a paitnei company. They left aftei vale obtaineu a couit oiuei to have them iemoveu. The action comes amiu a
wiuening campaign by lanuless gioups to taiget majoi agiicultuial businesses anu multinationals ovei a iange of
issues.

Seveial hunuieu piotesteis, leu by activist gioups via Campesina anu NST, occupieu the iailway in the town of
Resplenuoi on Nonuay. The uemonstiatois saiu they weie piotesting against a hyuioelectiic uam built by vale anu
an eneigy company that hau, they saiu, uisplaceu moie than 2,uuu people.

vale, the woilu's biggest expoitei of iion oie, saiu the blockaue pieventeu the tianspoit of some Suu,uuu tonnes of
iion oie to poit.

7."3,+'&#!."'71,&('+,8,&.09,*-:'1;(;'",0."-'7%*+('
Iune 4, 2uu8 (CNN)

Slave laboi in ueveloping countiies such as Biazil, China anu Inuia is fuelling pait of theii huge economic giowth,
accoiuing to a State Bepaitment iepoit ieleaseu Weunesuay.

The uepaitment's annual "Tiafficking in Peisons Repoit" founu incieaseu allegations of foiceu laboi maue in
connection with a vaiiety of agiicultuial piouucts anu manufactuieu goous in ueveloping countiies.

In Biazil, the iepoit founu a "tiafficking phenomenon." It saiu thousanus of tiaffickeu anu foiceu laboieis hau been
founu on plantations giowing sugai cane foi Biazil's booming piouuction anu expoit of the biofuel ethanol.

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 85




!"#$%&'()*%))(+,&-%.#-%/.#&(-,".)(/01"(2/.-1)-13(&#.3(-/(
)-#-1(#,-4/"%-%1)(
0ctobei 21, 2uu8 (Amnesty Inteinational)

The uecision by Syngenta seeus, the Swiss multinational, to hanu ovei its 127 hectaie expeiimental faim to the
Paianá state goveinment on 14 0ctobei last, maiks a welcome enu to a violent conflict ovei the site.

The state goveinment has since piomiseu to use the lanu foi the piouuction of native seeus foi uistiibution to small-
holu faimeis anu impoveiisheu countiies in the iegion that have suffeieu uevastation fiom huiiicanes.

Following many months of piessuie fiom lanu activists, human iights gioups anu the state goveinment, Syngenta's
uecision to ielinquish the lanu stanus as an impoitant step in the uefence of the human iights of those stiuggling foi
theii iights to lanu anu suivival acioss the state.

The hanuovei comes, on the fiist anniveisaiy of the killings of valmii Nota ue 0liveiia (known as Keno), a leauei of
the lanuless woikeis movement (NST), anu Fabio Feiieiia, one of Syngenta's secuiity guaius.

A yeai on NF Seguianca, Syngenta's secuiity company, still pioviues seivices foi local lanuowneis, even though its
licence was ievokeu in Septembei. While official investigations, incluuing Keno's muiuei inquiiy, founu extensive
eviuence of iiiegulai oi ciiminal activity, the company continues to function penuing an appeal.

!"#$%&(2"%-%2%)13(5/"(.6/(7&#.(
Iuly 7 2uu8 (FT)

Non-goveinmental oiganisations active in Biazil will have to ie-iegistei with the goveinment unuei iegulations
which have uiawn ciiticism fiom campaigneis.

0iganisations will neeu to uetail theii souices of financing, list executives anu pioviue a bieakuown of theii plans
anu locations of opeiations as well as a host of suppoiting uocumentation. Those failing to comply coulu be kickeu
out of the countiy. The measuie, announceu at the enu of last week, will allow the goveinment anu othei public
bouies to iuentify which Nu0s aie acting wheie anu in what capacity, accoiuing to Romeu Tuma Iúnioi, secietaiy of
justice. Biasilia says the move is necessaiy to impose oiuei in a sectoi in which oiganisations have mushioomeu.
Piesiuent Luiz Inácio Lula ua Silva is expecteu to sign the ueciee this month.

uoveinment iepoits have iecently claimeu that some Nu0s have been engageu in bio-piiacy - obtaining patents foi
uiugs baseu on tiauitional meuicines - anu that otheis act as fionts foi othei illegal activities. They aie also
snapping up lanu in sensitive aieas of the Amazon.

Paulo Piauo, uiiectoi of enviionmental policy foi the São Paulo office of Conseivation Inteinational, an
enviionmental Nu0, says the move will tie up oiganisations such as his in yet moie buieauciacy. Be believes the
move is in laige pait motivateu by the goveinment's enthusiasm to uamp uown negative publicity stemming fiom
Nu0 sciutiny of issues in the Amazon, paiticulaily uefoiestation anu inuigenous iights.

#+#$/.(%.3%#.(%"/.8(3%#+/.3)(%.(!"#$%&(+#9(-,".(&16#&(-/(
+%.1(
August 21, 2uu8 (Bloombeig)

Foi uecaues, valeiia Paye Peieiia anu hei tiibe of Tiiiyo Inuians in Biazil's Paia state have fought wilucat mineis
who slip acioss the noithein boiuei fiom Suiiname anu Fiench uuiana to illegally extiact golu.

The mineis, known as gaiimpeiios, have cut tiees, polluteu wateis anu attackeu the tiibe's woou-anu-stiaw homes.
Now, the 1,1uu-membei tiibe is taking its fight to the nation's capital to fenu off legislation that woulu allow moie
mining on its lanus.

"The gaiimpeiios biing violence, uisease, alcohol anu piostitution," saiu Paye Peieiia, S4. She has been lobbying
against the measuie in Biasilia. 0pening up Inuian teiiitoiies woulu "leau to exploitation, not only of the lanus anu
the enviionment, but of the Inuians."

Lawmakeis aie uebating whethei to allow companies such as Cia. vale uo Rio Boce anu Anglo Ameiican Plc to team
up with Biazil's 4uu,uuu Inuians to tap unexploieu lanu aftei iising global uemanu causeu mineials piices to suige
anu stiaineu existing ueposits. While suppoiteis say uoing so will cuib violence anu enviionmental uamage causeu
by illegal uigs, inuigenous gioups say it thieatens theii way of life.

86
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009




!"#$%&'()$*)(+!,'&-'$)(,&('!,#'.($/$0&.(&1231!2%(
Septembei 2u, 2uu8 (Reuteis)

Biazilian oil company Petiobias has agieeu to give back to Ecuauoi a contioveisial oilfielu in the heait of the
Amazon jungle, Piesiuent Rafael Coiiea saiu on Satuiuay.

Coiiea, a leftist foimei economy ministei anu ally of Biazilian Piesiuent Luiz Inacio Lula ua Silva, last yeai gave
Petiobias peimission to exploit Block S1, locateu in Yasuni national paik.

