Soy Bonds – Financial facility is ‘world’s first’ focused on investing in responsible soy farming on underutilised land in Brazil
A $1bn green bonds scheme described as the “world’s first” specifically focused on supporting sustainable soy production in Brazil is to launch at the London Stock Exchange today.
The Responsible Commodities Facility is expected to provide $1bn over the next four years to fund the production of more than 180 million tonnes of responsible soy and corn, worth around $43bn over the next decade, according to Sustainable Investment Management (SIM).
The finance firm, which will manage the market-let scheme, said the investment would contribute to national targets of agricultural expansion into currently underutilised land, with the first $300m bond issuance planned for the planting season of 2020.
The facility is designed 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, it explained.
With an aim of restoring and protecting 1.5 million hectares of natural habitat in Brazil’s Cerrado SIM estimates the scheme could cut emissions by around 250 million tonnes of CO2 equivalent.
“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, SIM chairman and former CEO of the UK’s Green Investment Bank. “By re-directing soy expansion into cleared areas, the Responsible Commodities Facility has the opportunity to revert the current clearance of existing habitats for agricultural expansion, while reducing emissions and promoting compliance with the legal reserve requirements of the Forest Code.”
The move comes amid growing pressure on Brazil’s habitats after hard-right politician Jair Bolsonaro became the country’s President in January, amidst promises he would relax environmental protection and open up parts forests and the Amazon to industry, agriculture, and logging.
Soy is a key global commodity widely used in feed for livestock in the meat industry, and Chinese demand for Brazilian soy has grown recently in the wake of its trade war with the US, another major global soy producer.
The situation has exacerbated environmental risks for firms and investors involved in the soy supply chain, prompting growing numbers of businesses – such as supermarkets Lidland Aldi – have sought to shore-up their responsible soy sourcing policies.
The new initiative hopes that by using currently underutilised land instead of clearing forests to make way for new agriculture production, backers of the bonds facility argue demand for Brazilian soy can still be met without any need for additional deforestation or conversion of natural habitats.
Almost 18 million hectares of degraded pasture land could be made available for soy production in the Cerrado region alone, which is three times more land than the sector will need for the next 10 years, according to SIM.
It estimates that making use of cleared land could also help bring down emissions linked to agriculture in Brazil, which currently accounts for around 1.1 billion tonnes of CO2 each year, or more than half of the country’s total greenhouse gases.
Pedro Moura Costa, SIM CEO, said there was a need to boost market signals and incentives to engage farmers and traders in sustainable commodity production.
“This combination of innovative financial tools, increased transparency and traceability, and a focused effort on compliance with strict guidelines, have the potential to accelerate the growth of responsible commodities,” he explained.
The green bonds scheme has the backing of the UK government’s Partnerships for Forests programme and has a collaboration agreement with the UN Environment Programme, as well as support from a raft of green groups, including US NGO the Nature Conservancy.
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, SIM explained. Adherence to these commitments will then be independently verified by external companies, and overseen by a committee of producers, buyers, NGOs, and financial organisations.
SIM has also promised to establish a Responsible Commodities Registry to keep records of the volumes and source of responsible commodities produced, as well as trace the ownership of these commodities along the supply chain.
It follows news earlier this week that the global market for green bonds continues to grow, hitting the $100bn issuance milestone over the first six months of 2019.
