Loans have been made to all participants who are now planting soybeans on their properties.
“We are confident of the success of this initiative and are committed to expanding it to a much larger scale,” commented Pedro Moura Costa, CEO of Sustainable Investment Management Ltd (SIM), which runs the RCF.
Pilot phase
UK supermarkets, Tesco, Sainsbury’s and Waitrose, have invested US$11m in what is the proof of concept, pilot phase of the RCF.
That funding is providing finance to 36 farms in the Cerrado region of Brazil over four years. Those farmers produce 75,000 tons of soy per year. This stage of the scheme, said SIM, will result in the conservation of around 11,000 ha of native vegetation, 4,200 in excess of legal reserves.
All farms in the trial stage are located in the Matopiba, Goiás and Mato Grosso regions of the Cerrado, areas at risk of deforestation and biodiversity loss.
Moura Costa said the hope is the 12-month trial stage will provide valuable insight into how the mechanism works in practice on farms and inspire other organizations and businesses to lend their support, so that the facility will be able to provide low-interest crop finance to a significantly higher number of farmers in Brazil.
Getting off the ground
While the financial facility was initially launched in 2019, it was put on the backburner for around two years due to a lack of a conducive environment on the ground in Brazil, post Bolsonaro’s election, and also as a result of the COVID-19 pandemic, Moura Costa told this publication.
Momentum built again last year, with November 2021 seeing the relaunch of the RCF – the three UK supermarkets had participated in the design of the scheme to ensure it could address their environmental objectives.
Tesco, Sainsbury’s, and Waitrose invested the $11m via green bonds at the end of July/early August this year, and the loans were subsequently issued to the farmers in Brazil.
Financing model
The initiative is financed through a first of its kind approach: dollar-denominated green bonds (CRAs – Certificates of Receivables from the Agribusiness) registered in the Vienna Bourse.
The capital raised is used to offer low interest loans to farmers who comply with its eligibility criteria, and commit to zero deforestation of native vegetation, over and above their legal reserves, preventing negative climate impacts and loss of habitat.
Review
SIM said the environmental management of the RCF will also be reviewed by an independent environmental committee composed of the UN Environment Program (UNEP), The Nature Conservancy (TNC), BVRio, WWF, Conservation International (Brazil), Proforest and Instituto de Pesquisa Ambiental da Amazonia (IPAM).
Commenting back in August, when the relaunch of the scheme was announced, Susan Gardner, director, ecosystems division at UNEP, said practical financial solutions like the RCF incentivize farmers to decouple commodity production from deforestation and land conversion practices, leading to enhanced landscape restoration, climate mitigation, adaptation, and biodiversity protection in line with the UN SDGs.
She urged the companies that have signed up to the Cerrado Manifesto SoS to materialize their commitment through funding this facility.
Greg Fishbein, director of agriculture finance at TNC, said the RCF will create tangible climate and biodiversity impacts by offering farmers who can legally clear their forests a clear financial incentive not to do so. “This is exactly the type of mechanism we envisioned when we created IFACC – one that can leverage commercial finance to support farmers in their transition to climate-friendly production models.”