But the pioject is on holu because the company has clasheu with Ecuauoi ovei taxes, anu enviionmentalists have
fieicely opposeu any oil activity insiue the paik that is home to iaie tiopical species of jaguais anu pink uolphins.

"Even aftei they (Petiobias) investeu $2uu million we weie able to get them to tiansfei Block S1 to (state oil fiim)
Petioecuauoi," Coiiea saiu uuiing his weekly iauio show.

-'$012($/$0&.(%!3&'!),$,1&.(1."'!$)!)(3&'(31'),(,1/!(1.(4(
*!$')(
Novembei 28, 2uu8 (Bloombeig)

Befoiestation in Biazil's Amazon iegion incieaseu this yeai foi the fiist time since 2uu4 as suiging piices foi cattle
anu soybeans leu iancheis to seek faim lanu in the foiest.

The woilu's laigest iainfoiest lost 11,968 squaie kilometies (4,6uu squaie miles), an aiea about 1u times as laige
as New Yoik City, in the 12 months thiough Iuly 2uu8, the National Institute of Space Reseaich saiu touay on its
Web Site. The loss compaies with 11,SS2 squaie kilometies in the same peiiou a yeai eailiei.

The uestiuction of the foiest was less than foiecast by the goveinment in the beginning of the seconu quaitei.

Piesiuent Luiz Inacio Lula ua Silva has tighteneu iules against illegal logging since Becembei, iesponuing to
pieliminaiy figuies that signalleu uefoiestation coulu ieach as much as 1S,uuu squaie kilometies, Enviionment
Ninistei Cailos Ninc saiu.

"We aie back to a tienu in which uefoiestation falls," Ninc tolu iepoiteis in Biasilia. "I hope the iate uiops below
1u,uuu squaie kilometies next yeai."

The pace of uefoiestation hau been falling since it ieacheu a nine-yeai high of 27,S79 squaie kilometies in 2uu4. It
acceleiateu in the enu of last yeai anu beginning of 2uu8 as commouity piices suigeu, Ninc saiu.

Be took office in Nay 27 with the challenge to cuib uefoiestation without obstiucting Piesiuent Luiz Inacio Lula ua
Silva's uiowth Acceleiation Piogiam, which incluues builuing at least two uams in the Amazon basin anu a nucleai
powei plant neai two histoiic seasiue towns in the state of Rio ue Ianeiio.

The goveinment cut bank loans to faimeis in the iainfoiest basin who uon't meet enviionmental iequiiements,
seizeu cattle giazing in illegal aieas, anu announceu plans to cieate thiee new natuial ieseives in an attempt to halt
uefoiestation.

Lula cieateu on Aug. 1 an inteinational funu that will seek to iaise $21 billion in uonations ovei the next 1S yeais to
finance conseivation anu sustainable uevelopment piojects in the Amazon.

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 87






!"#$%&$'()#%)(!"*+),-)&.//.%*)&0)1231)#%)45#)(5/65$
Ianuaiy 1S, 2uu9 (Bloombeig)

Petioleo Biasileiio SA, Biazil's state-contiolleu oil company, will spenu $4 billion by the enu of 2u12 to ieuuce
sulfui in uiesel, the countiy's most-useu fuel.

Sulfui will be limiteu to 1,8uu paits pei million in uiesel solu in iuial aieas staiting this month, the Rio ue Ianeiio-
baseu company saiu touay in a statement. Petiobias, as the company is known, plans to supply 9u,uuu cubic meteis
(2S.8 million gallons) a month of uiesel with Su paits pei million of sulfui, known as S-Su, to bus fleets in Sao Paulo
anu Rio ue Ianeiio cities.

Sulfui in uiesel may contiibute to the ueaths of 2S,uuu people in Sao Paulo, Biazil's laigest city, by 2u4u, accoiuing
to Paulo Saluiva, cooiuinatoi of the Pollution Laboiatoiy at the 0niveisity of Sao Paulo's Faculty of Neuicine. 0f the
11u ueaths iegisteieu uaily in metiopolitan Sao Paulo, 12 to 14 aie the iesult of illnesses causeu by the buining of
uiesel, he saiu. Sulfui levels aie limiteu to less than Su paits pei million in Noith Ameiica anu Euiope, while most
Biazilian uiesel has at least 1u times that amount. Petiobias may invest an auuitional $2 billion staiting in 2u1S to
piouuce uiesel with just 1u paits pei million.

Petiobias will also stait supplying the S-Su uiesel to bus fleets in the cities of Foitaleza, Recife, Cuiitiba, Poito
Alegie, Belo Boiizonte, Salvauoi anu vitoiia latei this yeai. The move will inciease the company's sales of the
cleanei fuel to 242,uuu cubic meteis a month by eaily 2u1u. Petiobias will stait piouucing the S-Su uiesel in Biazil
this yeai in a biu to ieuuce uepenuence on impoits anu will boost output to 11 plants by 2u11, Paulo Robeito ua
Costa, Petiobias's iefining chief, tolu iepoiteis touay in Sao Paulo.

&$'7./)/'*+/"(()!"'('*#()'.8)#%)"9#"*+)6.:;#)#%)%./)
Ianuaiy 19, 2uu9 (Reuteis)

Biazil's Lanuless Woikeis' Novement maikeu its 2Sth anniveisaiy on Nonuay by pleuging to extenu its fight against
capitalism to ensuiing the countiy's new oil wealth iemains in state hanus.

Since state eneigy company Petiobias (PETR4.SA)(PBR.N) announceu in 2uu7 it hau uiscoveieu massive light oil
ieseives off Biazil's southein coast, talk has swiileu that the goveinment woulu take gieatei contiol ovei the oil
wealth. Piesiuent Luiz Inacio Lula ua Silva is consiueiing whethei to cieate a new state-iun oil company to manage
oil piouuction fiom new "subsalt" ieseives, but foieign oil fiims like Royal Butch Shell Plc (RBSa.L) will still have a
majoi iole in piouuction.

"The NST is ieauy to uo what is neeueu to guaiantee that Biazil's oil, especially the subsalt uiscoveiy, won't be
piivatizeu. This means battles, maiches, occupations, public campaigns -- a seiies of actions," Ioao Paulo Rouiigues,
one of the movement's leaueis, tolu a news confeience in São Paulo. The movement, piobably the woilu's laigest
lanu iefoim gioup, is known as the NST.

;5*+$"+()%6)&$'7./<()"4%=>'$$.%$()'#)$.(?)%6)'(('((.*'#.%*)
Becembei 22, 2uu8 (The uuaiuian)

Twenty yeais aftei the killing of Chico Nenues, one of the woilu's most piominent iainfoiest uefenueis, hunuieus of
human iights anu enviionmental activists still face the thieat of assassination in Biazil, a new stuuy claims.

