Bioeconomy: what does it have to do with banks and fintechs?

Published on Jul 26 2023.

reading time 9 minutes reading

Although it is not a new term, since the Febraban Tech 2023 event in June, the “bioeconomy” has become the hot topic. The main financial sector technology and innovation event in Latin America confirmed that although the concept of the bioeconomy might seem far removed from the segment, there are numerous opportunities for banks and fintechs to work on projects and in businesses that positively impact biodiversity.

As we will see in this article, by promoting and improving the bioeconomy, financial institutions can go far beyond their ESG (Environmental, Social, and Governance) commitments, bolstering the economic landscape and facilitating access to the financial system for communities and companies that work to protect nature.

 

What is the bioeconomy?

 

Bioeconomy is a field of knowledge that studies biological systems and natural resources in conjunction with the use of new technologies, with the goal of creating more sustainable products and services.

Infographic: what is the bioeconomy?
Infographic: What is the bioeconomy?
Infographic: What is the bioeconomy?

 

It is a new economic development model that has arisen to solve one of the most urgent problems of production today: protecting biodiversity and regenerating biomes, reducing inequality and waste, and protecting scarce natural resources.

According to the Organization for Economic Cooperation and Development (OECD), the bioeconomy already moves nearly two trillion euros in the global market, creating approximately 2 million jobs worldwide.

In Brazil, the study Identification of Opportunities and the Potential Impact of the Bioeconomy on Decarbonization, organized by the Brazilian Association for Bio-Innovation, states that the sector could generate annual industrial revenues of US$ 284 billion by 2050.

 

How does the bioeconomy impact the economic scenario?

 

How can the bioeconomy really have a positive influence on the economic environment? To better explain the logic, the information from the aforementioned OECD study estimates that 10% of natural resources that exist today will be gone in XNUMX years if there are no efforts to stop biodiversity loss.

That is, more than ever natural resources are considered to be economic assets harboring countless business opportunities. By quantifying the economic value of biodiversity, therefore, public policies can be proposed that drive conservation, creating a development model that generates social and economic benefits.

As underlined by Brazilian financial sector representatives during the Forum on Innovation and Investment in the Amazonian Bioeconomy, “ensuring that the bioeconomy becomes an important part of GDP is possible, but there are still a lot of things to do before getting to that point.”

In this sense, Some countries in Latin America already have quite advanced bioeconomy initiatives. Colombia, for example, plans to attract investments to become a sustainable business center in the region. To that end, it has already begun mapping more than 300 companies that might be interested in developing sustainable business in the country, as well as identifying 60 new concrete opportunities for sustainable investment.

McKinsey’s Amazon Journey Platform, headed by the Certi Foundation, and supported by private Brazilian banks , plans to train up to 3 people and stimulate the creation of 200 startups in the Amazon over the next three years to stimulate the bioeconomy in the region.

 

Read also | Financial education: what is the role of banking and the payments market in promoting it?

 

What is the role of banks in the bioeconomy?

 

Financial institutions perform a fundamental role in the bioeconomy, as they can act on two fronts:

  • Improving financing and investment in projects related to the sustainable economy. Banks and fintech are essential in accelerating activities that involve the use of natural resources, for example agribusiness and fishing.
  • Working to reach adequate sustainability commitments proposed by domestic and international entities. One of those entities is the Global Gfanz Alliance, which requires that financial institutions reduce their emissions by up to 50% by 2030, while also blocking financing coal-burning projects.

Another point worthy of note in the association between the financial system and the bioeconomy is how much user satisfaction is positively impacted when banks integrate social and environmental responsibility activities into their business strategy..

In Brazil, the study Brazilians’ Awareness about the Importance of Sustainability, released by Febraban, indicates that 92% of those interviewed believe that companies’ ESG practices affect their opinion about brands, and 77% would like sustainability legislation to be stricter. However, only 17% mention banks among the companies that are most likely to employ such practices.

Graph: Importance of environmental and social responsibility actions for the opinion of a company
Graph: Importance of environmental and social responsibility actions for the opinion about a company
Graph: Importance of environmental and social responsibility actions for the opinion on a company

 

Green loans: loans associated with the bioeconomy

 

Advancing the idea to support sustainability-related project financing, green loans have proven to be an excellent avenue for banks and fintechs seeking to contribute to the bioeconomy agenda.

A green loan is a type of loan that offers more attractive financial conditions for companies that show improvement in their sustainability indexes, by implementing production models and technologies geared towards economic, social, and environmental sustainability.

This approach has become more popular in Brazil in recent years. The National Bank for Economic and Social Development (BNDES), for example, reported that 68% of its loan portfolio in the second half of 2022 was linked to projects that support the green economy and social development. Note that green loans are also available at other Brazilian banks, both public and private.

To learn more about green credit, you can check out this video from the National Confederation of Industry (CNI):

 

The relationship of the bioeconomy and financial inclusion

 

Leaders of the main banks in Brazil discussed the bioeconomy at Febraban Tech 2023 from two points of view: (XNUMX) impactful activities in favor of sustainability (such as the reduction of carbon emissions), and (XNUMX) investor perception of environmental activities as economic assets.

The importance of expanding the sustainability discussion was also noted, because when we talk about “a better world,” that agenda involves including people in the financial system, expanding access to credit, and decreasing misery.

“The financial system must think about actions in conjunction with governments in order to create true financial inclusion,” said Maria Rita Serrano, President of Caixa Econômica Federal, during the opening panel of Febraban Tech XNUMX. You can watch the entire presentation below:

 

The study How can the bioeconomy combat poverty in the Amazon?conducted by the Escolhas Institute, has already shown, for example, how investing in horticulture and forest recovery can be a strategy for addressing poverty, promoting an economic transition for production chains in the bioeconomy, to the detriment of those that would destroy the Amazon Rain Forest.

Therefore, including those who are socially vulnerable in the bioeconomy’s production chain also need to be supported by financial inclusion in Latin America. O access to services and financial products has a huge potential to empower communities, giving them control over their finances, and offering opportunities to improve their lives.

Banner advertising the E-book 7 Priorities for Financial Inclusion in Latin America
Banner advertising the E-book 7 Priorities for Financial Inclusion in Latin America
Banner promoting the e-book 7 Priorities for Financial Inclusion in Latin America

 

The bioeconomy and banking system: what you saw in this article

 

  • The bioeconomy studies biological systems and natural resources in conjunction with the use of new technologies, with the goal of creating more sustainable products and services.
  • The model seeks to reduce inequality, waste, and the scarcity of natural resources.
  • More than ever, natural resources are considered to be economic assets with countless business opportunities.
  • Financial institutions perform a fundamental role in the bioeconomy, as they have the ability to work on two fronts: improving financing and investing in sustainable projects, and working towards suitable sustainability commitments.
  • A green loan is a type of loan that proposes more attractive financial conditions for companies that show improvement in their sustainability indexes. It is an excellent way for banks and fintechs seeking to contribute to the bioeconomy agenda to be involved.
  • The sustainability discussion has been increasing, because when we talk about “a better world,” that agenda involves the inclusion of people in the financial system, expanding access to credit, and decreasing misery.

 

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