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The adoption of ESG principles in issuing CRI
By Leandro Issaka | 16 March 2021 at 14:32
Investor and consumer engagement creates immediate pressure for companies to position themselves in favor of ESG factors. In this sense, the securitization industry has started down the right path
"...To sum up this pandemic year very quickly, I would say that it was a scientific success combined with political failure". It was with these words that Yuval Harari, professor, historian, and best-selling author, began his participation in the Expert ESG event, held by XP Investimentos in early March.
I take this hook to bring up the importance of a subject that has recently entered the spotlight of the capital market and the national media, probably having Covid-19 as one of its catalysts: investments that meet ESG(Environmental, Social and Governance) principles.
This perception by historian Yuval Harari, together with the solution to the pandemic, which would lie (according to him) in people's cooperation and not in isolation, reinforces the need that the adoption of ESG principles needs to gain strength through private initiatives and by the market itself, and not necessarily through public policy initiatives.
For some time now, investors and consumers around the world have been becoming aware of and giving greater importance to ESG factors, and this also applies to the capital market, in order to encourage companies that are aligned with such principles.
Despite being a very incipient market in Brazil, worldwide there are already more than US$ 30 trillion in assets managed by investment funds with sustainable strategies.
This awareness and increased engagement of investors and consumers creates immediate pressure for companies to position themselves in favor of ESG factors. In this sense, it seems to me that the securitization industry has started down the right path.
We had great news from the real estate capital market with the issuance of the first internationally certified greenbond for solar energy projects in Latin America on February 5.
This issue was carried out by True Securitizadora, which issued two series of Certificates of Real Estate Receivables (CRI), senior and subordinated, backed by real estate credits leasing five solar parks of Órigo Energia.
The CRI were offered to the market through a restricted offering by the bank Itaú, as lead coordinator, which raised R$ 64 million in the capital market.
My friend Rodrigo Botani, True Securitizadora's structuring director, who has already performed other similar issues in the market and directly headed this operation, explained how complex it was to perform this CRI issue:
"We have made other issues related to financing solar power generation, in the renewable and sustainable energy solutions segment, in compliance with good environmental management practices. However, in this specific issuance, it was challenging to structure it and adapt it to the metrics of the participants and the CVM, combining this with the constant market changes in the midst of a pandemic, with specific adjustments of the fractional CCI flows, regulation of collateral, liquidity and works funds, and the closing of the financial modeling."
When analyzing operations that incorporate ESG factors, one must be aware of so-called greenwashing. This term refers to speeches by companies that promote sustainability but, in fact, do not apply such principles.
In other words, a real propaganda deception by companies that want to have the benefits of ESG principles, such as access to capital to finance sustainable strategies, without actually adopting ESG practices. Hence one of the great reasons to have a certification.
The issue was characterized as a green bond based on (i) the opinion of Bureau Veritas, the certifying company, which certified, cumulatively (a) the satisfactory environmental performance; (b) the financing of solar energy generation in accordance with good environmental management practices of the projects and the operations of the power plants; and (c) the fulfillment of the pre-issuance procedures for framing and obtaining international certification as a green bond, based on the "Climate Bonds Standard V 3.0", prepared by the CBI; and (ii) the effective international certification by the CBI as a green bond.
According to Botani, this CRI issue is backed by the real estate lease contracts and, as guarantees, the Fiduciary Alienation of Equipment, the Fiduciary Alienation of Quotas, and the Fiduciary Alienation of Surface Rights, besides specific mechanisms to minimize the assets' credit and market risks.
Indirectly, there is also the control of the credit rights related to the performance of the solar parks, through a linked account.
Although this CRI is backed by rentals, a type of real estate credit that does not require proof of destination of the funds under CVM regulations, the funds raised were destined for the development of four photovoltaic solar energy generation centers, to be connected to the electricity distributors' networks in order to expand Órigo's solar energy generation capacity.
The operation was advantageous for the borrower, and I'm not referring to the rate of the paper (which has not yet captured the ability of green bonds to have lower rates in return for socio-environmental impact), but to the extended term of the bond (ten years) and the 18-month grace period to start paying the CRI.
In addition, Órigo subscribed to the subordinated series of CRI, a strategy that brings some benefits to the operation: (i) serve as a guarantee for senior investors, since it is the subordinated series that eventually absorbs the first losses in case of lack of ballast to pay the CRI issued; (ii) bring a better alignment of Órigo's interests with the investors, so that it has more "skin in the game" in the CRI issuance; and, (iii) since the subordinated series pays a performance premium to its holder, it may be more efficient for the borrower of the resource to receive the return of the project via remuneration of the CRI.
It is possible to affirm that this fundraising structure via CRI is advantageous for both the investor and the borrower of the funds, besides having a strong appeal by taking into account socio-environmental factors that give a greater purpose to this securitization operation. Without a doubt a win-win situation.
In fact, this is great news for the real estate securitization market, which has been following and molding itself to the current investment trends adhering to ASG principles, moving away from the obvious, and serving as a direct source of promotion for the renewable energy industry.
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