The iepoit, compileu by Biazil's Catholic Lanu Commission (CPT) anu uue to be ieleaseu in full eaily next yeai,
ieveals that at least 26u people, among them a Catholic bishop, live unuei the thieat of muiuei because of theii fight
against a coalition of loggeis, faimeis anu cattle iancheis.

In Febiuaiy this yeai, Fiancisco ua Silva, a S1-yeai-olu leauei of the lanuless movement in the Amazon, was killeu
with a single shot to the heau. Be hau been nameu in a pievious CPT iepoit about iuial leaueis ieceiving ueath
thieats. In Septembei this yeai goveinment figuies showeu that uefoiestation in the Amazon hau iisen by 64% ovei
the pievious 12 months. Eailiei this month, membeis of Ibama, Biazil's enviionmental taskfoice, uiscoveieu that
neaily S,uuu hectaies (7,41u acies) hau been uefoiesteu, mostly illegally, insiue a ieseive nameu aftei Nenues.

'Each yeai on 22 Becembei I ask myself if he uieu in vain oi not. Anu touay, aftei all these yeais, the answei is not
yet cleai to me," saiu Alfieuo Siikis, a piominent membei of Biazil's uieen paity anu fiienu of Nenues.
88
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


APPENDIX
C:

SWOT
ANALYSIS


SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 89



STRENGTHS/OPPORTUNITIES
 WEAKNESSES/THREATS

BM&F
Bovespa
is
a
proactive
and
innovative
stock
exchange

with
respect
to
ESG
investment
concepts
and
solutions

Many
other
initiatives
and
challenges
compete
for
management

attention

The
Brazilian
investment
and
corporate
community
puts
a

strong
emphasis
on
corporate
governance,
including
pioneering

initiatives
such
as
the
Novo
Mercado

Corporate
governance
culture
has
not
yet
evolved
to
fully

include
governance
of
environment
and
social
risks
–
emphasis

remains
on
‘core’
CG
issues
such
as
minority
shareholder
rights


No
listing
rules
or
stock
exchange
guidance
in
relation
to
non‐
financial
reporting
or
ESG
disclosure


Risk
of
falling
behind
emerging
best
practices
(e.g.
ICGN

Statement
and
Guidance
on
Non‐financial
Business
Reporting)

Strong
environmental
legislation
 Variable
environmental
enforcement

The
complexity
and
significance
of
environmental
and
social

issues
in
Brazil
mean
that
there
is
a
strong
business
case
for

corporate
sustainability,
and
therefore
a
strong
value‐added

argument
in
favour
of
sustainable
investment
strategies

The
complexity
and
significance
of
environmental
and
social

issues
presents
important
information
and
management

challenges,
as
well
as
decision‐making
dilemmas
and
difficult

judgement
calls.



Failure
to
deal
adequately
with
ESG
issues
in
investment
can

lead
to
very
real
social
and
environmental
damage
and
put

value
at
risk

Through
its
Center
for
Sustainability
Studies,
Brazil’s
leading

business
school
(FGV)
is
an
active
and
catalytic
participant
in
the

development
of
Brazil’s
sustainable
investment
market

CES‐FGV’s
resources
may
sometimes
be
spread
too
thinly

The
ISE
Index
has
matured
into
a
successful
and
important

element
in
the
Brazilian
investment
and
corporate
responsibility

landscape,
and
appears
to
be
able
to
operate
on
a
break‐even

basis

The
ISE
business
model
may
not
provide
sufficient
revenue
for

R&D,
marketing,
etc
and
arguably
distorts
the
marketplace
for

commercial
ESG
research


The
ESG
investment
needs
of
Brazilian
institutional
investors

like
PREVI
are
evolving
beyond
what
the
ISE
can
currently

provide


The
company
response
rate
to
the
annual
ISE
survey
is
low
and

falling
steadily
and
the
ISE
has
a
low
profile
with
foreign

portfolio
investors

Many
of
Brazil’s
leading
asset
managers
participate
in

sustainable
investment
and
have
built
up
experience
via
SRI

mutual
funds
that
have
proved
they
can
deliver
respectable

financial
returns
compared
to
relevant
benchmarks



Currently,
no
asset
manager
employs
full‐time
ESG
analysts:


human
capital
development
is
likely
to
emerge
as
an
issue
for

the
future


Lack
of
ESG
research
out‐sourcing
hinders
the
development
of
a

commercial
ESG
research
services


Relatively
few
asset
managers
have
signed
the
UNPRI
and
there

seems
to
be
limited
interaction
and
know‐how
exchange
with

Brazil’s
UNPRI
pension
funds
and
the
UNPRI
as
a
whole


The
competing
SRI
mutual
funds
are
all
similar
to
one
another
in

terms
of
ESG
features
and
financial
performance


The
asset
managers’
SRI
business
lines
appear
to
be
stagnating

(no
recent
product
innovation,
static/falling
consumer
appetite)


Since
the
‘loss’
of
the
ABN
AMRO
Brazil
Fund,
Brazilian
asset

managers
no
longer
offer
off‐shore
ESG
funds
suitable
for

foreign
investors


Shareholder
engagement
is
in
its
infancy.

90
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Brazilian
pension
funds
were
among
the
founding
signatories
of

the
UNPRI
and
are
currently
the
main
driving
force
behind

sustainable
investment
in
Brazil
under
the
leadership
of
the

influential
leadership
of
PREVI,
by
far
the
country’s
largest

pension
fund



Public
policy
measures
to
promote
sustainable
investment
(e.g.

pension
fund
transparency
rules)
have
not
been
necessary

Implementation
is
at
a
relatively
early
stage
and
is
mainly

concentrated
in
PREVI


Currently,
no
pension
fund
employs
full‐time
ESG
analysts:


human
capital
development
is
likely
to
emerge
as
an
issue
for

the
future


Lack
of
ESG
research
out‐sourcing
hinders
the
development
of
a

commercial
ESG
research
services


By
itself,
the
ISE
is
currently
insufficient
for
the
ESG
investment

needs
of
PREVI
and
other
UNPRI
signatories
–
however,

developing
additional
tools
and
methodologies
is
a
significant

challenge


In‐house
management
of
equities
isolates
the
UNPRI
pension

funds
from
the
sustainable
investment
expertise
built
up
by

asset
managers
in
the
SRI
mutual
fund
niche


Shareholder
engagement
is
in
its
infancy.

