The initiative, operated by Sustainable Investment Management (SIM), was set up to promote deforestation and conversion-free (DCF) soy cultivation in Brazil by incentivizing farmers in the Cerrado region to preserve forests they could otherwise legally clear.
The RCF utilizes commercial finance to help soy growers transition to climate-friendly production methods. Participating farmers agree to refrain from legally converting the remaining vegetation on their land and adhere to strict environmental and social criteria. In return, they benefit from low-interest loans provided through the program.
The scheme is funded through green bonds, specifically Agribusiness Receivables Certificates (CRAs in Portuguese), which are listed on the Vienna Bourse and B3 Brazilian Stock Exchange. In its second year, the program attracted US$47m in investment through a blended finance structure, welcoming new investors, including Santander Brasil, Rabobank, and AGRI3, alongside UK supermarkets Tesco, Sainsbury’s, and Waitrose.
The initiative has also seen farmer participation increase, with the number of farms having jumped from 32 to 122, according to the report. Those farms contributed 180,221 tons of verified DCF soy to the supply chain, conserving 43,324 hectares of native vegetation, including 11,346 hectares beyond the legal reserve requirement, double the initial target. This conservation effort also protected 18.2 million tons of CO2 stored in the native vegetation.
The RCF offers finance to mid-sized soy farmers. "The eligibility criteria ensures compliance with the Forest Code and also covers land titles."
Further scaling
The program aims to expand its funding to US$200m by next year. “In 2025, the RCF will see a dramatic scaling of resources primarily due to investment commitments in process from public sources including national government programs and multilateral development banks,” Pedro Moura Costa, CEO of SIM, told FeedNavigator.
Additional investments from companies in the soy supply chain—such as fast-food chains, manufacturers, and supermarkets—are also anticipated to bolster this growth, he remarked.
Scrutiny of CRAs
Responding to the recent scrutiny surrounding CRAs and the potential for greenwashing, Moura Costa outlined the additional transparency steps taken: "The Green CRAs issued to capitalise the RCF obtained a Second Party Opinion (SPO) from environmental advisory firm, ERM-NINT, earlier this year. The SPO concluded that the Cerrado Program is in alignment with both the Green Bond Principles (GBP) of the International Capital Market Association (ICMA), and the Green Loan Principles (GLP)."
The impacts of the RCF are monitored, verified, and independently verified by different parties, to ensure consistence, independence, and transparency of results; experts from organizations such as The Nature Conservancy, the UN Environment Programme, and Conservation International review the program’s management, he said.
If a farmer participant clears forested land, they face substantial fines and expulsion from the program, added Moura Costa.
Program modifications
This crop season was difficult for agriculture globally, and in particular in Brazil. The changing climate, exacerbated by El Niño, has resulted in more severe heat and lower precipitation than normal in the Cerrado region, reported SIM. The reduced and delayed rainfall and very hot conditions forced some farmers to plant late or replant their crops, reducing soy yields for some Brazilian farmers by up to 40% in relation to previous years.
“These environmental challenges, coupled with a significant reduction in soy prices over the last year have, unfortunately, resulted in some of RCF farms missing the repayment deadline. Additionally, a case of conversion of native vegetation was identified in one of the farms financed, covering an area of 99.5 hectares (0.09% of the total area of the program). This participant was expelled from the RCF and subjected to a fine of 15% of the amount loaned,” reads the publication.
The program has been adjusted to take account of weather related challenges in the future:
"El Niño has reinforced the need to be cautious, and so we have lowered the maximum loan size, expanded geographical coverage, reduced concentration, and implemented stricter eligibility checks," confirmed Moura Costa.
How does the RCF stack up against other programs?
Reflecting on how the Cerrado program measures up to similar initiatives globally, the SIM lead said a distinctive feature of the RCF is that it allows food producers and retailers to directly invest in sustainable production. The involvement of major banks has increased the program’s financial impact by 400%, he continued.
Unlike grant-funded initiatives, which may cease when funding runs out, RCF offers a sustainable model by securing long-term legal protection for forests, added Moura Costa.
