The Brazilian Sustainable Taxonomy
In 2023, the Brazilian government established an action plan for the creation of a Brazilian Sustainable Taxonomy (MF 2023a). The taxonomy aims to establish a standardized, nationwide classification system to determine sustainable investments for different economic activities, financial assets, and projects. The proposal was drawn up using domestic and international sustainable finance initiatives as a reference, as well as international commitments and established national legislation.
Objectives
The Action Plan for the Brazilian Sustainable Taxonomy establishes a series of objectives organized into two main groups: (i) climate and environmental and (ii) socioeconomic, as shown in Table 1. Compared to other taxonomies, the selection of objectives is more ambitious both in terms of quantity and the wording itself, which is often broader than what is established by other countries, as is the case with the objectives related to generating decent work and increased income and reducing socioeconomic and regional inequalities. Among the objectives listed, the Ministry of Finance established the objectives of mitigating and adapting to climate change, sustainable use of the soil and conservation, management and sustainable use of forests, and reducing inequalities as priorities for formulating up the criteria (MF 2023c).
The climate adaptation objective should be prioritized for the crop sector, considering the potential losses in the sector resulting from climate change (MF 2023d). In fact, this sector, which is fundamental to guaranteeing Brazilian and global food sovereignty, is highly exposed to socio-environmental and climate risks, which affect crop productivity, threatening income and employment.
Principles
The principles that will guide the design of the Brazilian Sustainable Taxonomy are:
- Scientific basis (for drawing up the criteria)
- Technical criteria (quantitative, where possible)
- Impacts on the life cycle of the activity
- Coherence (with objectives, legislation and commitments)
- Consistency (between methodologies used for different sectors)
- Proportionality (different requirements according to the size of the organization)
- Usability/applicability (balance between complexity needed for transition and simplicity to ensure viability)
- Evolving tool (periodic review of criteria)
- Foreseeing transitional activities (for which there are no viable zero-emission alternatives)
- Provision for enabling activities (necessary to make eligible activities viable, such as technical assistance)
In addition to these principles, the action plan also emphasizes interoperability, i.e., the criteria defined must have equivalence and comparability with international taxonomies.[1]
Criteria
Compliance of an asset, project or investment with the taxonomy will occur, according to the action plan, if the economic activity simultaneously meets the following general criteria:
- Make a substantial contribution to one or more of the defined objectives;
- Do not cause significant damage to any of the other defined objectives; and
- Comply with the minimum safeguards listed in the plan.[2]
Regarding the specific criteria for meeting the objective of sustainable land use and the conservation, management and sustainable use of forests, the action plan mentions that the classification could be non-binary, i.e., with gradations, unlike the other activities. To this end, the action plan highlights the examples of the Colombian and Mexican taxonomies, which define three levels of compliance: basic, intermediate and advanced activities. The plan also suggests using methodologies from the Brazilian Agricultural Research Corporation (Empresa Brasileira de Pesquisa Agropecuária – EMBRAPA) to support the definition of sustainability categories applicable to the sector. These initiatives will be presented and discussed in this document.
The economic sectors to which the taxonomy applies are delimited according to the National Classification of Economic Activities (Cadastro Nacional de Atividades Econômicas – CNAE), produced by the Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística – IBGE).[3] The action plan provides for the creation of sectoral technical groups composed of government bodies to define the criteria for each sector. Two thematic groups will also be set up: one for tackling inequalities and one for monitoring, reporting and verification. It is important to mention that the latter group is designed to identify best practices in measuring and certifying impact, with the objectives of (i) developing a reporting methodology that facilitates verification, comparability and simple communication and (ii) creating a monitoring platform with information on the resources allocated to sustainable activities and projects, according to a series of aspects such as source of funds, sector, region, among others.
The action plan states that taxonomy verification should first be carried out at the level of individual activities, but in some cases also at the level of the organization, in order to identify possible damage generated by other activities. In the case of land use activities, this can be interpreted as compliance with the taxonomy criteria in the enterprise itself (which can be a project, activity or the purchase of an asset, for example) or the rural property as a whole. The taxonomy will provide for the participation of certifications or audits carried out by other entities in this process.
Table 1. Objectives of the Analyzed Taxonomies
Source: CPI/PUC-Rio with data from MF (2023a); CBI (2023a); EU Regulation no. 2020/852; Gobierno de Colombia (2022); SHCP (2023), and FEBRABAN (2021), 2024
[1] On the importance of international cooperation in this context, see: Fronda, Aaran. “A importância da cooperação mundial em Taxonomias verdes”. Bloomberg. 2023. Access date: February 27, 2024. bit.ly/4c9skcu.
[2] Safeguards are criteria that need to be met by all activities in order to be considered eligible for a category in the Taxonomy. According to the action plan (MF 2023a, p. 40), “safeguards will be defined by existing Brazilian legislation and standards, and by international conventions and standards, relating in particular to human and labor rights, as well as transparency”.
[3] The contribution of this document is part of sector A: Crops, Cattle production, Forestry, Fishing and Aquaculture.
