One Green Goal Ahead: Will Brazil’s Public and Private Sectors Converge to Make the Country an Environmental Powerhouse?
Download a PDF of this articleOver the last three decades, Brazil has developed a robust legal framework for biodiversity conservation and sustainability issues,1 trying to leverage its vast biodiversity2 and become a global environmental leader. However, the path towards this goal has been unsteady, as political instability and a lack of institutional coordination have left the country unable to effectively monitor and enforce existing norms in recent years.3
The appointment of career politicians to key posts in state-owned enterprise points towards a more interventionist stance,4 provoking some uncertainty and speculation about what this might mean for the private sector, particularly how welcoming the institutions will be of private sector contributions to the development of environmental public policies.
Environmental hype meets private sector skepticism
President Luiz Inácio Lula da Silva’s victory on October 30, 2022 sparked euphoria from environmentalists worldwide, with the “superstar” treatment he received at Egypt’s COP27 attesting to this.5 His appointment of the prominent environmentalist Marina Silva as Minister of the Environment was welcomed6 by those most worried by the policies implemented or overlooked by the previous administration.
It comes as no surprise that this new government will prioritize environmental policies. Thus, environmental agencies nationwide, which have been constantly subjected to contradicting policy changes and fluctuations in budget and personnel allotments,7 are expected to receive increased support.
The idea that this new government will prioritize environmental policies is no surprise. What raises concerns is the appointment of left-aligned career politicians to key posts at state-owned enterprises, as they may be biased towards state interventionism.
Nonetheless, this hype has been met with skepticism from the national private sector given the sheer size of the challenges ahead.8 On that same note, there are concerns about the appointment of left-aligned career politicians to key posts at government bodies and state-owned enterprises (“SOEs”) raises concerns that they might lead with ideology – and state interventionism – in mind. Ultimately, such political appointments invite uncertainty and speculation and therefore destabilize the market.
A recent change in the Brazilian State-Owned Enterprises Law modified a bureaucratic rule that prevented individuals who had recently participated in electoral campaigns from accepting top posts at SOEs9 — a mechanism set in 2016 to avoid political patronage and corruption. The modification allowed newly sworn-in Lula to appoint fellow Partido dos Trabalhadores (Workers’ Party) members to lead two state owned companies considered vital drivers of economic growth.
Aloízio Mercadante was named to lead the Brazilian Development Bank (“BNDES”).10 During the previous administration, this public institution stood out for its active participation in structuring the country’s carbon market11 and for leading environmentally sound projects, including new lines for forest preservation and reforestation, clean energy, and low-carbon agriculture.12
On the day Mercadante’s appointment was announced,13 Brazil’s main stock exchange fell 1.71%, suggesting several market concerns. Firstly, he was a minister under Dilma Rousseff, who was impeached under accusations of criminal administrative misconduct in the handling of the federal budget.14 Secondly, some fear that Mercadante will help reinstate an interventionist economic model that gave out subsidized loans to large conglomerates to the detriment of public coffers.15 Finally, it is expected that the BNDES will continue playing a prominent role in issues like energy transition and decarbonization,16 leading to the assumption that obtaining loans might entail meeting tougher sustainability requirements.
There is a similar distrust of Senator Jean Paul Prates, who was named head of the state-controlled oil giant Petrobras. During his time in Congress, Prates drafted and sponsored bills that proposed a regulatory framework for offshore wind and associated green hydrogen projects, as well as updated proposals for carbon capture and storage.17 He is expected to assume Petrobras’ leadership with a mandate to turn the company into a renewable energy powerhouse, a tremendous challenge for a company that has narrowly focused on oil and gas production in recent years.18
Embracing sustainability is a strategic imperative for the private sector
This political context creates a window of opportunity for businesses to act on environmental demands and advance their Environmental, Social and Governance (“ESG”) agendas, making their positive impacts visible to improve their reputation and gain goodwill among government entities.
