What is blended finance and how can this type of financing support production and accelerate the sustainable transition?

The expansion of international markets and pressures for sustainability have made the search for new financing models to modernize Brazilian agriculture urgent. Low-carbon technologies, environmental regularization, recovery of degraded areas, and the productive inclusion of small farmers are well-known paths to a more resilient agricultural sector. However, transforming these solutions into financeable projects remains one of the sector's major challenges – and there are necessary costs and investments. It is precisely in this area that what is known as "blended finance" is gaining increasing importance.

Blended finance, or mixed financing, combines different types of capital—public, philanthropic, and/or private—to enable projects that, on their own, would have difficulty accessing credit. The initial logic is simple: public or philanthropic resources assume part of the risks, offer special conditions, or support technical assistance, creating a safer environment for banks and private investors to also participate. This structure is not a specific financial product, but a strategy that adjusts the balance between risk and return, making sustainable projects more attractive and viable.

To understand how this balance between risk and return is built in practice, blended finance structures typically rely on three pillars of risk mitigation, presented in Figure 1. Each pillar fulfills a specific function: (i) guarantees and risk insurance, which reduce the probability of losses for investors and improve credit conditions; (ii) concessional capital, which operates with more flexible rules and absorbs portions of risk to encourage the entry of private capital; and (iii) technical assistance, which supports beneficiaries in the implementation of projects, reduces operational obstacles, and improves the financial and environmental performance of initiatives. Together, these mechanisms allow for the reconfiguration of the capital structure to make socio-environmental projects more viable, especially in contexts where traditional credit is not available.

Figure 1: The 3 pillars of risk mitigation of blended finance
Source: CONVERGENCE, 2020

Brazil occupies a relevant position in the climate debate, both due to the large amount of preserved resources and its significant food production. The agricultural sector combines productive scale, expansion capacity based on efficiency gains, and a substantial potential for emissions reduction through practices such as sustainable or regenerative agriculture. For this potential to be converted into measurable results, it is necessary to expand access to financial instruments that enable low-carbon technologies, environmental conservation, and productive inclusion.

In this endeavor, public credit policies play a central role. Programs such as the ABC+ Plan and RenovAgro offer financing lines with favorable conditions, encouraging low-emission practices and the productive recovery of farms. These instruments have a history of contributing to the modernization of the productive base, but their reach depends on the annual public budget and is therefore limited in the face of the scale of environmental challenges and the investment needs to sustain the country's productive transition.

Blended finance emerges as a complementary strategy to these policies. Instead of replacing public credit, it reorganizes the risk structure of projects that the traditional market tends to reject due to high uncertainty, long payback periods, or collective benefits that are not directly remunerated. By combining public, philanthropic, and private capital, blended finance creates arrangements capable of reducing risks, adjusting the risk-return ratio, and making socio-environmental projects financially viable.

The participation of governments and philanthropic organizations is especially relevant in this context. Sustainable agriculture projects generate positive externalities (such as reduced emissions, water conservation, and soil improvement) that benefit society as a whole, but which cannot be internalized in the cash flow of producers. Since these benefits are, to a large extent, non-excludable, there is a natural financing gap: many benefit, but few have the incentive to bear the initial costs. By assuming layers of risk or offering more flexible conditions, concessional capital attempts to correct this flaw, absorbing costs that cannot be attributed solely to the producer.

In practice, these mechanisms act as triggers to unlock initiatives that would hardly advance with traditional credit alone. Recent experiences in the country illustrate this movement: different blended finance structures have allowed environmental opportunities to be transformed into investable projects, especially in agroforestry chains, regenerative systems, and low-emission production models. Table 1 summarizes some of these initiatives, showing how guarantees, technical assistance, concessional capital, and risk mitigation instruments have been used in different regions and production profiles.

Table 1 – Examples of blended finance funds existing in Brazilian agriculture

Source: Developed based on Leal (2025).

Among Brazilian blended finance initiatives, Eco Invest Brasil stands out as one of the most consolidated, both for its scale of operation and for its strategic use of public resources to reduce risks and expand access to sustainable credit. The program was established by Law No. 14.995, of October 10, 2024. In the agricultural component, known as Caminho Verde Brasil (Green Path Brazil), the program aims to recover up to 40 million hectares of low-productivity pastures over the next ten years, converting these areas into high-yield arable land without the need for deforestation (BRASIL, 2025).

