💸 The Currency Catch: How Brazil’s EcoInvest Program De-risks Foreign Green Capital
#16 BAR Raiser
Brazil’s new Treasury-led program aims to de-risk foreign investment in climate, restoration, and bioeconomy projects.
The FX Fix
Brazil has the land, the carbon sinks, and the climate ambition, but currency risk has consistently scared off the kind of long-duration foreign capital needed to scale regeneration. Now, the government is taking a bold step to change that. With the EcoInvest program, the National Treasury is building a financial architecture to protect international investors from FX volatility, using a mix of swaps, blended finance, and risk-sharing mechanisms. It’s a rare example of policy innovation aimed squarely at unlocking climate finance in the Global South—crucial in a country where high local interest rates and scarce capital make foreign impact funding not just useful, but essential.
De-risking by Design
For decades, currency volatility has been one of the biggest obstacles to climate investment in Brazil. International funds raise capital in dollars or euros, but most green projects generate returns in reais. That mismatch means any depreciation in Brazil’s currency can wipe out returns, turning even the best-designed projects into risky bets. Traditional FX hedges exist, but they’re short-term, expensive, and often unworkable for the timelines of nature-based or infrastructure projects.
EcoInvest tackles this head-on. Instead of asking investors to absorb currency risk, it pushes that risk down into a structured system of protection. The Treasury provides long-term FX derivatives—10-year swaps priced off the DI curve—with support from multilateral banks. Local financial institutions access these lines through auctions and use them to structure investment vehicles with layered risk and return. Some structures offer a 2-year grace period and 8-year amortization schedule to match restoration timelines.
Blended finance sits at the core. Treasury-backed options subsidize the cost of hedging, allowing banks or funds to embed minimum FX protection within the investment—ensuring a floor in USD terms for investors in junior tranches. The protection can be embedded in the fund itself or positioned between the bank and the investor, offering flexibility in design. These protections aren’t just hypothetical—they’re priced, modeled, and available at a scale that finally makes long-term climate investments in Brazil financially viable.
A Layered Approach
EcoInvest’s first auction, in late 2023, served as a proof of concept: a low-risk test of FX hedging via concessional credit lines focused on environmental projects in the Amazon region. The results were promising—strong demand from banks, a leverage ratio near 1:5, and clear appetite for currency protection tied to forest restoration.
The second auction, held last month, shifted focus to the recovery of degraded pastures across Brazil’s agricultural heartlands. Designed to attract around US $1.5 billion in foreign capital and matching domestic contributions, it introduced a more sophisticated, layered fund model. Local banks could act not only as lenders but also as fund participants—taking senior positions with fixed returns, while enabling junior investors to enter with capped currency exposure and predefined exits.
The structure was built to address a chronic problem in climate finance: foreign equity rarely enters unless it knows how and when it can get out. In Brazil, that’s even more complex, because equity investors face three risks—project, credit, and currency. EcoInvest isolates the FX portion using long-term options that create “out-of-the-money” floors. In practical terms, a junior investor in a 5-year restoration fund can receive a pre-negotiated right to exit even if the real depreciates, with that hedge subsidized by the program.
Investor roles are clearly defined. Foreign investors seeking growth-stage equity take the junior tranche, with FX protection ensuring minimum USD returns. DFIs and ESG-focused funds often prefer mezzanine instruments—hybrid debt with moderate return and catalytic effect. Local banks take the senior tranche, benefitting from stable returns and the credit support offered by the Treasury.
The leverage effect matters. One dollar of Treasury support can back multiple dollars of FX exposure, multiplying capital inflows. The end result is a de-risked, layered investment structure where each player sees only the slice of risk they are equipped to manage.
Beyond the Amazon
While EcoInvest’s origins are tied to the Amazon, its ambition is much larger. The platform is being positioned as financial infrastructure for Brazil’s entire green transition—spanning land restoration, sustainable agriculture, clean water systems, and bioeconomy ventures. Forest-based economies will continue to play a central role, but the objective is to make FX-hedged, blended finance structures accessible across all climate-aligned sectors.
A third auction is expected later in 2025, with a likely focus on restoration linked to forest-based economies in biomes like the Cerrado and Atlantic Forest. The Treasury is expected to refine the layered model and incorporate lessons from previous rounds—particularly around risk pricing and investor exits. This phase may also connect with Brazil’s broader push to develop “Amazon Bonds” in collaboration with the World Bank, helping to standardize environmental metrics and increase transparency for investors.
Still, structural barriers remain. Existing fund regulations—such as the 10% cap on risk-free assets in FIPs—may limit flexibility unless adjusted. The Treasury and CVM are now exploring whether EcoInvest’s design can fit within current legal frameworks or whether targeted reforms will be needed. And design questions remain: should FX protection be embedded in the fund or provided bilaterally? Is tail-risk coverage alone enough to attract equity at scale?
Despite these hurdles, the direction is clear. EcoInvest isn’t a one-off—it’s a blueprint. If Brazil can align its capital markets with its ecological assets, it could offer a model for financing the climate transition across emerging economies.
The Bottom Line
EcoInvest may not eliminate Brazil’s FX risk—but it does something more useful: it makes that risk manageable, measurable, and investable. By pricing currency protection into structured vehicles and aligning public guarantees with private returns, the program offers international investors a way in that hasn’t existed before.
For impact and climate-focused funds, it’s an opportunity to gain exposure to high-potential projects in land restoration, clean infrastructure, and bioeconomy—without taking on uncompensated macro volatility. For local banks and fund managers, it’s a chance to expand offerings and originate new capital flows. And for Brazil, it’s a smart move: de-risking the future, one tranche at a time.
Thanks for reading.
KFG 🚀
Kieran Finbar Gartlan is an Irish native with over 30 years experience living and working in Brazil. He is Managing Partner at The Yield Lab Latam, a leading venture capital firm investing in Agrifood and Climate Tech startups in Latin America.