▼ Cerrado Biome, Brazil. © Marizilda Cruppe / Greenpeace
Forest advocates in Brazil are feeling upbeat for the first time in years. Supporters of Lula da Silva – re-elected as president late last year – believe he will turn the tide on deforestation rates. The European Union looks set to implement its new regulation on deforestation-free supply chains. Fourteen of the world’s largest agricultural commodity traders have committed to eliminate deforestation from their supply chains by 2025, in line with a 1.5°C pathway. And the Innovative Finance for the Amazon, Cerrado and Chaco (IFACC) initiative – launched at COP26 by the Tropical Forest Alliance (TFA), The Nature Conservancy (TNC) and the United Nations Environment Programme (UNEP) – is off to a promising start. In its inaugural year, IFACC signed up 15 members and launched eight financial products that have extended $111 million to support deforestation- and conversion-free (DCF) soy and cattle production in the Amazon and Cerrado biomes. The initiative is on track to reach $1 billion in disbursements by 2025, having already amassed a total of $4.3 billion in commitments.
We’re at a very exciting time in our effort to eliminate deforestation from agricultural production in Brazil – there’s a lot of momentum
“We’re at a very exciting time in our effort to eliminate deforestation from agricultural production in Brazil – there’s a lot of momentum”, says Greg Fishbein, TNC’s director of agricultural finance. This matters, because the forest, land and agriculture sector represents nearly one-quarter of global greenhouse gas emissions – the largest-emitting sector after energy. Clearing forests for food production is a major driver of climate change. Between 2001 and 2015, 71.9 million hectares of forest were converted to produce just seven agricultural commodities, principally beef, palm oil and soy. There is no pathway to the Paris climate goals without slashing emissions from land-use change. The same could be said for the net-zero goals of food and drinks companies, most of whose Scope 3 emissions arise from farming. The solution lies in expanding agriculture over already-cleared lands, along with what’s known as sustainable intensification – using less land to raise more livestock and produce more crops, while employing nature-friendly methods. The technology exists – what’s lacking is sufficient investment and incentives tailored to the needs of farmers seeking to adopt these practices. But, with initiatives such as IFACC, that is beginning to change. IFACC signatories play a critical role in designing financial solutions to support farmers in transitioning to sustainable, regenerative agriculture models, and raising capital from investors seeking returns from deforestation-free land use. These financial products include farm loans with generous grace periods and repayment conditions, capital markets offerings, corporate debt instruments and carbon-based structures.
▲ Cattle grazing in Brazilian Rainforest. © Markus Mauthe / Greenpeace
What these products offer, which hasn’t been possible to date, is the opportunity to drive sustainable agricultural models across the region at a meaningful scale. Syngenta, for example, is implementing the Reverte programme with a goal to regenerate one million hectares of degraded pastureland in the Cerrado on which to plant soy. Syngenta is working with financial partners to offer loans to farmers that can be repaid over 10 years with three-year grace periods at attractive interest rates. Syngenta shares a portion of the lending risk and the farmers use the money to restore soils and invest in new infrastructure and machinery. So far the programme has extended $52 million of loans for agricultural expansion over 60,000 hectares of degraded pastureland. The result is a four-way win: increased food production, reduced conversion, more emissions avoided and less biodiversity loss. The Cerrado is also host to another type of financial product – dollar-denominated Certificates of Agricultural Receivables (CRAs). Registered on the Vienna stock exchange, these are low-interest, one-year loans extended to 32 soy farms committed to protect their forest cover beyond Brazil’s legal requirements. The project’s initial offering of $11 million in 2022 is led by the Responsible Commodities Facility, which is supported by – among others – three major UK supermarkets. In its first year, all of the participating farms maintained their forest cover, including the portions they could legally clear, and RCF is now working to raise additional capital to scale the program.
▲ Aerial view of the Amazon Rainforest, near Manaus, Amazonas. Brazil. © Neil Palmer/CIAT
The exciting news is that Santander Brasil, one of Brazil’s largest privately-owned banks, became the first bank to sign up to IFACC – at the end of 2022. “We have a net-zero commitment and we want to support our clients who are also pursuing these goals,” explains Leonardo Colombo Fleck, head of sustainable innovation at Santander. Fleck says many of the bank’s clients are part of the food and agriculture supply chain and need support to make the transition to sustainable operations. “IFACC offers a great platform for peer-to-peer learning and collaboration to design financial innovations that help reduce deforestation in major commodity chains”, he adds. From his perspective in Brazil, Fleck says the key thing is to incentivise farmers to protect forests in a way that goes beyond simply what the law requires. Santander plans to establish partnerships with agtech, trading companies, technical assistance companies and financial institutions to develop blended finance mechanisms that incentivize farmers to protect the forests beyond what the law requires. Santander Brasil is also engaged in other initiatives to reduce forest loss and regenerate forests. In 2022, it launched Biomas with other major shareholders – a forest carbon company that aims to protect and restore 4 million hectares of forests across Brazil through generating high-quality carbon credits that benefit both local communities and their ecosystems. Fleck is cautiously upbeat: “The prevailing price for carbon credits is enough to offset most of the income generated by cattle ranching”, he says, “though it’s much harder for soy which is highly profitable.” But important challenges remain. In the Amazon, more than 50 million hectares are undesignated public lands. There is where land grabbers and carbon cowboys play their game, in detriment to the companies trying to do the right thing. Many carbon projects have been developed in lands with insecure or disputed tenure rights and with little respect to the rights of local communities. Addressing these challenges and raising the bar of voluntary carbon crediting schemes will be critical for Brazil to realize the full potential of forest carbon markets.
Many carbon projects have been developed in lands with insecure or disputed tenure rights and with little respect to the rights of local communities
TNC’s Greg Fishbein echoes this supportive approach. It’s not enough for supply chains or governments to put restrictions and sanctions on farmers without also supporting them in changing their practices, especially given that global demand for soy and beef is growing. “We need leading banks, supply chain companies and asset managers to see the opportunity to provide finance for farmer transitions”, he says. These producers need patient capital, since a return on investment in pasture recovery and raising agricultural yields can take a decade or more. “So to support farmers in their transition”, says Fishbein, “we need partners to share the risk and provide capital with longer tenors and other attractive terms. We need a shift in the way big players are financing farmers – that’s what IFACC’s all about.”
We need a shift in the way big players are financing farmers – that’s what IFACC’s all about.
▲ Cattle in Orinoquía. © 2021 Alliance Bioversity International & CIAT/ Juan Pablo Marin García
