Eco Invest Brazil 5th Auction: Federal Government publishes operational manual and extends proposal submission deadline

Just weeks before the proposal submission deadline, the Ministry of Finance released the document governing the innovation fund auction round. The National Monetary Council has also established a specific regulatory regime for the Eco Invest Brazil Innovation Funds.

__________________________________________________________________________________

The Executive Secretariat of the Ministry of Finance has published the Operational Manual for Eco Invest Brazil Auction No. 5/2026, prepared by the Executive Committee of the Eco Invest Brazil Program. The document supplements SE/MF Ordinance No. 1,782/2026 and details the criteria, procedures, and participation requirements applicable to financial institutions participating in the auction round.

Subsequently, on July 30, 2026, the National Monetary Council (“CMN”) published CMN Resolution No. 5,332, amending CMN Resolution No. 5,130 of April 25, 2024, to establish a specific regime applicable to Innovation Funds, including a timetable for the allocation of investments and funding-specific remuneration limits.

Lastly, SE/MF Ordinance No. 2,494, dated August 19, 2026, amended the deadline for submission of proposals under the 5th Auction, extending it until 6:00 p.m. (BRT) on September 15, 2026.

These publications complement the regulatory framework governing the 5th Eco Invest Brazil Auction.

We highlight the main aspects of each measure below.

Operational Manual for Auction No. 5/2026

Below, we summarize the key provisions of the Operational Manual that supplement the rules set forth in Auction Ordinance No. 5/2026.

Eligibility, Restrictions, and Safeguards

All supported projects must simultaneously satisfy the following requirements: connection to Brazilian territory, additionality of the incentive mechanism, and materiality of the technological or innovative component, which must be central to the project and constitute a measurable element. Qualification under eligible activities, safeguards, and technological readiness levels is based on self-declaration in the Technological Development Plan¹, a document executed by the project’s technical officer and subject to retrospective verification through a Second Party Opinion².

In addition to the general restrictions established by MF Ordinance No. 964/2024, the Operational Manual sets out supply chain-specific restrictions that render a project definitively ineligible and exempt it from mitigation measures, as summarized below

Among the specific requirements applicable to this auction round are: clear ownership and land tenure regularity of the relevant areas; absence of significant environmental liabilities, illegal deforestation after July 2008, or active environmental embargoes; georeferenced identification of assets; and the conduct of free, prior, and informed consultation whenever projects affect Indigenous and Quilombola lands, or territories occupied by traditional peoples and communities. It is worth noting that the 5th Auction does not establish any revenue cap for the ultimate beneficiary of the funds.

Structuring the Innovation Funds

Innovation Funds must be established as newly formed funds under the categories permitted by the regulations of the Brazilian Securities and Exchange Commission (“CVM”), provided that their legal structure allows for the investments contemplated by the auction, particularly Private Equity Investment Funds (“FIPs”), Multimarket Investment Funds (“FIMs”), and Agribusiness Investment Funds (“FIAGROs”), which may invest through instruments convertible into equity interests, including convertible loans, hybrid financing instruments, equity interests, and instruments providing equivalent economic or legal exposure. The Operational Manual clarifies that hybrid instruments correspond to venture debt³.

The structure must include at least two classes or subclasses of quotas, reflecting the segregation between catalytic public capital and mobilized private capital. The catalytic capital class will receive program resources through subscriptions made by the financial institution and will invest primarily in low-risk, highly liquid assets, with a target return capped at 3% per year. Any excess return may be used to enhance the remuneration of the private capital class and provide foreign exchange protection to foreign investors.

The private investor class, in turn, will hold investment instruments issued by the ultimate beneficiaries, including convertible instruments, hybrid financing instruments, venture debt, equity interests, or equivalent instruments. This class will effectively bear the economic exposure to the supported projects, including the risks and returns associated with technological development, commercial validation, scaling, and potential appreciation of investee companies, and must ensure a minimum return equivalent to the Extended National Consumer Price Index (“IPCA”) plus 1% per year.

Multiple classes or subclasses segmented by technological maturity stage, financial instrument, or category of ultimate beneficiary are permitted. The structure may also include phased operations contingent upon the achievement of predefined milestones and may be organized as a fund of funds, including the participation of corporate venture capital funds, provided that the same guidelines applicable to the Innovation Funds are observed.

