Forest-Positive Finance
Native vegetation loss and land conversion have become a painfully familiar sight in the Amazon rainforest in recent decades, largely due to the increase of pasture and farmland for cattle and soy production. But innovative finance and investment opportunities are being developed, by many different players, that could help slow or even reverse the trend. The need has never been more urgent. Scientists warn of a potential tipping point if 20-25% of the Amazon is cleared, beyond which it could rapidly lead to biodiversity loss and climate change, with devastating consequences for carbon sequestration and regional weather systems. Forest loss in the Brazilian Amazon today stands at 19%. Cattle ranching is the main culprit – driving more than 90% of deforestation in the Amazon between 2008 and 2019. Brazil is now the world’s largest exporter of beef and demand is expected to grow by over a third in the next 20 years. Productivity is low since few farmers can invest in looking after their land and herds. In the absence of proper technical assistance and access to long-term credit as their pastures degrade and productivity further decreases, a recurrent choice is whether to clear forest land and use it as pasture. But this crisis provides an opportunity: with modest changes in farming practices, fuelled by long-term funding, Brazil’s cattle farmers could increase yields on their existing pastureland up to five-fold, according to a new report published in May by the Tropical Forest Alliance (TFA) and its partners The Nature Conservancy (TNC) and the United Nations Environment Programme (UNEP).
There is a link here between the two commodities – beef and soy. Sustainable cattle intensification measures can free up land for further expansion into soy production without causing further deforestation. However, this requires funding and technical assistance. Brazil produces over 30% of the world’s soy – more than any other nation. Half that is grown in the Cerrado, a tropical savanna larger than Western Europe. Its vast network of underground root systems stores enormous quantities of carbon and water. This vital ecosystem is under threat from farming, with nearly half its native vegetation cleared for cattle and soy production in recent decades. Under business as usual, a further 2.2 million hectares will be cleared for soy by the end of this decade. Yet there is more than enough existing pastureland in the Cerrado to meet the growing global demand for soy – and with the right investment in improved farming practices, productivity could rise by up to 30%.
TFA, TNC and UNEP have created a new initiative called Innovative Finance for the Amazon, Cerrado and Chaco (IFACC) to foster commercial lending and investment for sustainable agriculture in Brazil, Argentina and Paraguay. Launched during COP26 in Glasgow last November, IFACC has already garnered over $4 billion of commitments, including a goal to disburse $200 million of new investment by the end of this year. Its target is $10 billion of commitments by 2025. The aim is to provide South American farmers with the kind of low-cost, long-term financing they currently lack, which would enable them to make the investments needed to accommodate the projected expansion of production and boost productivity without resorting to clearing forests and other natural vegetation.
This financing model includes key environmental terms – including legal compliance and no further deforestation or conversion of natural vegetation. The finance can come in a variety of forms, including annual crop finance, longer-term farm loans, agricultural funds that access the capital markets, farmland investment funds, and corporate green loans and bonds. For example, Syngenta, a global agrichemical company, recently launched their credit line for the Reverte programme which offers farmers loans with terms of 8-10 years and a three-year grace period to expand agricultural production on already-cleared pasture lands.
Although the commitments made by corporates and financial institutions under IFACC often cover only part of the larger business they have, the initiative can help those working towards the transition necessary in the region. The advantages of investing in this sector are manyfold, from helping companies meet their net-zero targets to managing the regulatory risks posed by legislation on deforestation-free supply chains emerging in Europe and North America. Perhaps above all, it is huge growth opportunity. The first two decades of this century saw global demand for food and agricultural products rise by 48% – double the rate of increase in the human population. Investment in deforestation- and conversion-free agriculture in South America will reduce conversion pressure on the carbon sinks and biodiversity of existing tropical forests, while helping meet growing global demand for food and local demand for sustainable livelihoods.
One of the most impactful transformations we can make in global agriculture is reclaiming degraded farmland. In Brazil, we are working with The Nature Conservancy, farmers, and other stakeholders to recover 1 million hectares of degraded pastureland in the Cerrado, including an affordable credit line for farmers to finance the investment. Achieving our goal will require $2 billion of investment – which is why it is crucial for international groups and investors to collaborate through initiatives like IFACC.
In 2021, as part of Syngenta’s Reverte programme, the first loans were disbursed to farmers in Brazil’s vast Cerrado region. This initial credit line, which comes with an 8-10 year term, is restoring 31,400 hectares of degraded pastureland and influencing sustainable production of soy through investments in farm staff, equipment, seeds and other supplies. To qualify for financing, farmers must commit to conserving and restoring native vegetation, as well as adopting sustainable practices such as no tillage, crop rotation, cover crops and integrated pest management. The programme will also encourage the integration of crops, cattle and forestry into Cerrado’s land management practices. The aim is to reduce land conversion and biodiversity loss, while increase agricultural production. The loans come with a three-year grace period allowing farmers time to implement their investment before repayment of the loan capital starts. During the first phase of the programme, finance is provided by Itaú BBA, a major Latin American bank. The credit line is implemented considering environmental criteria for eligibility and monitoring developed by TNC (core requirements under Environmental Framework for Lending and Investing in Soy in the Cerrado) and agreed with the partners. Syngenta is responsible for the onboarding of clients, applying the criteria and perform monitoring. The project’s goal is to restore over a million hectares of degraded pastureland by 2025, supporting the Brazilian government’s broader goal to restore 20 million hectares over the next decade.