IFC
has
played
a
catalytic
role
by
supporting
a
number
of

strategic
initiatives
in
this
field,
including
the
development
of

the
ISE
Index


IADB
and
BNDES
both
play
key
roles
in
helping
to
develop

Brazil’s
hi‐tech
and
‘greentech’
venture
capital
industry


IADB
has
commissioned
interesting
research
from
Innovest
on

the
“Opportunities
for
the
Majority”
strategies
of
several
Latin

American
corporations,
including
a
number
of
Brazilian
firms

Other
emerging
markets/advisory
needs
compete
for
IFC’s

management
attention
and
finite
grant
funding
resources


BNDES
and
IADB
do
not
appear
to
be
engaged
in
Brazil’s

networks
and
initiatives
for
sustainable
portfolio
investment
in

Brazil


It
is
not
clear
whether
or
how
BNDES
handles
ESG
issues
with

respect
to
its
ownership
of
significant
stakes
in
Brazil’s
leading

listed
companies


There
is
little
or
no
interaction
between
IFC,
IADB
and
BNDES
on

DFI
support
for
the
development
of
Brazil’s
sustainable

investment
market

Brazil’s
HNWI
population
is
growing
rapidly
and
may
represent
a

potential
stock
of
sustainable
investment
assets
of
roughly

US$70
billion

There
is
no
published
market
research
on
sustainable
HNWI

investment
in
Brazil

As
a
general
observation,
foreign
portfolio
investors
are

increasingly
focusing
on
ESG
issues
when
investing
in
Brazil
and

other
emerging
and
frontier
markets

There
is
relatively
little
data
on
the
ESG
“footprint”
of
Brazil’s

foreign
portfolio
investors
and
investors
in
Brazilian
ADRs
listed

in
New
York

Brazil
has
emerged
as
the
main
centre
of
PE/VC
activity
in
the

region,
including
a
number
of
“greentech”
funds
and
deals


Institutional
investors
such
as
PREVI
are
promoting
sustainable

private
equity
investment
in
Brazil
through
the
UNPRI


IPOs
have
become
an
attractive
exit
route,
creating
synergies

between
sustainable
PE
and
the
ISE
Index


WRI’s
New
Ventures
programme
plays
a
key
role
in
developing

VC
opportunities
in
sustainable
SMEs


GPs
with
formal
ESG
policies
and
procedures
are
still
the

exception
rather
than
the
rule


Biofuels
have
become
a
significant
part
of
PE/VC
activity
in

Brazil
and
this
sector
poses
complex
environmental
and
social

issues
and
challenges


New
tools,
standards
and
capacity
building
programmes
are

needed
to
support
further
progress
towards
mainstream

integration
of
ESG
investment
in
the
PE/VC
sector


At
some
point
in
the
future
WRI
is
likely
to
need
an
effective

“exit”
mechanism
for
New
Ventures
Brazil,
possibly
involving

commercial
spin‐out

Brazil’s
leading
listed
companies
are
relatively
good
at
voluntary

non‐financial
reporting
in
the
form
of
GRI
sustainability

reporting
and
responses
to
the
Carbon
Disclosure
Project


Brazil
has
a
strong
body
of
consultants,
not‐for‐profit

organisations
and
other
entities
that
provide
expertise
and

advocacy
for
sustainability
reporting
etc.

Further
progress
is
needed
in
terms
of
coverage
and
quality


Sustainability
reporting
still
has
a
strong
PR
flavour


Non‐financial
reporting
of
potentially
material
ESG
risks
does

not
appear
to
be
widely
practiced
in
relation
to
IPO

prospectuses
and
regulatory
filings


Many
of
Brazil’s
leading
listed
companies
are
listed
in
New
York

and
are
therefore
potentially
vulnerable
to
regulatory
changes

that
are
currently
being
discussed
in
the
US
in
relation
to
e.g.

SEC
rules
on
climate
change
disclosure

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 91


A
small
number
of
international
sustainable
investment

research
firms
cover
some
of
Brazil’s
leading
companies


Brazil
has
the
human
capital
to
develop
its
own
sustainable

investment
research
providers

Coverage
by
international
firms
is
still
relatively
limited
and
is

largely
conducted
by
non‐Brazilians
located
abroad


Brazil
has
not
developed
its
own
sustainable
investment

research
industry,
due
to
lack
of
commercial
demand
from
the

buy‐side

Some
international
sell‐side
firms
are
producing
sector‐specific

sustainability
research
which
includes
a
small
number
of

Brazilian
companies
that
are
globally
significant
in
their
sector

International
sell‐side
research
on
the
ESG
aspects
of
Brazilian

stocks
is
extremely
limited


Brazilian
sell‐side
analysts
do
not
produce
ESG
research
due
to

lack
of
commercial
demand
from
the
buy‐side

Organisations
such
as
the
Brazilian
Association
of
Pension

Funds,
the
National
Association
of
Investment
Banks
and
the

Association
of
Capital
Market
Analysts
and
Investment

Professionals
play
an
active
part
in
promoting
sustainable

investment
in
Brazil

Language
barriers
(English‐Portuguese
and
Portuguese‐English

translations
of
key
reports,
guidance
materials
and
other

relevant
information
are
rare
and
often
of
poor
quality)

Several
of
Brazil’s
asset
managers
are
active
in
CES‐FGV’s
Latin

American
Sustainable
Finance
Forum
(LASFF)


The
UNPRI
is
becoming
increasingly
active
in
Brazil
and
intends

to
recruit
a
full‐time
Brazil‐based
coordinator
to
expand

membership
and
support
implementation

The
LASFF
does
not
have
a
wide
membership
base
in
the
asset

management
community,
and
does
not
fulfil
the
crucial
role

played
by
industry
organisations
in
other
regions
as
UKSIF
in
the

UK
or
ASrIA
in
Asia


Despite
having
almost
identical
strategic
and
technical
interests,

there
is
little
membership
overlap
between
the
LASFF
and

UNPRI,
and
technical
cooperation
has
begun
only
recently.


LASFF
and
UNPRI
both
have
limited
human
and
budget

resources







92
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


APPENDIX
D:

SUSTAINABILITY
IN
BRAZIL’S
PRIVATE

EQUITY
AND
VENTURE
CAPITAL
MARKET



SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 93


Market
overview


The
Emerging
Market
Private
Equity
Association
(EMPEA)
provides
extensive
and
authoritative

information
on
private
equity
and
venture
capital
in
Brazil
and
Latin
America
14
,
as
do
the
Brazilian

Private
Equity
and
Venture
Capital
Association
(ABVCAP)
and
the
Latin
American
Venture
Capital

Association
(LAVCA).




Brazil
has
implemented
a
series
of
reforms
in
recent
years
to
attract
and
promote
private
equity
and

venture
capital,
and
is
now
the
leading
center
for
PE/VC
activity
in
the
region.

These
reforms
have

included
stronger
laws
on
fund
formation
and
operation,
better
protection
of
intellectual
property

rights,
and
lower
restrictions
on
institutional
investors.

In
addition,
the
corporate
governance

segments
created
by
Bovespa
in
2001
have
opened
new
opportunities
for
exits
on
public
markets.