As an alternative to the direct subscription of fund quotas, the financial institution may contribute capital to an investment vehicle, enter into a credit transaction (with Innovation Funds and vehicles under their control acting as borrowers), or use an economic results equalization mechanism, provided that economic equivalence, traceability of financial flows, segregation of resources, and the maximum 3% annual return limit are preserved. The classes designated as “Eco Invest Quotas” must have segregated assets, governance structures, bylaws, and financial statements.

In the event that the financial institution enters into an agreement with an Eco Invest Innovation Fund providing for participation in additional gains derived from divestments, performance, or asset appreciation, it must allocate at least 20% of the portion of such gains attributable to it to the National Climate Change Fund under the Eco Invest Brazil Line. Such allocation does not alter the ordinary distribution of results due to private investors, managers, or other participants in the structure.

Use of Resources and Counterpart Contributions

Eligibility is conditioned upon the cumulative structuring of the three mechanisms (Innovation Funds, corporate credit instruments, and non-reimbursable support), and the isolated use of only one mechanism is prohibited. The minimum 10% allocation of the Innovation Fund portfolio to projects developed in partnership with universities or Scientific, Technological, and Innovation Institutions (“STIs”) will be assessed at the portfolio level. Accordingly, each investee company is not required, individually, to maintain a partnership with universities or STIs. In the corporate credit portfolio, the minimum required allocation is 5%.

The acquisition of foreign companies, technological assets, intellectual property rights, or equity interests abroad is limited to 50% of the Innovation Funds’ portfolio and is subject to demonstrated transfer, internalization, or adaptation of technology to Brazil. This requires, among other conditions, a special-purpose company incorporated in Brazil, a research hub located in Brazil, domestic production of the relevant technology, even on a limited scale, the hiring of Brazilian researchers connected to that research hub, where applicable, and the allocation of at least 10% of the resources received to a Brazilian STI or university.

Exclusively within the supply chain of critical minerals processing, batteries, and electric mobility, at least 15% of the resources invested through the Innovation Fund and 15% of those invested through corporate credit must be directed to two-wheel electromobility projects, with compliance being verified individually for each instrument.

In the corporate credit mechanism, the financial institution assumes the full credit risk. Accordingly, there are no regulatory limits on interest rates, tenors, grace periods, or amortization and redemption rules. In return, the institution must demonstrate, through its Financial and Allocation Reports, that the catalytic capital improved the conditions offered to the ultimate beneficiary, whether through lower costs, longer maturity, extended grace periods, enhanced collateral terms, or other economically verifiable benefits.

The non-reimbursable counterpart contribution of 0.5% will apply, during the first 12 months following the initial disbursement, to the total amount of committed resources, regardless of actual disbursement. Thereafter, it will apply to the annual outstanding balance of resources effectively mobilized and invested, with unused balances adjusted by the SELIC rate plus 1% per year. At least 25% of this amount must be allocated to technology-based entrepreneurship initiatives, while the remaining 75% must be directed to research promotion activities.

Integration of Mechanisms and Extended Grace Period

An extension of up to 12 months of the grace period may be granted, subject to Non-Financial Assurance and approval by the Executive Committee, to any financial institution that demonstrates, within 24 months from the initial disbursement, that at least 20% of its portfolio satisfies the requirements concerning productive integration, demand predictability, technological densification, governance, and a minimum contractual term of three years.

Selection Process

Proposals must be submitted on a supply chain basis and must separately specify the proposed leverage ratio for the Innovation Fund and for the Corporate Credit Instrument, expressed in increments of 0.25. For Innovation Funds, the leverage ratio must range from one to two times the catalytic capital allocated to the instrument. For corporate credit, the minimum leverage ratio is three times the catalytic capital allocated to the instrument, calculated as the ratio between the total amount of mobilized resources, including catalytic capital, and the catalytic capital made available.

