Financial innovation will enable the country to attract long-term resources for climate mitigation and adaptation 

DUBAI - Brazil's Ministry of Finance and the Inter-American Development Bank (IDB) have initiated the creation of a unique financial solutions platform aimed at reducing foreign exchange risk for investments aligned with socio-environmental principles and climate change adaptation and mitigation. These innovative tools seek to attract green investments within Brazil's Green Transformation Plan. Initially, the platform has the potential to mobilize coverage of up to $3.4 billion, a figure that may increase over time.  

"This instrument aims to minimize the impacts of unexpected movements in the exchange rate, triggered by extreme economic events, which could have a negative influence on the decision to invest in countries like Brazil. Soon, together with the IDB, the Brazilian government will present to the market the solution that should be available in 2024 for new investments in the ecological transformation agenda," said the Minister of Finance, Fernando Haddad, during the launch of the initiative at the United Nations Conference on Climate Change (COP28).  

One of the pillars of the Green Transformation Plan is the mobilization of foreign direct investment, mainly long-term. Precisely, one of the historical obstacles in emerging and developing economies has been the exchange risk associated with international investments and financial flows. 

Once completed, the platform will have three dimensions: full swaps, credit lines for foreign currency investments liquidity in case of exchange rate devaluation events, and "tail risk" hedging mechanisms for extreme devaluations. This platform will be available for investments in environmental adaptation and mitigation projects, such as reforestation, storm-resilient infrastructure in cities, energy transition, green hydrogen, or low-carbon agriculture. 

It will also provide more certainty for attracting foreign direct investment into environmentally transformative actions. 

The initiative is part of the Ecological Transformation Plan, one of the pillars of the Federal Government's quest to regain international leadership in the sustainable development agenda.  

“Considering this urgency, Brazil is committed to leading this agenda, providing instruments that enable attractive returns for investors, thus promoting a virtuous cycle of sustainable investment and environmentally responsible development,” stated Fernando Haddad. 

Multilateral development banks can be instrumental in enabling solutions. "At the IDB, we are supporting governments in the region in their efforts to attract investments with a positive and transformative environmental impact,” IDB President Ilan Goldfajn said. “To address the problem on the scale needed, financial innovations and private sector participation will be critical." 

This new initiative adds to other measures taken by the Brazilian government and the IDB. In mid-November, the National Treasury issued its first sustainable sovereign bond, raising $2 billion on terms comparable to those of "investment grade" countries. 

The architecture of these bonds was developed through a partnership between Brazil’s Treasury, the IDB, and the World Bank. The IDB has also concluded negotiations for debt conversion for climate action, as was the case in Ecuador ($1.2 billion) and Barbados ($300 million), and has helped nations such as Chile, Uruguay, and Colombia issue green bonds. In addition, the Bank has IDB CLIMA, a mechanism offering a discount on project financing costs if the borrower achieves certain environmental results. 

With this financial innovation, Brazil is well positioned to lead in the context of the G20 presidency and as host of COP30 in Belem do Para, while the IDB confirms its position as a strategic partner of the Brazilian government at a unique moment of global mobilization to combat climate change.  

"In short, we are facing a crucial moment to redefine the course of actions towards a more sustainable and prosperous future. The measures announced today not only reaffirm our commitment to environmental preservation and the transition to a green economy, but also open doors for strategic and collaborative partnerships that strengthen our position as active agents in building a more equitable and ecologically responsible world," concluded Haddad. 

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Latin America and the Caribbean at COP28  

The countries of Latin America and the Caribbean are a critical part of the solution to global climate change challenges. In the IDB Pavilion of the Americas at COP28, the Bank is hosting more than 30 events with international leaders and experts to showcase initiatives on climate action, from cutting-edge financial instruments to the conservation and sustainable use of natural resources, the Amazon, a just economic transition and more. Journalists covering COP28 on site are welcome to visit the pavilion, with no registration required. Consult the event schedule here. For journalists covering COP28 remotely, register to access broadcasts of selected events.  

Location: IDB Pavilion of the Americas at Blue Zone, Opportunity District (OA04G2), Pavilion #56