Prior
to
the
global
economic
crisis,
Brazil
led
a
resurgence
of
investor
interest
in
private
equity
in
Latin

America
in
general,
and
drew
nearly
60
per
cent
of
the
private
equity
capital
raised
for
Latin
America

PE
funds
in
2007.

Investment
volumes
recorded
unprecedented
heights—at
US$4.7
billion,
2007

volumes
were
roughly
10
times
that
of
2005,
and
double
the
peak
of
the
1990s
boom
years.
As
a

result,
53
firms
commenced
private
equity
operations
in
Brazil
between
2001
and
2007,
and
89
PE/VC

firms
currently
manage
153
funds
in
Brazil
(Table
24).




Brazilian
private
equity
managers
also
built
a
solid
record
of
exits,
contributing
to
the
explosion
in
IPO

activity
in
2006
and
2007.

Brazil’s
2007
aggregate
exit
values
surpassed
dollar
volumes
across
the

entire
region
from
2003
to
2005.




Brazilian
institutional
investors
are
becoming
increasingly
active
in
private
equity.

Insurance

companies
may
invest
up
to
50
per
cent
of
reserves
in
variable‐income
instruments
such
as
shares.


The
insurance
sector
remains
underdeveloped
in
Brazil,
though
it
is
expanding.

The
participation
of

pension
funds
in
PE/VC
activity
is
larger
than
that
of
insurers,
and
pension
funds
have
become
major

players
in
the
industry
by
regional
standards.

‘Open’
pension
funds
(i.e,
those
not
limited
to

employees
and
retirees
from
specific
companies)
may
invest
60
per
cent
of
reserves
in
stocks.
Many

pension
funds
insist
in
participating
on
the
investment
committees
of
funds
in
which
they
invest.



Fundraising
Activity


Until
the
recent
economic
downturn,
the
funds
universe
in
Brazil
was
in
a
period
of
dramatic
growth,

both
in
the
amount
of
capital
being
raised
and
the
diversity
of
funds
tapping
the
market
(Figure
40).



This
growth
spans
the
buyouts
end
of
the
spectrum,
the
middle
market
and
the
venture
capital

segment.


Overall,
funds
focused
on
Brazil
raised
more
than
US$1
billion
between
April
2007
and
April
2008.



Additionally,
at
least
10
funds
are
raising
upwards
of
US$4.6
billion,
translating
to
a
potential
doubling

in
capital
focused
on
Brazilian
opportunities
in
2008
relative
to
the
US$2.5
billion
raised
in
2007.



The
financial
crisis
will
undoubtedly
have
an
impact
on
international
fund‐raising.

However,
the

impact
on
the
Brazilian
venture
capital
and
private
equity
industry
is
likely
to
be
cushioned
because

Brazilian
pension
funds
such
as
PREVI
are
becoming
increasingly
active
in
this
asset
class.










































































14

Insight
Brazil:
An
Overview
of
Trends
in
Select
Sectors
and
Markets

EMPEA
(May
2008)

94
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Table
24:

Brazil
‐
recent
private
equity
funds
(source:
EMPEA)

PE
Firm
 Fund
 Sector
Focus

Actis
 Actis
Latin
America
3
LP
(US$132m)
 Generalist

Advent
International
 Latin
America
Private
Equity
Fund
IV
(2007,
US$1.3b)
 Generalist

AIG
Capital
Partners
 AIG
Brazil
Special
Situations
Fund
II
(2008,
US$692m)
 Generalist

Angra
Partners
 AG
Angra
Infrastructure
Fund
(2006,
US$397m)
 Infrastructure

Artesia
Gestao
de
Recursos
 Artesia
Exclusive
II
(2007,
US$98m)
 ‐

Axxon
Group
 Natixis
Mercosul
Fund
(2001,
US$100m)
 ‐

Banco
Pactual
 Fundo
Brasil
Energia
(2004,
US$255m)
 Energy

Banco
Santander
 ASCET
I‐FIP
(2007,
US$31m)

BRASOIL
FIP
(2007,
US$31m)

Generalist

Capitania
Gestores
 Private
Equity
Brazil
Multi‐strategy
I
(2007,
US$260m)
 Generalist

CRP
 CRP
VI
Venture
(2006,
US$28m)
 Generalist

Darby
Overseas
Investments
 Darby
BBVA
Latin
America
(2005,
US$175m)
 Agribusiness/Infrastructure

DGF
 FIPAC
(2006,
R$80m)
 Technology,
Pharma

Dynamo
 Puma
II
(2004,
US$208m)
 ‐

FIR
Capital
Partners
 Fundo
Tec
II
(2007,
US$45m)

DFJ
FIR
Brazil
Fund
II
(2007,
US$100m)

Technology,
life
sciences

Gavea
Investimentos
 Fund
II
(2007,
US$480m)
 Generalist

GG
Investimentos
 Governança
&
Gestão
Fund
I
(2006,
US$140m)
 ‐

GP
Investments
 GP
Capital
Partners
IV
(2007,
US$1.3b)
 Generalist

Infinity
 Infinity
Bioenergy
Fund
I
(2006,
US$516m)
 Cleantech

Investidor
Profissional
Gestão
de

Recursos

Gibraltar
Fundo
de
Investimento
em
Participacoes
II

(2007,
US$78m)

Technology

JB
Partners
 JBVC
I
Fund
(2007,
US$57m)
 Generalist

Mellon
Global
Investments
Brazil
 Rio
Agribusiness
FIP
(2007,
US$13m)

Polaris
Fundo
de
Investimento
em
Participacoes
(2007)

Agribusiness/Generalist

Mercatto
Venture
Partners
 MVP
Tech
Fund
(2002,
R$23m)
 Technology

Patriã
Private
Equity
 Fundo
de
Terceirização
de
Serviços
para
o
Brasil
(2006)
 Outsourcing

PTZ/Biomass
Technology
Group
 PTZ/Biomass
Technology
Fund
I
(2006,
US$63m)
 Cleantech

Rio
Bravo
 RB
Nordeste
II
(2006,
US$46m)
 Generalist

Southern
Cross
Group
Brazil
 Southern
Cross
Latin
American
Private
Equity
Fund
III

(2007,
US$751m)

Generalist

Stratus
Investimentos
 Stratus
VC
Fund
III
(2006,
US$31m)
 Cleantec

Temple
Capital
Partners
 Clean
Energy
Brazil
(2006,
US$197m)
 Cleantech

Vision
Brazil
 Vision
Agro
Fundo
de
Investimento
em
Participacoes
II

(2007,
US$78m)

‐

Votorantim
Ventures
 Votorantim
New
Business
(US$300m)
 IT,
life
sciences







SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 95


Figure
40:

PE
funds
raised
2002‐2007
(source:
EMPEA)




Figure
41:

Number
of
PE‐backed
Public
Offerings
in
Brazil
(source:
EMPEA)



Investing
Trends


Private
equity
firms
are
bullish
on
Brazilian
agricultural
investments,
in
spite
of
the
tight
credit

markets.
Investors
with
cash
say
the
current
market
turmoil
will
create
opportunities
in
Brazil’s
fast

growing
agricultural
sector,
especially
in
the
heavily
leveraged
sugar
and
ethanol
sector,
where

analysts
expect
a
wave
of
mergers
and
acquisitions.

