Today, Sustainable Investment Management Ltd (SIM) launched The Responsible Commodities Facility, a 2017-2018 Lab instrument, at London Climate Action Week. The instrument will supply international markets with a different class of soy that is not linked to any deforestation (including legal) in the Brazilian Cerrado. It aims to channel low cost loans to 600 farms, redirecting agricultural production towards lands already cleared from native vegetation and degraded pasture lands. The financial facility was developed within the Brasil Innovation Lab for Climate Finance and was endorsed by the Lab in 2018. From the announcement:
The Responsible Commodities Facility, unveiled at the London Stock Exchange, plans to provide low-interest credit lines to Brazilian soy and corn farmers who commit to using abandoned pasture lands, and avoid clearing forests and native grassland for agriculture. For farmers, the initiative will offer an important complement to official credit lines, at a moment when the Brazilian government has reduced the volume of subsidised agricultural finance.
The facility is expected to provide US$1 billion over the next four years to fund the production of more than 180 million tonnes of responsible soy and corn, worth around US$43 billion over the next decade. The investment will contribute to national targets of agricultural expansion into currently underutilised land, and the first US$300 million bond issuance is planned for the planting season of 2020. Over the same period, the facility plans to restore and protect 1.5 million hectares of natural habitat in Brazil’s Cerrado, or savanna, leading to an estimated emissions reduction of 250 million tonnes of carbon dioxide.
“Global demand for soy is showing no sign of slowing down, and as a result, is leading to a continuous expansion of the area under cultivation in Brazil,” said Shaun Kingsbury CBE, Chairman, Sustainable Investment Management Ltd (SIM). “By re-directing soy expansion onto degraded cattle pastures, the Responsible Commodities Facility will help reverse the current practice of land clearance, reduce carbon emissions and promote compliance with the Brazilian Forest Code and other social and environmental laws.”
Almost 18 million hectares of degraded pasture land could be used for soy production in the Cerrado region alone, which is three times more land than the sector will need over the next decade.
Making greater use of cleared land would also help bring down emissions linked to deforestation for agriculture, which currently results in estimated emissions of 1.1 billion tonnes of CO2 equivalent per year, or 51 per cent of Brazil’s greenhouse gas emissions. Brazil has pledged to reduce emissions by 43 per cent by 2030, with almost 90 per cent of this reduction expected to come from reduced deforestation, yet existing funding mechanisms are unlikely to help meet this target.
“The Responsible Commodities Facility is an opportunity for the market to ensure increased production without contributing to land clearance, which is resulting in the loss of natural habitats, loss of biodiversity and greenhouse gas emissions.” said Pedro Moura Costa, CEO, SIM. “This combination of innovative financial tools, increased transparency and traceability, and a focused effort on compliance with strict guidelines, has the potential to accelerate the growth of responsible commodities.”
To participate in the facility, producers will be vetted according to eligibility criteria based on commitments to protect Cerrado vegetation and compliance with national legislation. Adherence to these commitments will be independently verified by external companies, and overseen by an Environmental Committee of producers, buyers, NGOs and financial organisations. A Responsible Commodities Registry will keep records of the volumes and source of responsible commodities produced, as well as trace the ownership of these commodities along the supply chain.
“There is today widespread consensus that agricultural production in Brazil can be achieved without the need for additional deforestation or conversion of natural habitats,” said Greg Fishbein, Director, The Nature Conservancy.
“Despite market signals and growing consumer demand for sustainable products, there remains a need to create incentives to engage farmers and traders in the production of responsible commodities”, commented Mauricio Moura Costa, COO, SIM. “The objective of the Facility is to provide these incentives and to assist in the process of financing the expansion of soy cultivation in a responsible way, aligned with the objectives of the country, the productive sector and its civil society”.
The facility is being created with support from the UK Government’s programme Partnerships for Forests and has a collaboration agreement with the UN Environment (UNEP) to develop effective Social and Environmental governance and monitoring frameworks.
The market-led scheme, which will be managed by Sustainable Investment Management (SIM), supports the Cerrado Manifesto, signed by 50 civil society organisations and nearly 150 consumer goods companies, to reduce deforestation from soy production.
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