Brazil's stock exchange promotes sustainability

To encourage companies to adopt sustainable practices and provide investors with a tool to monitor those companies, IFC has supported the creation of a Corporate Sustainability Index at the São Paolo Stock Exchange (Bovespa) the first of its kind in Latin America.

The report Toward Sustainable and Responsible Investment in Emerging Markets commissioned by IFC in 2003 shows that the social investment industry, having already achieved striking, ongoing growth in developed countries, could ultimately play an expanded role in emerging markets as well. However, of $2.7 trillion under "socially responsible investment" (SRI) fund management worldwide, less than 0.1 percent is in emerging market assets. This indicates vast growth potential for SRI in developing countries.

The report identified the lack of data on business practices related to social and environmental concerns as a key barrier to SRI. That is why IFC, through its Sustainable Financial Markets Facility, provided financial support to the Center for Sustainability Studies at the Getúlio Vargas Foundation to develop on Bovespa's behalf the first Corporate Sustainability Index in Latin America. The Index would track not only the economic and financial performance of companies, but also their corporate governance and environmental and social performance.

The Corporate Sustainability Index, listing 28 local companies, was launched in December 2005 by Bovespa. The Index informs potential investors about the sustainability of listed companies' operations, and in doing so it encourages listed companies to focus more on environmental, social and corporate governance concerns. The Index thus helps the Brazilian business community understand how attention to sustainability is good for business.

At the end of February 2006, three months since its launch, the Index appreciated 25.4% versus 20.97% from the Bovespa standard index. Market capitalization of the Corporate Sustainability Index was US$214 billion.

The Bovespa Sustainability Index is part of a trend that IFC is promoting worldwide to integrate sustainability into lending and investment in emerging markets. Brazil's index is expected to serve as a model in developing countries.