ESG bonds in Brazil still overlook key sustainable criteria, study finds
Despite raising billions of reais and being marketed as instruments designed to finance sustainable activities, environmental, social, and governance (ESG) bonds issued in Brazil still show significant shortcomings in the verification of environmental and social risks. That is the conclusion of a study by the Sustainable Inclusive Solutions Association (SIS).
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The study assessed companies’ ESG issuance frameworks and compared them with the minimum due diligence requirements established under the Brazilian Sustainable Taxonomy (TSB), launched by the federal government in October last year to guide sustainable investments and reduce the risk of greenwashing—a misleading marketing strategy in which companies project a false image of sustainability, use vague claims, and conceal their actual negative environmental impacts.
For the banking sector, the study analyzed ESG bond issuances by 22 financial institutions between 2021 and 2025. Among the 18 institutions whose transactions were subject to the TSB’s due diligence requirements, banks carried out an average of only 4.2 of the 24 minimum due diligence procedures, equivalent to just 17.5% of the recommended criteria.
Luciane Moessa, SIS’s executive and technical director and the study’s coordinator, explained that although the TSB only came into effect at the end of last year, reviewing bank issuances dating back to 2021 provides a measure of the sector’s level of maturity. “We were not evaluating compliance with regulations, and the TSB is not mandatory. Therefore, the fact that banks did not adopt these requirements does not constitute a legal violation. Even so, these due diligence procedures are not new—the new element is the TSB framework itself. Should banks already have been carrying out these procedures even before the TSB? Absolutely.”
The study examined the 24 due diligence requirements established by the TSB and compared them with banks’ ESG frameworks. The most frequently adopted requirement was verifying the use of labor analogous to slavery, which was included in 88.2% of the frameworks.
This was followed by checks for overlaps with non-deforested public forests using the Brazilian Forest Service database, at 38.9%, and reviews of environmental and social lawsuits in state courts, also at 38.9%. Among the least frequently adopted procedures were on-site inspections, verification of environmental violations through the Brazilian Institute of the Environment and Renewable Natural Resources (Ibama), and checks for overlaps with Indigenous lands using the National Indigenous Foundation (Funai) database, each appearing in only 11.1% of the frameworks.
The survey also found the vast majority of financial institutions conduct due diligence only at the project level rather than at the company level, as required by the TSB. An important exception is the Brazilian Development Bank (BNDES). In addition, no bank carries out environmental and social due diligence on the supply chains of companies receiving loans financed by ESG bond proceeds.
“In many cases, the main risk lies in the supply chain rather than in the company’s own operations. The classic example is the meat industry. The risk is not in slaughtering but in the deforestation caused by cattle ranchers,” Moessa said. “For rural credit, banks carry out a range of checks because regulations require them to do so. But for an ESG bond, which is a labeled product intended to generate positive impact, they do not.”
According to the researchers, several factors explain why requirements such as those contained in the TSB have not been adopted. The first is the lack of clear regulations making compliance mandatory. The second is a lack of knowledge, and the third, closely related factor is the limited size of ESG teams at financial institutions. “Unfortunately, there are due diligence procedures that banks are not even aware exist. There is a lack of investment in training ESG teams, which shows that the issue is still not a priority, even at this stage.”
Moessa also noted that the limited availability of online information from government agencies and other entities makes it harder for banks to conduct these checks. In general, information maintained by the federal government is more readily available, but there is considerable variation among state and local agencies.
Luciane Moessa, executive and technical director of SIS
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“That makes the process more difficult, but it does not mean it is impossible for a bank to obtain the information. As a last resort, it can send an employee to the relevant agency in person, request the information from government authorities under Brazil’s Access to Information Law (LAI), or even require the company seeking the loan to obtain the documentation itself. That is more expensive, but for a large company operating in a highly sensitive geographic area with very high risk, it can be done. The higher the risk, the greater the need for more thorough due diligence,” she said.
Based on the study’s findings, Moessa believes there is a significant risk that banks are engaging in greenwashing. That does not necessarily mean they are committing fraud by claiming to invest in one area while diverting the funds elsewhere. Rather, it suggests that resources labeled as ESG may not be being used as effectively as possible. “If a bank issues green bonds and uses the proceeds to finance a company that commits multiple environmental violations, even if the specific project being financed is fully compliant, it is ultimately making poor use of those finite resources.”
Green bonds first emerged internationally in 2008 and began gaining traction in Brazil in 2015 with the first corporate issuances aimed at financing projects with environmental benefits. Since then, the market has expanded to include social bonds, sustainability bonds, and sustainability-linked bonds, following the global growth of sustainable finance. According to data from Brazil’s Central Bank, Brazilian issuers raised approximately $31 billion through sustainable bonds between 2015 and June 2024.
The SIS study analyzed issuances by Itaú, Banco do Brasil, Caixa Econômica Federal, Bradesco, Santander, BTG, Sicoob, Sicredi, BV, ABC, Banco do Nordeste, Banco Toyota, BNDES, BDMG, SolFácil, Provi, PraValer, Alumi, RBR Asset, Gyra+, B3, and Sustainable Investment Management.