An effective government-backed energy transition will foster innovation and open paths for new investments, helping create new business opportunities for entrepreneurs willing to take advantage of Brazil’s abundance of clean energy resources.
Meanwhile, a strong and actionable ESG agenda aligned with international best practices will be necessary to gain access to international investments and loans.
The path forward for different business challenges
At this point, there is no use in laying low and being reactive. The private sector must take initiative and participate in the development of new regulatory frameworks. Businesses must collaborate with all levels of government to revise or implement existing requirements through a multi-stakeholder approach that ensures achievable timelines and goals, flexibility to create necessary exceptions and realistic transition periods.19
There is no use in laying low and being reactive. Brazil’s businesses must claim a seat at the table where environmental policies are being decided to ensure operational certainty in times of speculation, legal guarantees in times of change, and stability in times of political turmoil.
Businesses with a progressive mindset will be best positioned to pursue a leadership role in the environmental debate. They can set ambitious sustainability goals using science-based targets and proactively incorporate those goals into core business practices while ensuring internal accountability.20 Furthermore, companies can integrate their positions on climate into their communications and advocacy strategies to mitigate potential policy risks and accelerate change through coalition-building efforts.
In particular, high-impact sectors like mining, oil and gas will need to engage in collective action to attain favorable reputation at the industry level, through such means as self-regulating mechanisms. To be successful, they must approach external stakeholders and policymakers to counter potential oppositions and achieve policy outcomes that guarantee their license to operate (“LTO”).
Moreover, multi-dimensional stakeholder engagement combined with a comprehensive advocacy campaign, including stakeholder education, coalition-building and effective media engagement, will help businesses mitigate operational, financial, reputational and regulatory risks.
In this context, eco-minded investors and entrepreneurs seeking to enter new markets or develop new business models and technologies for energy transition can also leverage the aforementioned tactics to advance their interests.
Brazilian businesses must claim a seat at the table where environmental policies are decided to ensure operational certainty in times of speculation, legal guarantees in times of change and stability in times of political turmoil. Now is the time for industries to step up and help lead Brazil into becoming a global green powerhouse.
For more information and questions, please contact Adriana Prado.
The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.
©2023 FTI Consulting, Inc. All rights reserved. www.fticonsulting.com
1.“Evaluating Brazil’s progress in implementing Environmental Performance Review recommendations and promoting its alignment with OECD core acquis on the environment,” OECD (2021), https://www.oecd.org/environment/country-reviews/Brazils-progress-in-implementing-Environmental-Performance-Review-recommendations-and-alignment-with-OECD-environment-acquis.pdf.
2. “Brazil – Main Details,” Convention on Biological Diversity (Last accessed January 31, 2023), https://www.cbd.int/countries/profile/?country=br.
3. Cedê Silva, “How Bolsonaro reduced enforcement of environmental laws,” The Brazilian Report (August 30, 2022), https://brazilian.report/liveblog/2022/08/30/bolsonaro-reduced-enforcement-environmental/.
4. O Globo Agency, “Mercadante no BNDES: entenda qual foi a reação do mercado,” Exame (December 21, 2022), https://exame.com/brasil/mercadante-no-bndes-entenda-qual-foi-a-reacao-do-mercado/.
5. Jake Spring & William James, “COP27: Greeted like a rock star, Brazil’s Lula promises to protect Amazon,” Reuters (November 16, 2022), https://www.reuters.com/business/cop/brazils-lula-put-climate-center-first-post-election-speech-abroad-2022-11-16/
6. “Brazil to play lead role on climate change policy -environment minister,” Reuters (January 4, 2023), https://www.reuters.com/world/americas/brazil-environment-minister-silva-create-new-climate-post-by-march-2023-01-04/.
7. William E. Magnusson, Carlos E.V. Grelle, et al., “Effects of Brazil’s Political Crisis on the Science Needed for Biodiversity Conservation,” Frontiers in Ecology and Evolution, Vol. 6 (October 17, 2018), https://www.frontiersin.org/articles/10.3389/fevo.2018.00163/full.
