Development Finance Innovations and Conditioning Factors: The Case of the Brazilian Development Bank and Sustainable Industries

Sustainable, competitive and inclusive development trajectories for nations are crucial. However, there are uncertainties embedded in the emergence of green-related industries – in politics, technology, production and others. Amid this uncertainty, it is the mission of public institutions to foster and even shape markets. This is the case for development finance institutions (DFIs) supporting sustainable infrastructure as they work towards fostering mitigation and adaptation to climate change worldwide. However, research on specific institutions and development finance innovations towards sustainable industries, along with their contributing or impeding factors, is still scarce.

A new journal article in the Brazilian Journal of Political Economy by Luma Ramos, João Carlos Ferraz and Bruno Plattek analyzes how the Brazilian Development Bank (BNDES) introduced development finance innovations in the 2010s to foster Brazilian wind energy and its supply industries, the factors conditioning its actions and the outcomes.

The authors find that development-oriented finance innovations are a necessary condition for the emergence and consolidation of sustainable industries. To be effective, innovations depend on the alignment of a complex web of exogenous and endogenous intervening factors conditioning the actions of a potentially innovative public agency. The article demonstrates that technology, market and policy drivers constituted exogenous windows of opportunities. From an endogenous perspective, BNDES was timely in mobilizing internal competencies to implement successive finance innovations, resulting in a significant development of sustainable industry. 

For BNDES, the authors determine that the wind and energy sector could become a pilot for guiding BNDES’ navigation of low economic growth. It can also pave the way for a future development strategy in which socio-environmental sustainability is the guiding beacon. For that, BNDES will have to strengthen its development finance innovation capabilities. For other public agencies, this innovation may provide inspiration for their strategic positioning, especially the vital importance of investing in capabilities and ensuring the embedded autonomy of these agencies.

This journal article was previously published as a working paper in January 2021.