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As Latin America鈥檚 largest market, and , Brazil holds a vital global position as a bridge between developed and developing countries. In areas such as capital markets, democratic systems, and technological prowess, Brazil has the potential for a unique model of economic progress. 听Environmental risk now threatens that potential. 听Through the haze of the fires burning in the Amazon, one thing has become clear: Brazil must find a new recipe for more sustainable economic growth. 听 听

The , of which Brazil is a signatory, set the target of keeping global temperature increases this century to below 2掳C. In order to achieve its to this goal, projections from Integrated Assessment Models indicate that Brazil will need, on average, around $30 billion of investment per year by 2030 - rising to over $60 billion per year by 2050 - in the energy sector alone. Given the Brazilian government鈥檚 current drive to , this target cannot be met by the state. 听

Furthermore, Brazil鈥檚 policies on land use 鈥� in particular, the conservation of tropical forests 鈥� will go a long way in dictating whether net zero emissions can be accomplished this decade. 听As made clear by the recent Intergovernmental Panel on Climate Change (IPCC) , transforming the ecological impact of agriculture will be a key element of both reducing greenhouse gas emissions and adapting to a warmer planet. The Amazon rainforest is a critical asset in the drive to stabilise the earth鈥檚 climate due to its massive capacity to store carbon dioxide and its rich biodiversity.

With its huge potential for cost-effective emissions reductions, Brazil will be an important testing ground for global investment appetite in large-scale financial flows that don鈥檛 throw open the flood gates to ecological destruction.

The scale of investments needed in food systems and forestry are beyond the capacity of Brazil鈥檚 public balance sheet. While more robust than in neighbouring countries, domestic capital markets are not up to the enormity of the task. 听Whatever the current political rhetoric, Brazil simply cannot afford to lose existing foreign aid and channels of direct investment. After the recent wave of , the big question is whether global investors will demand better environmental stewardship, or reduce their overall exposure to Brazil due to ecological risks. 听In response to Jair Bolsonaro鈥檚 anti-environmental rhetoric, . 听That may have caught headlines, but the by some institutional investors poses a much bigger problem. 听听

Barriers to progress

Private sector investment through capital markets is essential for Brazil鈥檚 economic and ecological transition. 鈥淭he public sector alone cannot finance the trillions of dollars needed for green infrastructure鈥�, Akinchan Jain, a specialist at the World Bank, earlier this year. 鈥淲e need to mobilise significantly more private sector flows to have any realistic chance of achieving climate goals.鈥� The obvious solution is to increase capital flows from the private sector. 听And while that seems straightforward in abstract, the practicalities will be challenging. 听

Climate-friendly investment involves low-carbon technologies that remain novel to investors. 听Furthermore, the volume of capital required will swamp the capacity of domestic investors. 听Foreign direct investment (FDI) can help plug the gap, but it鈥檚 prone to flight during times of high political risk and environmental tension. 听So how can a government get in the 鈥済ood鈥� kinds of investment, while keeping out the 鈥渂ad鈥�?

The key question now is whether being 鈥渙pen for business鈥� can be beneficial not just for short-term gain but for investments in sustainable technologies and infrastructure.

Of course, Brazil is not alone in this challenge. 听Dealing with climate change will require considerable financial flows to countries with immature capital markets and higher equity risk premiums. 听With its huge potential for cost-effective emissions reductions, Brazil will be an important testing ground for global investment appetite in large-scale financial flows that don鈥檛 throw open the flood gates to ecological destruction.

Investing in the future

President Bolsonaro has declared Brazil open for business, promising tax cuts and regulatory environment changes designed to appeal to inbound finance flows. These changes will most likely include measures to address the country鈥檚 perceived economic instability, complex fiscal system and issues with corruption 鈥� all areas with the potential to influence the attraction and retention of foreign capital. 听In any normal investment consideration, these moves would be viewed as unequivocally positive. 听

Taken in the context of stabilizing the earth鈥檚 atmosphere, the makes Brazil a real flashpoint in the climate crisis. 听Brazil has some of the richest mineral deposits and largest rainforests in the world. 听It is endowed with a vastly disproportionate share of the planet鈥檚 river water. 听Enviable resources that most countries would be jealous to have. On the other hand, financial flows to poorly regulated mining and rampant deforestation have stripped Brazil of some of its most attractive long-term assets. 听

The key question now is whether being 鈥渙pen for business鈥� can be beneficial not just for short-term gain but for investments in sustainable technologies and infrastructure. 听Finding a balance between conditions supportive to foreign investment and constraints that ensure all Brazilians share in the country鈥檚 natural wealth has been tricky, to say the least. 听Even more so now, in Latin America鈥檚 fluctuating political landscape.

Ultimately, Brazil鈥檚 key challenge over the coming decade will be whether it can resume economic growth without sacrificing its natural resources and prioritise long-term reliability over short-term boosts. 听With environmental, social and environmental (ESG) issues rocketing up the agenda, can investors influence the shape of things to come? 听
Our ongoing research is searching for the ingredients in that all-important recipe 鈥� enablers that will allow Brazil to attract the investment it urgently needs in strategic, low-carbon infrastructure without opening the floodgates. 听Brazil鈥檚 opportunity to be a world leader in driving sustainable, responsible development is too important to waste. 听Given recent events, there鈥檚 no time to lose.

This article draws on work in progress for a research paper entitled 鈥楾he Flow of Capital for Climate Action in Brazil 鈥� The Role for Foreign Direct Investment鈥�, by Janaina Stewart-Richardson, Alexandre Koberle and Dr Charles Donovan, due to be published in Q4 2019. 听The work has involved collaboration between researchers at the Centre for Climate Finance and Investment, the Grantham Institute 鈥� Climate Change and Environment (both 911今日黑料 London) and Funda莽茫o Getulio Vargas (FGV), the top think tank in Latin America. 听