Green bonds, NDCs, and climate diplomacy: sustainable finance as a strategic lever for Brazil in a fragmented international system

Translated by Mariateresa Tauro

The contemporary international system is experiencing profound instability. The war in Ukraine, the conflict in the Gaza Strip, the current escalation in the Middle East, the intensifying strategic rivalry between the United States and China, and the growing fragmentation of multilateralism are reshaping political priorities and the allocation of resources. In this context, climate cooperation appears to be at risk of being structurally sidelined, caught between security concerns and rearmament. However, particularly at a time of armed conflict and systemic rivalry, climate action represents one of the last areas of effective diplomacy still capable of fostering cross-cutting cooperation. The erosion of international trust, the reallocation of resources towards military spending and competition for critical raw materials have a direct impact on energy transition policies. In this context, sustainable finance takes on a strategic dimension: it is not merely a technical tool for climate mitigation, but also a geopolitical and diplomatic lever.

In this framework, the case of Brazil arises. Traditionally regarded as a regional power and a key player in Latin America, the country faces a structural tension between economic growth and environmental vulnerability: deforestation, wildfires, extreme droughts and biodiversity loss are putting pressure on Brasília’s international credibility. However, this contradiction lies at the heart of its sustainable finance strategy. But to what extent does Brazilian sustainable finance serve as a tool for climate diplomacy capable of strengthening the country’s international role in a global context marked by armed conflicts and strategic competition? The theory is that Green bonds and NDCs are not merely technical tools for transitions, but genuine levers for geopolitical positioning at a stage when the multilateral order is in crisis.

The United States’ return to the Paris Agreement formally marked Washington’s return to global climate governance. At the same time, the Inflation Reduction Act has ushered in a new era of green industrial policy focused on decarbonisation, with substantial public investment in renewable energy and clean technologies. However, the US leadership remains ambivalent. The high level of domestic polarisation makes climate policy vulnerable to changes in government, introducing an element of structural discontinuity. Furthermore, US climate finance is increasingly becoming part of a strategic competition with China, particularly within the technology supply chains of the energy transition. In this sense, the US green industrial policy is not merely a matter of multilateral cooperation, but also a tool for geo-economic competition.

This ambiguity creates diplomatic scope for intermediary actors capable of acting as bridges between the Global North and South. Brazil, therefore, emerges as a middle-ranking climate power.

With the return of Luiz Inácio Lula da Silva to the presidency, Brazil has once again placed environmental issues at the heart of its international profile, not as mere rhetoric but as a pillar of its power. Protecting the Amazon has once again become a strategic priority: in the first year and a half of the administration, there was a significant 11% reduction in deforestation during the latest annual monitoring cycle, reversing a trend that had undermined the country’s credibility. At the same time, the decline in greenhouse gas emissions – estimated at around 16% year-on-year according to government data – signals an attempt to bring domestic policy into line with the country’s international stance. The reactivation of the Amazon Fund, which had been frozen under the previous administration, was a political move rather than a financial one. With the resumption of European funding and the reopening of channels of communication with Berlin and Oslo, Brasília has rebuilt a relationship of trust with the global North. But the most significant aspect is systemic: the fund has not simply been revived, but transformed into an instrument of state presence in the Amazon region, not least through the strengthening of police cooperation in the fight against illegal activities. In this way, environmental protection is intertwined with the reaffirmation of sovereignty.

Equally significant is the proposal for the Tropical Forests Forever Facility, a multilateral mechanism designed to provide long-term financial support to countries that preserve tropical forests, to which Brazil has pledged an initial contribution of one billion dollars. The aim is not simply to collect donations, but to establish a fund capable of mobilising public and private capital on a large scale, involving over seventy forest-rich countries across Latin America, Africa and Asia. In this framework, Brasília aims to become the linchpin of a South-South platform that redefines the terms of climate cooperation, moving away from the paternalistic logic of aid and toward a framework of strategic shared responsibility. At the same time, Brazil has established an independent stance vis-à-vis the United States and China, avoiding automatic alignment with either of the two poles in this systemic rivalry. Whilst Washington uses green finance as an instrument of industrial policy and Beijing integrates the transition into its global value chains, Brasília is attempting a third way: transforming the Amazon’s vulnerability into a diplomatic lever, positioning itself as the guardian of a global common good and, at the same time, as an indispensable player in climate governance. From this perspective, environmental diplomacy is not merely a moral exercise, but a tool of power: by reducing deforestation, mobilising green capital and forging forestry alliances, Brazil is seeking to redefine its standing within the international system, transforming the Amazon from its Achilles’ heel into its strategic centre of gravity.

Within this strategic recovery framework, the issuance of sovereign green bonds forms the financial cornerstone of Brazil’s climate strategy. In 2023, Brazil issued its first green sovereign bond on the international markets, raising around $2 billion with demand outstripping supply – a sign of renewed confidence among global investors. The process continues. The funds have been earmarked for programmes focusing on forest conservation, sustainable agriculture, renewable energy and low-emission transport, within a sustainable finance framework established by the Brazilian Treasury. It is not merely a technical tool for raising capital: it is a statement of systemic reliability. Through green bonds, Brasília is linking its environmental credibility to the discipline of the international financial markets, turning its environmental agenda into a reputational asset.

At the same time, the update of the NDCs under the UNFCCC reinforces the country’s formal commitment to the goal of climate neutrality by 2050 and to more ambitious interim emission reduction targets than in the past. Brazil has reiterated its intention to eliminate illegal deforestation by 2030 by incorporating forestry considerations into its decarbonisation strategy. In this way, multilateral commitments become an integral part of the country’s geopolitical stance: not merely a matter of complying with regulations, but a means of securing international legitimacy. Brazil’s role within the BRICS and the G20 enables it to bridge the financial and diplomatic spheres. Within the BRICS, Brasília is involved in establishing alternative mechanisms for development financing, including the promotion of green investment through the New Development Bank. Within the G20, a forum bringing together advanced and emerging economies, Brazil is calling for reform of the international financial architecture and for increased flows of climate finance to the Global South. The key issue remains the crisis in North-South cooperation. The pledge of $100 billion a year in climate finance for developing countries was fulfilled late and controversially, fuelling mistrust and frustration in the negotiations. In this context, Brasília is seeking to establish itself as a credible mediator: a major emerging economy, a well-established democracy, a leader on environmental issues and an influential member of the Global South. Its ambition is to transform sustainable finance into a tool for systemic rebalancing, ensuring that the energy transition does not become a further source of inequality.

Sustainable finance thus serves multiple purposes: attracting investment into an economy that remains heavily dependent on primary exports; bolstering multilateral credibility at a time when international law is being eroded; building regional leadership in Latin America; and promoting a narrative of climate justice and loss and damage that addresses the concerns of the Global South. In a world marked by wars, rearmament and competition for critical resources, Brazil is attempting to strike a balance. It does not possess the military might of the major powers, nor the industrial capacity of China or the United States. But it controls a crucial lever: the Amazon as a global climate hub, and the ability to translate this ecological significance into financial instruments recognised by the markets. Thus, as the international order fragments, Brasília is seeking to position itself as a champion of climate stability, preserving avenues for cooperation where power politics appear to prevail.

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