Eco Invest represents a significant institutional advancement by establishing, through specific regulations from the Ministry of Finance and the Ministry of Agriculture, Livestock and Supply (MAPA), a legal framework that authorizes the use of public resources to reduce credit risks and mobilize private capital on a large scale. The program operates through public auctions, rules for equalization contributions and guarantee mechanisms, in addition to promoting coordination between MAPA, the Ministry of Finance, BNDES (Brazilian Development Bank), and the National Treasury. The creation of this mechanism has expanded the tools available to finance the productive transition of agriculture. Even so, it is too early to measure its results. Effectiveness will depend on the quality of the contracted projects, the capacity to monitor environmental and financial results, the governance of operations, and the articulation with existing policies aimed at environmental compliance and production traceability. Among these policies, the Agro Brasil + Sustentável (AB+S) Program stands out, established by MAPA to integrate official data from various public and private databases and allow verification of the conformity, traceability, and qualification of national agricultural production, being the official platform/tool ​​for monitoring ECO INVEST.

Even with the support of initiatives such as the Agro + Sustentável platform, which should generate standardized data on good agricultural practices and facilitate the monitoring of results, Eco Invest still faces significant challenges. These include catering to different producer profiles, ensuring the execution of large-scale projects, and meeting ambitious goals, such as the recovery of 1,4 million hectares foreseen in the 2nd auction. Thus, the program has the potential to contribute to the sustainable transition, but its impacts will depend on the quality of its implementation and effective integration with reliable monitoring systems.

Despite recent progress, the current scale of sustainable financing in Brazil is still insufficient to transform land use and modernize the productive base. Structural obstacles persist, such as the absence of standardized impact metrics, limitations in transparency in the use of subsidies, and poor coordination among public policies. These factors hinder the preparation of consistent project portfolios and restrict access to credit, especially for small and medium-sized producers. Furthermore, the measurement of environmental outcomes depends on robust monitoring systems capable of ensuring traceability, comparability, and good governance.

The transition to low-carbon production, therefore, requires both well-structured public credit policies and financial mechanisms capable of mobilizing new capital flows. In this scenario, blended finance presents itself as a pragmatic alternative to reorganize risks, expand the participation of private investors, and transform environmental opportunities into financeable projects. The challenge ahead is to expand the scale of these initiatives, improve the transparency of operations, and qualify projects in order to guarantee a consistent impact on the territories.

References and recommended readings:

LAB – Laboratory for Financial Innovation. Financing for the achievement of the SDGs: The Blended Finance Agenda in Brazil. Rio de Janeiro: ABDE, IDB, CVM, GIZ, 2022. https://labinovacaofinanceira.com/wp-content/uploads/2022/06/%E2%80%8BLAB-Financiamento-para-o-alcance-dos-ODS-a-Agenda-do-Blended-Finance-no-Brasil.pdf

BRAZIL. Ministry of Agriculture and Livestock. Caminho Verde Brasil: what is the program? Brasília: MAPA, [n.d.]. Available at: https://www.gov.br/agricultura/pt-br/campanhas/caminho-verde/o-que-e-o-programa. Access on: 11 Dec. 2025.

BRAZIL. Ministry of Finance. National Treasury Secretariat. Eco Invest Brasil: Consolidated pre-allocation report – results of Eco Invest Auction No. 2/2025: recovery of degraded lands. Brasilia: National Treasury, Aug. 2025. Available at: https://cdn.tesouro.gov.br/sistemas-internos/apex/producao/sistemas/thot/arquivos/publicacoes/52825_2427462/anexos/25951_879351/Leila~o%20Eco%20Invest%20-%20Relato´rio%20de%20pre´-alocac¸a~o%20consolidado%206.pdf

CONVERGENCE. The state of blended finance 2019. Toronto: The Global Network for Blended Finance, 2019. Available at: https://www.convergence.finance

LEAL, Maria Morais Garcia. Eco Invest as a tool for the transition to sustainable agriculture in Brazil: challenges and opportunities. 2025. Undergraduate Thesis (Bachelor's Degree in Economics) – Insper, São Paulo, 2025.