IDB, Brazil’s Central Bank sign agreement to support green investments

The Inter-American Development Bank (IDB) and the Central Bank of Brazil signed on Monday (Feb. 26) an agreement to provide foreign exchange guarantees for investments linked to the ecological transition.

The document was signed during the G20 meeting in São Paulo, where finance ministers and central bank presidents from the world's 20 largest economies are convening this week.

According to the president of the Inter-American Development Bank (IDB), Ilan Goldfajn, $3.4 billion will be offered in derivatives contracts that will be passed on from the Central Bank to Brazilian financial institutions.

Derivatives are contracts that can be used to reduce the risk of financial operations and are linked to other assets, such as commodities, foreign currency, or interest rates.

"The idea is to support the development, liquidity, and efficiency of the foreign currency hedging market in the country by acquiring derivatives on the foreign market and passing them on to local financial institutions," said Goldfajn.

The IDB president noted that the mechanisms will be aimed at "green investment" sectors, such as reforestation, low-carbon agriculture, and climate resilience. The IDB will also open $2 billion in credit lines for companies working in these areas.

Roberto Campos Neto, the president of the Central Bank of Brazil, emphasized the importance of this support in ensuring the transfer of technologies that have contributed to making the Brazilian economy more sustainable. He explained, "Infrastructure projects, especially those focused on sustainability, often require significant capital investments, which are frequently in foreign currency due to the need to import technology. The cost of hedging can increase the expense and risk of these investments beyond initial estimates, discouraging private financing or delaying crucial projects for the necessary ecological transition."

Campos Neto emphasized, however, that the Central Bank will not assume any risk in the operations, acting only as an intermediary between the international institution and the Brazilian market.

Minister of the Environment and Climate Change Marina Silva stressed that the private sector must get involved in the fight against global warming. "The challenge of the ecological transformation that Brazil and the world need will not happen if we only have public investment. We will have to combine public and private investment," she said.

Marina Silva pointed out that the world's 20 largest economies are also responsible for more than 80 percent of greenhouse gas emissions, which is why they have a central role to play in containing the effects of climate change.