Fuel
production
and
energy
drew
the
majority
of

investment
in
2007.

The
attractiveness
of
sugarcane‐based
ethanol
production
projects
is
being

driven
by
strong
demand
in
Brazil
(where
87
per
cent
of
all
new
light
vehicle
sales
are
flex‐fuel
cars)

and
by
global
energy
security
concerns.

Investors
are
also
active
in
beef,
coffee,
bioenergy
and

infrastructure,
logistics
and
retail.

Exit
Trends



Trade
sales
(to
strategic
or
financial
sponsors)
accounted
for
roughly
two‐thirds
of
exits
in
2007.


Among
trade
sales,
transactions
with
strategic
sponsors
continue
to
be
the
predominant
path
to
exit

in
Brazil.

Although
rare
during
private
equity’s
early
years
in
Brazil,
IPOs
became
an
attractive
exit

route
prior
to
the
current
economic
crisis.

Of
the
176
IPOs
on
the
São
Paulo
Stock
Exchange
over

2004
–
2007,
30
per
cent
were
companies
backed
by
private
equity
or
venture
capital
(Figure
41).



Examples
of
private
equity‐backed
IPOs
are
shown
in
Table
25
and
include
DASA
(now
a
component

of
the
ISE
index),
TAM
and
GOL.



Emerging Markets Private Equity Association
5
May 2008
According to a study conducted by PriceWaterhouse Coo-
pers in February 2008, of the 110 transactions involving
private equity firms that were completed in 2007, 57 were
made through private equity portfolio companies. Fund
managers exploiting the benefits of consolidation plays
include Advent International, which has been investing in
airport-based retail throughout the region, such as Brazilian
0
5
10
15
20
25
2007 2006 2005 2004
16
21
12
9
Number of PE-backed PubIic Offerings
Net Revenues
2006 Investment Time to exit Estimated IRRs
Company (USD million) (USD million) (years) in US$
Equatorial 393 11 2 481%
GOL 1746 26 1 242%
TOTVS 161 16 <1 199%
DASA 308 100 5 40%
Gafisa 305 78 9 36%
TAM 3374 77 8 26%
ALL 793 202 7 22%
Localiza 517 49 8 9%
Akwan n/a n/a 4 130%
Autotrac 122 2.5 7 32%
Microsiga n/a 7 6 12%
ExampIes of SuccessfuI VC]PE Exits, 2006 - 2007
food and beverage retailers Grupo RA and La Mansion,
and duty-free retailer Brasif. GP Investments is building an
integrated human resources company through acquisitions
of Grupo Suma, Top Service, and People Domus. Equity
International and GP Investments are building a portfolio
of shopping center developments through their 2006 co-
investment in BR Malls.
Exit Trends
The strengthening track record of Brazilian GPs is a critical
lever in the local industry’s recovery.
Trade sales (to strategic or financial sponsors) account for
the bulk of exits, roughly two-thirds of the exits in 2007.
Among trade sales, transactions with strategic sponsors
continue to be the predominant path to exit in Brazil. Re-
cent examples include Advent International’s exit from
bond provider J Malucelli Seguradora (JMS) in exchange
for a 10% equity stake in consumer credit bank Parana
Banco. Fund manager Pactual realized a US$12.5 million
investment in Qualytextil through a sale to US protective
apparel manufacturer Lakeland Industries. In November
2007, US-based Acon Investments realized its investment
I
P
O
s
T
r
a
d
e
-
S
a
l
e
Source: ABVCAP, Bovespa.
Source: ABVCAP, Bovespa.
96
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Table
25:

Examples
of
successful
VC/PE
exits,
2006
‐
2007

Exit
Type
 Company

Net
revenues
2006

(US$
million)

Investment

(US$
million)

Time
to
exit

(years)

Estimated
IRRs

in
US$

Equatorial
 393
 11
 2
 481%

GOL
 1,746
 26
 1
 242%

TOTVS
 161
 16
 <1
 199%

DASA
 308
 100
 5
 40%

Gafisa
 305
 78
 9
 36%

TAM
 3,374
 77
 8
 26%

ALL
 793
 202
 7
 22%

IPO

Localiza
 517
 49
 8
 9%

Akwan
 n/a
 n/a
 4
 130%

Autotrac
 122
 2.5
 7
 32%

Trade
Sale

Microsiga
 n/a
 7
 8
 12%

Source:

EMPEA
(ABVCAP,
Bovespa)


Developing
Brazil’s
venture
capital
industry


The
government‐owned
Brazilian
Innovation
Agency
(FINEP)
(part
of
the
Ministry
of
Science
and

Technology)
has
played
a
key
role
in
building
Brazil’s
venture
capital
industry.




The
INOVAR
Project
was
created
by
FINEP
in
2000
in
conjunction
with
financing
from
the
Multilateral

Investment
Fund
(MIF)
(part
of
the
InterAmerican
Development
Bank,
IADB)
as
a
financial
mechanism

to
support
small
high‐tech
start
ups
through
venture
capital
funds.




The
project
has
since
established
24
funds,
half
of
which
have
been
invested
in
by
the
MIF,
and
has

also
created
the
Inovar
Seed
Money
program
(Inovar
Semente)
to
stimulate
the
generation
of
seed

and
early
stage
funds
for
small
entrepreneurs.


The
INOVAR
Project
includes:


 INOVAR
Fund
Incubator;

 Brazil
Innovation
Forum;

 Brazil
Venture
Capital
website;

 INOVAR
Business
Prospecting
and
Development
Network;

 Development
of
capacity
building
and
training
programs
for
venture
capital
agents.


BNDES
has
also
played
an
important
strategic
role
in
the
Brazilian
PE/VC
industry
by
emphasizing
the

development
of
venture
capital
in
general
and
investments
in
PE
in
priority
sectors.




Status
of
sustainable
investment


An
analysis
of
sustainable
investment
practices
in
the
Brazilian
private
equity/venture
capital
market

can
be
broken
down
into
three
main
(but
overlapping)
topics:


 Integration
of
ESG
issues
(primarily
risks)
into
the
investment
policies
of
‘mainstream’

private
equity
funds
(i.e.
funds
that
are
not
specifically
focused
on
sustainability‐related

investment
themes).

