Hedging currency risk to aid green growth

Environmental Finance has posted an analysis article on mitigating the local currency risk problem, focusing on the Brazilian Eco Invest Programme case study, launched by Brazil’s National Treasury, in partnership with the Inter-American Development Bank (IDB) and with support from the UK’s Foreign and Commonwealth Development Office.

The Eco Invest Programme combines innovative financing mechanisms with a robust institutional framework to reduce the cost of capital, enhance FX liquidity for local companies, provide FX hedging and support the country’s growing pipeline of green investments. The Programme includes four complementary credit lines, each designed to tackle different market gaps:

1. A blended finance facility that introduces concessional funding in Brazilian Real through competitive bidding

2. Enhanced foreign exchange liquidity facility, modelled on previous experiences and customized to Brazil, to help companies better manage FX risk when revenues are in Real but debts are in foreign hard currencies such as US dollars or euros

3. Innovative line focused on foreign exchange derivatives, linking international capital markets to local financial institutions

4. Line that aims to catalyse investments in innovative sustainable projects and support early-stage financing, creating a robust ecosystem for scaling large-scale initiatives.

Brazil’s G20 presidency, the summit held in Rio de Janeiro in November 2024, had placed local currency solutions high on the development agenda.