12/02/2025

Net zero investing in Brazil

This is part of a series of blogs exploring the investment markets in some of the largest greenhouse gas emitting countries outside the UK and EU. We delve into how these investment markets are supporting the net zero transition. Here, Martin Earle explores net zero challenges and opportunities in the world’s seventh largest economy: Brazil.

Brazil is both the world’s seventh most populous country and the seventh largest greenhouse gas emitter. Its home to around 60% of the Amazon rainforest, whose flora absorbs emissions equivalent to 4% of emissions from fossil fuels. This gives the country a significant impact on the global path to net zero carbon emissions.

The country is already suffering the effects of climate change and frequently experiences extreme rains, flooding, severe droughts, and other weather-related disasters. Brazil’s struggles with deforestation are also well publicised in the media.

But the overall picture is far from bleak. In this blog, we look at how the investment markets can contribute to addressing some of the challenges and opportunities facing the country on its path to net zero.

Brazil’s net zero commitments

Brazil aims to cut its emissions relative to 2005 levels by 48% by 2025 and by 53% by 2030, with a commitment to net zero by 2050. These targets were weakened during the far-right Bolsonaro administration, but the Lula government reverted to the original targets in October 2023.

Climate Action Tracker (CAT) is an independent scientific project that tracks government climate action and measures it against the globally agreed Paris Agreement. CAT rates Brazil’s 2030 target as ‘almost sufficient’ to maintain global warming below 2C. Brazil’s actual policies and action are held by CAT to be ‘insufficient’ and are consistent with more than 3C global warming.

Current President Luiz Inácio Lula da Silva has pledged ‘deforestation zero’ by 2030. Amazon deforestation has steeply declined since President Bolsolonaro’s rule ended in 2022, when forest loss reached a 15-year high.

Brazil is estimated to need to spend about 0.5% of GDP to reach net zero. Central to these efforts will be land use reform and reforestation, as well as infrastructure development.

Infrastructure investments

Investment in infrastructure has been increasing in recent years, with both the private and public sectors contributing. Brazilian President Luiz Inácio Lula da Silva has unveiled a plan to spend nearly 200 billion US dollars on infrastructure, energy, and transportation over the next four years. This investment is part of a larger effort to boost economic growth and employment in Brazil.

Brazil’s government believes the country is the new frontier of infrastructure investments. Its Investment Partnership Program has successfully attracted the private and international sectors to invest in the country’s development, including:

Large infrastructure funds

One example is the Vinci Climate Change Fund. This is an infrastructure equity fund. It invests in projects in Brazil in the renewable energy, water and sewerage sectors, and in solutions for carbon emission reduction, energy storage and energy efficiency.

With a target size of 400 million US dollars, it has received significant European investment, including a 2023 commitment of 52.5 million US dollars from the European Investment Bank.

Start-up finance

The website Latin Finance announced in March 2024 that French start-up NetZero had raised 18 million euros to finance the construction of more biochar plants in Brazil. Biochar is a charcoal-like substance that is used to sequester carbon. NetZero plans to launch its third biochar plant in Brazil this year and to start building another three thanks to the new funds.

The dominant equity and bond market of Latin America

Although Brazil’s equity market does not feature heavily in the portfolios of most UK investors (at around 0.5% of the MSCI All Countries World Index), Brazil is the dominant investment market of Latin America (around 59% of the MSCI Emerging Markets Latin America Index).

The main Brazilian stock exchange, Brasil Bolsa Balcão (‘B3’) produces a number of sustainability indices, notably the ICO2 B3 Efficient Carbon Index. Membership of the ICO2 is granted to companies who comply with stated criteria for efforts to control greenhouse gas emissions and comprises 71 companies at the time of writing.

By the end of 2022, Brazil was the third largest sustainable corporate debt market in the Latin America and Caribbean, reaching a volume of 31.9 billion US dollars. It is the only country in the region to include all five of the Climate Bonds Initiative thematic labels: green, social, sustainability, sustainability-linked, and transition, being the top regional issuer for the first and last categories.

In November 2023, Brazil’s treasury issued its first dollar sustainable sovereign bond on the international market. Demand on launch was triple the eventual total issuance of 2 billion US dollars and 75% of investors were from outside Latin America. According to Brazil’s Minister of Finance Fernando Haddad, the implied credit spread achieved on the bond is equivalent to that for investment grade countries. This suggests there should be lower financing costs for future eco-capital Brazil raises.

Pension and mutual funds are significant investors

There has been growing investor demand for more sustainable options for pension and mutual funds. Brazil has a well-developed mutual fund industry with total assets under management of around 1.5 trillion US dollars (2022, Statista). While Brazil’s occupational pension landscape may be smaller than the UK’s, it includes three schemes from the global top 300.

In 2022, the Brazilian Association of Financial and Capital Markets Entities (ANBIMA), issued guidance for ESG investment funds and fund managers and for requirements for funds to be designated as sustainable. As of June 2023, there were 53 ESG mutual funds – equities and bonds – in the ANBIMA fund universe. By 2023, ESG funds represented 10% to 15% of total personal pension assets and 5% to 7% of company sponsored pension assets in Brazil. This is expected to grow.

[With thanks to Thiago Nudi of Sao Paolo, audit professional, for his assistance on this section.]

Conclusion

The UK media often focuses on the impact of deforestation of the Amazon rainforest taking place – often illegally – within Brazil. It rightly highlights the danger of reaching an irreversible tipping point beyond which the rainforest may not be able to sustain itself.

But we should not ignore the many positive actions being carried out by the country’s government, international investors and private individuals to support Brazil’s net zero transition.