How Brazil is Changing

This op-ed originally appeared in Sustainable Views.

Around the world, finance for development is drying up. Funding for the multilateral development system is forecast to fall by 23-30 per cent by 2027. It is proving challenging to raise patient capital to support the greening of key economic sectors in developing countries. Rich-world private investors are demanding unaffordable risk premiums to provide finance to sustainable projects and companies in developing markets.

Brazil is attempting to buck these trends with its Eco Invest programme, which combines catalytic public finance with large volumes of international private capital, with a goal of raising almost $30bn in finance to support the country’s ecological transition.

The programme was launched by Brazil’s Ministry of Finance in 2024, with support from the Inter-American Development Bank and the UK’s Foreign, Commonwealth and Development Office. Its goal is to attract private investment and foreign capital into sustainable projects across clean energy, nature restoration, agro-ecology, sustainable tourism and the bioeconomy, while offering attractive returns.  

It rests on four legs:

• Blended finance auctions to provide concessional public funding that, combined in the capital stack with private funding, helps to de-risk that private sector investment.
• A foreign-exchange facility to support Brazilian companies with revenues in reals but with hard-currency debt during periods of currency volatility.  
• A foreign-exchange hedging facility, by which the IDB provides local financial institutions with access to cost-effective long-term foreign-exchange derivatives, allowing them to manage exchange-rate risk during the 10-15-year duration of project investments.
• A project-structuring facility to help develop and bring forward investible projects.

So far it has held four blended finance auctions, inviting financial institutions to bid for public funding, with bids ranked in terms of the ratio of private capital they expect to mobilise using the public money.

With some $7bn in public finance, the first four auctions have mobilised a total of $27.6bn, of which $10.4bn is from overseas investors. The fifth auction — with an additional $10bn expected to be up for grabs — is open, with the results expected to be published in the first week of November.

What Eco Invest gets right 

The programme was designed to tackle two problems: the risk faced by foreign investors that adverse moves in the Brazilian real would hit their investments; and the lack of a large pipeline of sufficiently well-structured sustainable investment opportunities. The currency-hedging programme helps foreign investors manage their exposure to moves in the real versus the US dollar or euro. And the financial institutions bidding into the programme have proved successful in identifying and structuring potentially transformative investments.

For example, the second auction focused on the restoration of degraded land. Working with agribusinesses in Brazil, the programme has directed investment to restore more than 1mn hectares of degraded land, of which 75 per cent will be dedicated to producing deforestation-free food, and 25 per cent to energy crops for, among other things, sustainable aviation fuel.

Critically, Brazil’s Treasury and the IDB put flexibility at the heart of the programme, in contrast to the often static and bureaucratic design of many blended-finance programmes. They have worked closely with the banking sector, multilateral institutions, the capital markets and private sector recipients to understand which risk-mitigation tools are most appropriate for each theme and sector targeted by the programme.

They have also built on the country’s long experience in deploying blended finance — experience that stretches back 50 years and has persisted through many changes of government. For that reason, we are confident that the programme is likely to continue regardless of who wins Brazil’s presidential election in October.

A development finance exemplar 

The OECD has stated that “for emerging markets and developing economies dealing with comparable obstacles to foreign capital investment, Eco Invest Brazil offers a replicable model.”

Other countries have been watching closely, with the potential to launch similar programmes across Latin America — and we believe that even some developed countries could apply lessons from Eco Invest to promote sustainable investment. There is no shortage of international capital looking for opportunities to deliver sustainability outcomes — with the right levels of risk and return. Brazil’s Eco Invest programme promises to provide those opportunities, de-risking investment that can deliver the sustainable economic development the country needs.

About the authors
Melanie Aimer is chief commercial officer of Finance in Motion, a Germany-based investment manager, and José Pugas is chief executive of Finance in Motion Brazil.