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 97



 ‘Themed’
private
equity
and
venture
capital
funds
whose
investment
strategy
is
focused
on

ESG
and
sustainability‐related
opportunities
such
as
clean
technology,
biofuels,
etc.

In

recent
years,
the
bio‐ethanol
industry
has
been
a
large
part
of
PE/VC
activity
in
Brazil.

The

environmental
and
social
pros
and
cons
of
this
industry
are
complex
and
are
the
subject
of

much
debate.

A
more
detailed
discussion
of
these
issues
is
beyond
the
ambitions
and
scope

of
this
report.


 Venture
capital
funds
and
related
technical
assistance
programs
focusing
on
social

enterprises
and
sustainable
entrepreneurs
towards
the
‘base
of
the
pyramid’.





Mainstream
private
equity


At
the
‘mainstream’
end
of
the
spectrum,
few
GPs
and
private
equity
funds
in
Brazil
have
formal
ESG

policies
and
procedures
dealing
with
sustainability‐related
risks
and/or
responsible
investment
values.



There
are
a
few
exceptions
particularly
amongst
funds
whose
LPs
include
multilateral/bilateral

development
finance
institutions
(DFIs).

Such
DFIs
include
IFC,
the
Inter‐American
Investment

Corporation
(IIC),
MIF,
the
US
Overseas
Private
Investment
Corporation
(OPIC)
and
CDC.

Table
26
lists

examples
of
DFI‐backed
funds.

The
policies
of
IFC
and
many
other
such
DFIs
stipulate
that
private

equity
funds
in
which
they
invest
must
follow
certain
social
and
environmental
procedures,
including

negative
screening
on
issues
such
as
child
labour
and
compliance
with
applicable
national
and
World

Bank
standards
and
guidelines.




DFIs
such
as
IFC
provide
guidance
on
their
environmental
and
social
requirements
and
occasionally

run
training
programs
for
their
GPs.




The
UK‐based
firm
Actis,
which
has
raised
close
to
US$130
million
for
its
Latin
America
Fund
3,
has
a

well‐defined
and
comprehensive
management
system
for
incorporating
environmental,
social
and

governance
issues
into
the
investment
process.

This
integration
occurs
at
all
stages
of
investment

decision
making,
from
origination
through
to
investment
appraisal
and
management
of
portfolio

companies.




Most
other
mainstream
PE
firms
investing
in
Brazil
concentrate
more
or
less
exclusively
on
corporate

governance
issues
and
have
no
systematic
procedures
for
identifying
environmental
or
social
impacts

or
for
subsequently
engaging
with
the
investee
companies
to
improve
environmental
and
social

standards.



Discussions
with
several
Brazilian
PE
firms
revealed
that
there
has
been
little
or
no
pressure
from
the

majority
of
their
LPs
to
conform
to
higher
environmental
and
social
standards.

However,
this

situation
is
slowly
changing:
Brazilian
pension
funds
are
becoming
more
active
in
the
PE/VC
market

and
are
seeking
to
implement
the
UNPRI
in
the
asset
class.




PREVI,
for
example,
has
recently
run
workshops
for
GPs
on
the
integration
of
ESG
issues
into
PE/VC

term
sheets,
and
has
expressed
interest
in
developing
additional
sustainable
investment
standards

and
tools
specific
to
PE
in
Brazil.




Three
PE
firms
–
NSG
Capital,
Stratus
and
Sustain
Capital
–
have
signed
the
UNPRI.


Other
notable

exceptions
include
DGF
Investimentos,
which
has
a
strong
framework
of
documented
ESG
policies

and
procedures,
and
a
management
team
with
impressive
expertise
in
sustainability‐related
risks
and

opportunities.






98
 SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009


Table
26:

Examples
of
Latin
American
and
Brazilian
PE
funds
backed
by
development
finance

institutions


PE
Firm
 Fund

Inception

year

DFI
LPs

include

Advent
International
 Advent
Latin
American
Private
Equity
Fund
II
 2002
 IFC,
IIC

Darby/BBVA
 Darby‐BBVA
Latin
America
Private
Equity
Fund

 2003
 IFC

Dynamo
 Dynamo
Puma
II
International
 2003
 IFC

GP
 GP
Capital
Partners
III
 2005
 IFC

Advent
International
 Advent
Latin
American
Private
Equity
Fund
III
 2005
 IFC

Paladin
Realty
 Paladin
Realty
Latin
America
Investors
II
 2005
 IFC

GP
 New
GP
Capital
Partner
B
 2002
 IFC

Actis

 Actis
Latin
American
Private
Equity
Fund
III
 2008
 CDC

Patria
 Patria
Brazilian
Private
Equity
Fund
III
 2008
 CDC

Advent
International
 Advent
Latin
American
Private
Equity
Fund
IV
 2008
 CDC

Conduit
Capital
Partners
 Latin
Power
III
 2005
 OPIC


Clean
technology
and
venture
capital


Venture
capital
and
early
stage
start‐ups
are
especially
suited
to
investments
in
environmental
and

clean
technology
sectors.

According
to
New
Energy
Finance
(NEF),
by
the
end
of
2007,
worldwide

venture
capital/private
equity
(VC/PE)
investments
in
clean
energy
companies
was
US$9.8
billion
with

VC
investments
reaching
an
all
time
high
of
US$3.5
billion.
Despite
the
recent
correction
in
public

markets,
NEF
believes
that
the
underlying
fundamentals
driving
investments
in
clean
energy
remain

strong,
although
deal
sizes
may
become
smaller.

EMPEA
provides
extensive
market
intelligence
on

cleantech
investment
in
Brazil
and
other
emerging
markets
15
.




Brazil
is
the
world’s
second
largest
producer
of
ethanol
as
an
alternative
fuel,
and
is
expected
to

surpass
the
US
and
Europe
in
production
volumes
by
2015.

Given
the
high
level
of
development
of
its

biofuels
sector
(92
per
cent
of
all
gas
stations
sell
ethanol),
Brazil
is
extremely
well
positioned
for

continued
strong
profitable
growth
of
its
cleantech
industry
as
energy
security
concerns
grow
and

global
demand
for
biofuels
and
corresponding
technology
such
as
flex‐fuel
cars
boom.

In
January

2008,
the
government
mandated
that
all
diesel
fuel
contain
at
least
2
per
cent
biodiesel,
rising
to
5

per
cent
by
2013.

Seven
biofuels
deals
accounted
for
nearly
US$600
million
(as
much
as
20
per
cent)

of
private
equity
investment
in
2006–2007.




Notable
deals
in
2007
included
Brenco,
a
new
holding
company
investing
in
Brazilian
bioethanol

production,
which
raised
US$240
million
from
a
consortium
of
high
profile
investors
including
Vinod

Khosla,
James
Wolfensen,
Steven
Bing
and
Steve
Case.

