RenovaBio, environmental efficiency scores, and the cost of debt: evidence from Brazilian biofuel firms

Purpose This study aims to investigate whether the environmental efficiency scores assigned to Brazilian biofuel firms under the RenovaBio program affect their cost of debt. Specifically, it examines whether a regulated, standardized and externally verified environmental-performance metric can influence creditors’ risk assessments and borrowing conditions in an emerging economy, with particular emphasis on the highly leveraged Brazilian sugar-energy sector. Design/methodology/approach This study uses panel data from Brazilian biofuel-producing firms participating in RenovaBio, covering the 2020/2021, 2021/2022 and 2022/2023 crop years. Financial data were obtained from Balanços Patrimoniais and Valor Pró, while environmental efficiency scores and biofuel information came from the ANP. The relationship between RenovaBio efficiency scores and the cost of debt was estimated using panel regressions, with a random-effects specification as the main model, robust standard errors clustered at the firm level and additional robustness checks using lagged RenovaBio scores. Findings The results show that RenovaBio environmental efficiency scores are negatively associated with the cost of debt, but the relationship is not statistically significant. This suggests that creditors in the Brazilian sugar-energy sector do not yet systematically incorporate these environmental performance signals into lending conditions. Firm size and asset tangibility are associated with lower borrowing costs, while the Selic interest rate increases them. Robustness tests using lagged RenovaBio scores confirm the absence of a statistically significant effect, indicating that traditional financial characteristics remain more influential in creditors’ risk assessments. Social implications Broader access to affordable green credit could support investment, preserve jobs and generate positive spillovers in biofuel-producing regions. Audited environmental efficiency scores may also contribute to reducing local environmental harms and improving public health. However, policymakers should prevent the benefits of sustainability-linked financing from being disproportionately captured by large firms. Combining environmental certification with targeted support and capacity-building initiatives for smaller producers may help promote a more inclusive and just transition toward a low-carbon economy. Originality/value This study provides novel evidence on the financial implications of a regulated, policy-certified environmental-efficiency metric, rather than relying on voluntary ESG disclosures or composite sustainability indicators. By examining RenovaBio’s standardized, externally verified, LCA-based efficiency score and its relationship with borrowing costs, the study extends the literature on environmental performance and corporate finance. It also contributes evidence from the Brazilian sugar-energy sector, offering insights into how climate-related regulatory instruments may interact with credit markets in an emerging economy.