Late on Thursday night, the World Bank’s board of directors gave final approval to a $500 million project in Brazil that will increase sustainability-linked financing, improve the private sector’s ability to access carbon credit markets, and aid Brazil in reducing deforestation.

In order to help Brazil achieve its climate goals and provide “robust” mitigation benefits, the initiative, in partnership with Brazilian state-controlled lender Banco do Brasil, adopts a sustainable lending approach.

When certain environmental, social, and governance (ESG) requirements are met by a company, sustainability-linked financing (SLF) enables lower financing costs but does not mandate that the funds be used for environmentally friendly activities.

In an effort to clear up the murky carbon credit market and assist developing nations in quickly and more affordably raising critical climate finance, the World Bank and its partners unveiled a global tracking system at the beginning of December.

In order to help polluters reach net-zero emissions and slow global warming, carbon credits are sold to them to offset their emissions. These credits are created through actions like planting trees and removing climate-damaging carbon dioxide from the atmosphere.

“Up to 90 million tCO2e in emission reductions are expected by 2030, the equivalent to about 4.5% of what Brazil needs to stay on track with its net-zero commitments,” the World Bank said.

Through the expansion of financing provided by Banco do Brasil and private investors, the project is also anticipated to raise up to $1.4 billion in private capital.

“Brazil has significant potential to become a global leader in the transition to a low-carbon economy”, said Johannes Zutt, World Bank country director for Brazil. “To do so, urgent action is required to complement public interventions with private solutions and financing.”

According to the World Bank, the project uses a “innovative, outcome-based financing approach” that encourages businesses to adopt and put into practise credible GHG emission reduction plans in order to reduce their overall carbon footprint. It also connects these businesses to high-quality carbon markets.

According to the World Bank, Banco do Brasil will be able to provide its clients with packages that combine financing and assistance in accessing carbon markets through a “one-stop shop.”

“This will provide Brazilian firms — small- and medium-sized companies in particular — with an accessible end-to-end service starting from measuring their carbon footprint to generating returns from high-integrity carbon credits,” it said.

Luiz Inacio Lula da Silva, the incoming president of Brazil, has a broad plan for the country to regain leadership on climate change initiatives after the Bolsonaro administration abandoned them. Part of this plan includes stopping deforestation in the Amazon, which absorbs enormous amounts of the planet-warming greenhouse gas.

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