Brazilian sustainable taxonomy: New directions for combating deforestation?

By Paula Wojcikiewicz Almeida and Gabriel Ralile

The Sustainable Development Taxonomy guides investments and public policies, combats greenwashing, and strengthens the integration between the economy and environmental preservation.

A major challenge for sustainable development lies in aligning economic activities with a lower environmental impact. With this in mind, countries have sought to develop so-called sustainable taxonomies, classification systems that aim to define and establish criteria for what constitutes sustainable economic activities. In addition to guiding investments and public policies towards achieving environmental objectives, these instruments contribute to combating "greenwashing," a practice that aims to mask polluting activities as clean.

The EU – European Union, for example, has invested in the development of its taxonomy. In effect since 2020, the system allows for-profit and non-profit institutions to share common definitions of economic activities that can be considered environmentally sustainable. To this end, six objectives are defined: climate change mitigation; climate change adaptation; use and protection of water and marine resources; transition to a circular economy; pollution control and prevention; and protection and restoration of biodiversity and ecosystems.

In turn, Brazil has been working since 2023 to create its own taxonomy. With approval scheduled for 2025, the Brazilian Sustainable Taxonomy (TSB) offers a voluntary perspective on environmental objectives similar to those of the EU. However, the Brazilian initiative also explicitly states socio-economic objectives, including the generation of decent work and increased income; reduction of socio-economic inequality, considering racial and gender aspects; reduction of regional and territorial inequalities in the country; and promotion of quality of life.

In particular, an interesting provision of the TSB is the exclusion of any activity involving the deforestation of native vegetation, even if legal, from the sustainable scope. This provision is noteworthy when considering a series of episodes considered to be a weakening of environmental legislation in Brazil. For example, the reform of environmental licensing brought controversial simplifications, including cases where activities linked to agribusiness are not subject to these procedures.

Another relevant case was the investigation initiated by CADE – the Administrative Council for Economic Defense – regarding the possible formation of a cartel related to the Soy Moratorium, a private agreement signed between large exporters that prevents the commercialization of soy produced in deforested areas of the Legal Amazon. According to CADE, the Soy Moratorium constitutes an anti-competitive instrument among competitors that harms exports.

Cases like these have reignited the debate regarding the efficiency of national instruments to combat deforestation, as well as their implementation capacity. Notwithstanding its importance on the Brazilian agenda, forest protection has also received prominence on the international stage. A notable example is the advent of the EU anti-deforestation law (EUDR).

The EUDR is a regulation that seeks to reduce emissions of polluting gases and loss of biodiversity through rules relating to the commercialization of seven commodities in the EU market: cattle, cocoa, coffee, palm oil, rubber, soy, and timber. Although the EUDR does not directly apply to countries outside the EU, potential extraterritorial effects require these nations to comply with the standard in order to introduce their products into the EU market. Because of this, some producing countries fear economic impacts from the application of the EUDR.

Brazil, as a major exporter of commodities linked to deforestation expansion, such as soy and cattle, will potentially be affected by the EUDR provisions. Furthermore, dependence on exports, particularly to the EU market, has fueled concerns among producers, exporters, and government entities. Thus, instruments that contribute to reducing deforestation could contribute to compliance with the standard.

TSB can collaborate in this regard, addressing both Brazilian and international demands, such as the EUDR. By strengthening the national framework, the country can gain competitiveness in a global market that seeks greater integration between economic activities and sustainability. Next steps, however, require proper planning that allows TSB to engage with other Brazilian mechanisms, incorporate target institutions, and ensure its application by public authorities, thus enabling its implementation.