Ranking will follow the sequential order of: highest leverage ratio proposed for the Innovation Fund; highest leverage ratio proposed for corporate credit; highest percentage of Innovation Fund investments allocated to RD&I projects; and highest participation of foreign capital in the resources mobilized through corporate credit. Each financial institution may submit proposals for all supply chains, but may only be selected in up to three of them. Participation through a consortium of up to two institutions will also be permitted, provided that a lead institution is designated and joint and several liability is assumed.

The participation of foreign capital must represent between 15% and 45% of the private capital mobilized through the Innovation Funds and must account for at least 60% of the resources mobilized through corporate credit.

CMN Resolution No. 5,332/2026 and the Innovation Funds

The CMN has published CMN Resolution No. 5,332/2026, establishing a specific regulatory regime for Innovation Funds by adapting CMN Resolution No. 5,130/2024 to the characteristics of the new financial instruments designed to support innovation. The principal amendments relate to how foreign capital mobilization is evidenced, the remuneration limits applicable to operations, and the sharing of performance-related gains.

Foreign Capital Mobilization

Foreign capital mobilization will now be evidenced through a binding commitment undertaken by the financial institution to make investments through equity instruments, instruments convertible into equity interests, or other instruments whose remuneration is linked to the performance or appreciation of eligible companies, in an amount proportional to the leverage ratio offered in the auction.

Remuneration Limits

The resolution establishes specific remuneration limits for Innovation Fund transactions while preserving the role of catalytic capital as a risk mitigation mechanism:

Participation in Performance Gains

The limits above do not prevent contractual arrangements granting the financial institution an additional share in gains resulting from the performance, appreciation, or divestment of Innovation Fund assets. In such cases, 20% of those gains must be allocated to the Eco Invest Brazil Program. This transfer is not considered remuneration of the Eco Invest Brazil Line.

Investment Allocation and Reinvestment

Within 36 months from the date of the first disbursement to the financial institution, at least 50% of the planned investments must be allocated to eligible companies. If the maturity of transactions or divestment from equity interests occurs before the maturity of the Eco Invest Brazil Line, the financial institution must either: reinvest the resources in incentive mechanisms supporting new eligible projects until the resources from the line have been fully repaid; or accelerate repayment proportionally to the amount not reinvested. This requirement does not apply to the portion allocated to foreign exchange hedging mechanisms contracted with maturities equal to or longer than the standard auction term.

General Amendments

The resolution also conditions both the release of the final 25% tranche of the loan and the application of the effective interest rate of 1% per year on proof (beginning in the 18th month following the first disbursement) that at least 75% of the projected foreign capital has been mobilized.

Other Demarest Publications on Eco Invest Brazil

• Eco Invest Brazil: 5th Auction targets Innovation Funds following strong capital mobilization in the 4th Auction
• Exclusive e-book featuring a detailed analysis by Demarest professionals of the five auctions held under the Eco Invest Brazil Program
• Agribusiness Newsletter | November and December 2025 – Article: “Eco Invest 3rd Auction creates opportunities for agribusiness”
• ESG Newsletter | January 2026
• Agribusiness Newsletter | March 2026 – Article: “CVM issues resolution supporting the Eco Invest Brazil Program”
• Energy and Natural Resources Newsletter | May 2026

Demarest’s Capital Markets, Investment Funds and Asset Management, Tax, and Infrastructure and Project Finance teams are monitoring the topic and remain available to provide any clarifications that may be necessary.

^[1] The Technological Development Plan is the instrument through which the ultimate beneficiaries of the three incentive mechanisms described in the auction formalize their technical qualification, objectives, implementation methodology, and additional information regarding their operations. It serves as the main technical reference document for the projects.

^[2] The term refers to an opinion issued by an independent and qualified entity retained by the financial institution for the purpose of assessing the socio-environmental integrity of the portfolio of supported projects and the credibility of the information reported in the Program Alignment Report. Within the program, the term is used in a retrospective and recurring sense, applying to the actual implementation of funded projects on an annual basis.

^[3] A financing modality structured as non-convertible debt intended for innovative, high-growth companies that have already demonstrated market traction but do not possess sufficient collateral or cash generation capacity to access conventional credit. It operates through interest-bearing instruments, flexible collateral arrangements, and performance-based covenants, and typically complements venture capital funding rounds, enabling companies to raise capital without additional shareholder dilution.