Sustainable investing brings foreign investors to Brazil

Brazil’s sustainable and impact investing landscape has been increasingly appearing on the radars of foreign investors in recent years. Viola Caon assesses which sectors present the greatest opportunities for such activity in the country.

Sustainable and impact investing are emerging as prominent themes in Brazil, and many in the industry have hailed them as being vital to the future of the whole of South America.

In July, Brazilian private equity and venture capital association ABVCAP held a web conference on the topic that highlighted the importance of foreign investors in Brazil.

Findings from research conducted by ABVCAP reveals that foreign investors make up 70% of total sustainable investing in Brazil, with many of them partnering with local venture capital and private equity funds.

It seems highly likely that Covid-19 will lead to a world where less human contact is required, meaning that technology solution providers will emerge as a key players when it comes to impact and sustainable investing in Brazil.

Sergio Gustavo Rossi of promotion investment agency Apex-Brasil says that over the past ten years foreign investors have driven $17bn-worth of capital into Brazilian funds investing in tech start-ups.

“We have 21 active funds in Brazil and 118 start-ups in fundraising,” he adds. “This is a great opportunity for foreign investors to come into the sector. This is the moment to build a new mindset as Covid-19 has shown how vulnerable we are. Sustainable investing is here to stay.”

Winners and metrics

Fund managers Daniel Izzo of Vox Capital and Rashed Kaldany of Blue like an Orange, who invest respectively in private equity and private debt in the impact and sustainable space in Brazil, both see technology services providers as flourishing in a post-Covid world across various sectors.

“At the start of the pandemic, we invested in Magnamed, a manufacturer of mechanical ventilators,” says Izzo. “I believe we are going to see more of these opportunities arise in the future, and overall I am expecting a boom in the health-tech space in Brazil.”

“Fintech has created plenty of opportunities for us as mezzanine debt providers,” adds Kaldany. “In a world of less human contact, working from home and shopping online, this sector is set to blossom. We have already made two investments in this space, one in Mexico and one in Colombia.”

Both fund managers, however, point to the necessity for the industry to come up with standard parameters to assess whether companies are truly making a sustainable impact in society.

“The UN’s Sustainable Development Goals framework is definitely a good starting point, but it is not very private sector friendly,” says Kaldany. “There are signs of improvement, but harmonised metrics are essential for the industry credibility.”

Agribusiness attraction

Agribusiness is another sector that has attracted the interest of foreign investors in the Brazilian sustainable and impact scene.

In June, Bruno Soares, a partner in the banking, projects, energy and infrastructure group and head of Latin America at law firm Allen & Overy, advised the Netherlands-based &Green fund on the signing of a $10m, eight-year loan facility with Grupo Roncador, a Brazilian company invested in cattle ranching and soy and corn production.

“This was an example of how strong sustainability is as an opportunity for foreign investors in Brazil,” says Soares. “I believe this is the future of the whole Latin American region.”

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The transaction seals &Green’s first investment in Brazil. It will support Roncador in upscaling its sustainable production blueprint centred on the integration between crop and livestock systems, thereby intensifying and recuperating degraded pastures on more than 60,000 hectares of farmland.

The investment aims to help restore soil fertility and decrease the need for pesticides as well as having a positive greenhouse gas impact, leading to lower emissions per unit of protein produced and the potential to reduce absolute emissions.

“Such private sector action is critical to continued public support of important regulation aiming at combining sustainable low-carbon economic development with forest and biodiversity protection,” the companies said in a statement.