Brazil’s Ministry of Finance has opened a consultation on a draft sustainable finance taxonomy that prioritises climate mitigation and adaptation, biodiversity protection, and reducing gender, ethnic minority and regional inequalities.
The consultation will close on 20 October and the taxonomy roadmap is expected to launch at COP28, before a first draft of the framework is published next year at COP29.
The taxonomy will be aligned with various elements of other international financial taxonomies, including those of the EU, Colombia and Mexico, to ensure interoperability.
Matias Cardomingo, general coordinator of social and environmental impact analysis at the Ministry of Finance, told Responsible Investor that Brazil’s taxonomy will be “in line” with the EU taxonomy, but will use the Colombian and Mexico frameworks as its model.
“We have prioritised interoperability between different taxonomies, with the goal of having a regional position to consider Latin American experiences, which the Colombian and Mexico taxonomies also have,” he said.
He added that Brazil is looking to create a “consistent framework” to ensure it attracts as much investment as possible, is consistent with environmental contributions, but has a “methodological difference to include social priorities to reflect Brazil’s market needs”.
The focus on social inequality aligns closely with Mexico’s taxonomy, launched in March, where gender inequality was a key focus.
While Brazil’s taxonomy activities have not been fully confirmed, Cardomingo said it is not expected to follow the EU’s classification of nuclear energy and natural gas as green activities.
As part of the roadmap, Brazil plans to make implementation of the taxonomy voluntary in the first year and mandatory by 2026. A technical group dedicated to monitoring, reporting and verification will be set up to examine disclosures and calculate the level of alignment of financial institutions to the taxonomy.
The proposed governance structure for the taxonomy would see the creation of a multi-stakeholder working group in charge of critical decisions.
A supervisory committee composed of entities including the Ministry of Environment, Central Bank of Brazil and the Brazilian Development Bank BNDES, and overseen by the Treasury, will oversee the process.
Sectoral and thematic technical groups will develop the taxonomy criteria, and an advisory committee will also be formed with representatives from relevant sectors to ensure the tool is effective.
Separately, Cardomingo said Brazil is looking at how to scale the taxonomy’s comparability to other frameworks. “Mexico and China have already developed comparability frameworks, and Colombia is in the process of creating one. The aim would be to have a connection between the Latin American, European and Chinese taxonomies to make it easier to identify the main focuses of sustainable investment.”
Several other Latin American countries, including Costa Rica and Panama, are in the process of developing a sustainable finance taxonomy using the EU version as a baseline, as well as the UN Environment Programme Finance Initiative’s common framework for Latin America and the Caribbean published in July.