8. Michael Stott & Michael Pooler, “Lula faces struggle to reverse Brazil’s environmental destruction,” Financial Times (November 3, 2022), https://www.ft.com/content/8ce01a8c-6deb-45c6-95cb-99a66d4a84a3.
9. Guilherme Lucio da Rocha, “O que é a Lei das Estatais? Entenda a mudança em jogo no Congresso,” Valor Econômico (December 12, 2022), https://valor.globo.com/politica/noticia/2022/12/15/o-que-e-a-lei-das-estatais-entenda-a-mudanca-em-jogo-no-congresso.ghtml.
10. “Conselho de Administração do BNDES define nomes de presidente e diretoras,” The Brazilian Development Bank (BNDES) (January 25, 2023), https://www.bndes.gov.br/wps/portal/site/home/imprensa/noticias/conteudo/conselho-de-administra-cao-do-bndes-define-nomes-de-presidente-e-diretoras.
11. “BNDES boosts privatizations, announces new lines for green economy, and expands profit by 29% in the third quarter,” The Brazilian Development Bank (BNDES) (November 11, 2021), https://www.bndes.gov.br/SiteBNDES/bndes/bndes_en/conteudos/noticia/BNDES-boosts-privatizations-announces-new-lines-for-green-economy-and-expands-profit-by-29-in-the-third-quarter/.
12. Restauração ecológica e economia florestal,” The Brazilian Development Bank (BNDES) (January 31, 2023), https://www.bndes.gov.br/wps/portal/site/home/financiamento/produto/restauracao-ecologica-e-economia-florestal.
13. O Globo Agency, “Mercadante no BNDES: entenda qual foi a reação do mercado,” Exame (December 21, 2022), https://exame.com/brasil/mercadante-no-bndes-entenda-qual-foi-a-reacao-do-mercado/https://exame.com/brasil/mercadante-no-bndes-entenda-qual-foi-a-reacao-do-mercado/.
14. “Brazil President Dilma Rousseff removed from office by Senate,” BBC News (September 1, 2016), https://www.bbc.com/news/world-latin-america-37237513.
15. O Globo Agency, “Mercadante no BNDES: entenda qual foi a reação do mercado,” Exame (December 21, 2022), https://exame.com/brasil/mercadante-no-bndes-entenda-qual-foi-a-reacao-do-mercado/.
16. Lucas Bombana, Mecadante diz à Febraban que não há espaço para subsídios do BNDES, Folha de São Paulo (December 12, 2022), https://www1.folha.uol.com.br/mercado/2022/12/mercadante-diz-a-febraban-que-nao-ha-espaco-para-subsidios-do-bndes.shtml Lucas Bombana, “Mecadante diz à Febraban que não há espaço para subsídios do BNDES,” Folha de São Paulo
(December 12, 2022), https://www1.folha.uol.com.br/mercado/2022/12/mercadante-diz-a-febraban-que-nao-ha-espaco-para-subsidios-do-bndes.shtml.
17. Fabio Palmigiani, “Petrobras looks to the future under new leadership,” Upstream (January 5, 2023), https://www.upstreamonline.com/energy-transition/petrobras-looks-to-the-future-under-new-leadership/2-1-1381816.
18. Mariana Durao & Peter Millard, “New CEO of Petrobras to focus on energy transition,” World Oil (January 1, 2023), https://worldoil.com/news/2023/1/1/new-ceo-of-petrobras-to-focus-on-energy-transition/.
19. Casey Cagley & Eguiar Lizundia, “Democratic governance must underpin any global climate agenda,” Diplomatic Courier (December 17, 2022), https://www.diplomaticourier.com/posts/democratic-governance-must-underpin-any-global-climate-agenda.
20. “Corporate Leaders Group Europe: Advocacy Toolkit for Business Climate Leaders,” University of Cambridge Institute for Sustainability Leadership (November 28, 2022), https://www.corporateleadersgroup.com/files/clg_europe_advocacy_toolkit_final_version_28_nov.pdf.