In
March
2007,
the
Carlyle
Group
and

Riverstone
Holdings
invested
US$240
million
in
four
ethanol
mills.

Clean
Energy
Brazil
paid
US$130

million
for
49
per
cent
of
ethanol
producer
Usaciga
and
in
October
2007,
Goldman
Sachs
invested

US$221
million
in
Santelisa
Vale,
Brazil’s
number
two
sugar
and
ethanol
producer.




Notable
biofuels
IPOs
have
included
the
US$200
million
IPO
of
Sao
Martinho,
a
sugar
and
ethanol

producer,
on
the
São
Paulo
Stock
Exchange
in
February
2007.

More
than
half
its
shares
were

acquired
by
foreign
investors.

Cosan
Ltd,
Brazil’s
largest
sugar
ethanol
producer,
raised
US$1
billion

on
the
New
York
and
São
Paulo
exchanges
in
August
2007.


In
addition
to
ethanol
production,
Brazil
has
also
seen
investments
in
timber,
wind
energy,
and

renewable
plastics.

Dow
Chemical
and
Brazil’s
Crystalsev
announced
plans
to
build
the
world’s

largest
polyethylene
from
sugar
cane
plant
in
July
2007,
and
Econergy
International
announced
the

purchase
of
the
Pedra
do
Sal
wind
project.







































































15

Insight
Cleantech:
An
overview
of
trends
in
select
sectors
and
markets
EMPEA
(April
2008)

SUSTAINABLE
INVESTMENT
IN
BRAZIL
2009
 99


Local
PE
firms
investing
selectively
in
‘sustainable’
markets
include
Rio
Bravo,
whose
portfolio

includes
Hortus
(organic
vegetable
production),
Agira
(gas
station
compressors
for
fueling
natural
gas

powered
vehicles),
Ecoluz
(an
energy
service
company),
ADESPEC
(an
award‐winning
supplier
of

environmentally
friendly
adhesive
solutions)
and
Perenne
(water
and
effluent
treatment
technology

for
industries
such
as
ethanol
and
pulp
&
paper).


A
number
of
“greentech”
PE/VC
funds
have
been
launched
by
local
managers
over
the
last
year,
most

of
which
have
evolved
from
FINEP’s
highly
successful
INOVAR
program
and
respond
to
innovative

RFPs
issued
by
BNDESPAR.

Stratus
closed
its
US$60
million
Stratus
VC
III
Fund
in
2006
and
started

investing
in
2007.

The
fund
invests
in
biomass,
biotechnology/biodiversity,
and
environmental

technologies
companies
in
Brazil.

The
portfolio
includes
Ecosorb
(an
oil
spill
pollution
response
firm)

and
Brazil
Timber
(FSC‐certified
sustainably
managed
native
forests).

LPs
include
BNDES,
FINEP,

PETROS
and
MIF.


DGF
has
raised
US$140
million
for
its
Terra
Viva
Equity
Fund.

The
firm
is
primarily
targeting
Brazilian

players
for
its
fund,
which
will
invest
in
the
entire
ethanol
chain
including
raw
material
producers,

manufacturers
and
transport
logistic
operators
during
its
10
year
life
cycle.

The
fund’s
investment

strategy
places
a
strong
emphasis
on
labour
standards
and
does
not
permit
investment
in
sugar
cane

in
the
Amazon.



Sustain
Capital
and
its
controlling
shareholder
Latour
Capital
have
been
selected
by
BNDES
to
manage

BRASIL
SUSTENTABILIDADE,
the
first
private
equity
fund
incorporated
in
Brazil
associated
with
the

Clean
Development
Mechanism
(CDM)
of
the
Kyoto
Protocal.

The
fund
is
unique
in
that
it
invests

only
in
companies
that
have
CDM
projects,
but
does
not
take
the
carbon
revenue.

BNDES
is
the

cornerstone
investor
with
US$100M
and
the
GP
is
now
capital
raising
with
other
investors.

The

pipeline
consists
of
three‐four
expansion
investments
and
one‐two
greenfield
investments.

The

fund’s
primary
focus
is
renewable
energy.

It
will
also
seek
investments
in
forestry
projects
(mainly

charcoal),
where
the
strategy
is
based
on
replacing
use
of
native
forests
with
use
of
eucalyptus,

combined
with
more
efficient
kilns
that
fix
more
carbon
in
the
charcoal.

Sustain
Capital
has

developed
a
comprehensive
sustainability
screening
tool
covering
environmental,
social
and

governance
issues.

Sustainable
entrepreneurs


Brazil
is
one
the
main
hubs
of
the
New
Ventures
program,
an
initiative
of
the
World
Resources

Institute
(WRI)
that
aims
to
promote
sustainable
growth
in
emerging
markets
by
supporting
and

accelerating
the
transfer
of
capital
to
businesses
that
deliver
social
and
environmental
benefits
at
the

base
of
the
economic
pyramid.

New
Ventures
focuses
on
small
and
medium
sized
enterprises
in
fast‐
growth,
environmental
and
base‐of‐the‐pyramid
(BoP)
sectors
such
as
ecotourism,
renewable
energy,

clean
technologies
and
water
management.



Each
New
Ventures
country
program
releases
an
annual
Call
for
Business
Plans
from
businesses
in

target
sectors
seeking
investment
from
US$100,000
to
US$5
million.
New
Ventures
screens

businesses
for
financial
outlook,
innovation,
market
potential,
and
social
and
environmental
benefits.


Once
selected
into
the
New
Ventures
Portfolio,
SMEs
receive
intensive
business
consulting
services

that
improve
their
business
plans,
help
increase
sales,
and
better
prepare
them
to
move
into
new

markets.
Investors
have
an
opportunity
to
interact
with
the
New
Ventures
companies
at
an
annual

New
Ventures
Investor
Forum.


New
Ventures
Brazil
is
run
in
partnership
with
CES‐FGV
and
is
sponsored
by
Banco
Real
and
Natura

amongst
others;
the
program
also
works
with
other
Brazilian
organisations
such
as
FINEP,
ABVCAP

and
BNDES.

The
Brazilian
portfolio
currently
consists
of
over
40
SMEs,
ranging
from
ethical
clothing

and
organic
baby
food
to
sustainable
aquaculture
and
fuel
cell
technology.

New
Ventures’
November

2008
investor
forum
in
São
Paulo
was
hosted
by
BM&F
Bovespa
and
attracted
over
180
participants.


To
date,
New
Ventures’
Brazilian
program
has
helped
five
enterprises
to
attract
investment
of
R$13.5

million
(US$5.8
million).

Venture
capital
funds
specialising
in
this
segment
of
the
market
in
Brazil

include
Axial
PAR
and
E+Co.


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