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Brazilian and international banks financing global deforestation: Reports

  • According to a new report, some of the world’s biggest Brazilian and international banks invested US$153.2 billion in commodities companies whose activities risked harm to forests in Brazil, Southeast Asia, and Central and West Africa since 2016 when the Paris Climate Agreement was signed.
  • These investments were made primarily in forest-risk commodities companies that include beef, soy, pulp and paper, palm oil, rubber and timber producers. The big banks are failing to scrutinize and refuse loans to firms profiting from illegal deforestation, said several reports.
  • Banco do Brasil offered the most credit (US$30 billion since 2016), for forest-risk commodity operations. BNDES, Brazil’s development bank, provided US$3.8 billion to forest-risk companies. More than half of that amount went to the beef sector, followed closely by the pulp and paper industry.
  • “Financial institutions are uniquely positioned to promote actions in the public and private sector and they have an obligation with their shareholders to mitigate their growing credit risks due to the degradation of natural capital and their association with industries that intensively produce carbon,” said one report.
The headquarters of BNDES, Brazil’s National Social and Economic Development Bank which provided US$3.8 billion to forest-risk companies from 2016-2020, according to a recent report. Image courtesy of BNDES.

“Environmentalist psychosis”: Those are the words used by Brazilian President Jair Bolsonaro in June 2019 to describe the world’s growing concern over his nation’s escalating devastation of the Amazon rainforest. He coined the derisive phrase during the G20 Summit in Osaka, Japan, as he celebrated the clinching of the US$19 trillion trade agreement — the world’s biggest ever — between Mercosur, the South American trade bloc and the European Union.

Not perhaps the most diplomatic of pronouncements, given the parties involved. Sixteen months later, far from being signed, the Mercosur-EU agreement has turned sour. A key reason: Europeans’ deep concern over rapidly escalating Amazon deforestation, which they fear threatens the survival of industrial civilization.

With Amazon forest clearance rampant, and fires at their highest level on record, Members of the European Parliament (MEPs) are in no mood to be associated with one of the world’s leading environmental despoilers. France and other EU nations have signalled their willingness to scuttle the trade deal, rejecting ratification for now.

Public declarations from international institutional investors, and expressions of mounting concern from Brazilian business groups, as well as past finance ministers and Central Bank presidents are all adding to the outrage over Amazon destruction.

But, all this criticism is apparently falling on deaf ears in Brasilia.

However, amid all the finger pointing at Bolsonaro, one arguably culpable group has gone largely unnoticed: some of the world’s big banks have been investing billions in companies — such as beef, soy and paper producers — whose activities can be linked to large scale and ongoing deforestation in the Brazilian Amazon.

Despite all the external pressure, and investment institutes’ own rhetoric about environmental responsibility, some of the largest Brazilian and international banks have invested no less than US$153.2 billion in companies whose activities risked causing damaging to forests in Brazil, Southeast Asia, Central and West Africa since the Paris Climate Agreement was signed in 2016.

The data comes from a study recently published by Forest & Finance (F&F), a coalition of international socioenvironmental campaign and research organizations, including Rainforest Action Network, TUK INDONESIA and Amazon Watch.

Although the Forest & Finance report doesn’t directly accuse any of the companies financed by the banks of violating Brazil’s environmental legislation, the report suggests that Brazilian financial institutions contributed about US$52 billion and the United States, about US$12 billion , to forest-risk companies.

While the F&F report names banks, it does not specifically name commodities companies linked to criminal deforestation. Mongabay attempts here, through its own investigation, to make some of those bank-commodities company connections — naming names.

Loans & Underwriting by Country of Origin (2016-2020 April): Trends in loans and underwriting facilities from banks and investors to forest-risk sector companies, based on their country of origin. These findings are based on research carried out by using this methodology to identify corporate loans, credit and underwriting facilities provided to the selected companies. Image courtesy of Forest & Finance.

Banks funding Amazon deforestation

Another related report, entitled Complicity in Destruction III, was jointly published on 27 October by the Articulation of the Indigenous People of Brazil (APIB) and the non-profit, Amazon Watch.

The document showed that six major US-based financial institutions provided funds topping US$18 billion to companies “linked to conflicts on Indigenous lands, illegal deforestation, land grabbing, the weakening of environmental protections, and the production and export of conflict commodities.” The six firms included two of the world’s largest investment management corporations (BlackRock and Vanguard), three leading banks (Citigroup, J.P.Morgan Chase and Bank of America) and a private investment firm (Dimensional Fund Advisors).

Among other cases, the report showed how Cargill, the large U.S. commodities company, had registered as potential suppliers ten agricultural producers, cultivating crops within, or on the edge of, land long claimed by the Munduruku Indigenous group in the Planalto Santareno region of Pará state. Despite being a signatory to the Amazon Soy Mortorium, and claiming that around 95% of its 2018-2019 harvest was free of deforestation, Cargill was, according to the report, the trader “with the largest area of soy fields belonging to farms connected to illegal deforestation in the [Brazilian] state of Mato Grosso.”

Daily life on a cattle ranch in the Brazilian Amazon. Large Brazilian and international banks have offered extensive financial support to beef processing companies like Brazil’s JBS. Image © Erik Lopes courtesy of The Nature Conservancy.

Brazilian banking plays leading role in deforestation

It is not just international banks that are funding economic activities linked to deforestation. As the F&F report shows, Brazil’s own financial institutions are providing the bulk of the loans to forest-risk commodity operations, especially in the Amazon.

Of all the banks cited by F&F, Brazil’s state-owned Banco do Brasil, the largest bank in Latin America, was found to have provided the most credit (US$30 billion since 2016), to forest-risk commodity operations.

When contacted by Mongabay, Banco do Brasil said it was “taken aback” by the allegation that it was facilitating deforestation. The bank said the report didn’t consider “our robust evaluation processes before granting loans, which are aligned with the best international practices, principally with respect to the social-environmental dimensions.” Banco do Brasil also said there is a discrepancy between its own figures and those published in the report.

On the investment side of things, another Brazilian bank, the National Social and Economic Development Bank (BNDES), also tops the list. This gigantic development bank — known for its past funding of the corrupt Belo Monte mega-dam project in the Amazon — was, according to the F&F report, the largest provider of investments to forest-risk companies, supplying US$3.8 billion. More than half of that amount went to the beef sector, followed closely by the pulp and paper industry. Repeated attempts by Mongabay to get a response from BNDES went unanswered.

BNDES investments deserve special attention for one key reason: the public bank holds 21.32% of the total capital of JBS, the world’s largest meat exporter and a company repeatedly proven to play a major role in illegal deforestation in Brazil. In 2017, the company was accused by IBAMA, Brazil’s environmental agency, of buying 49,438 head of cattle from embargoed areas, that is, from areas where the ranchers have already been fined by the government for rearing animals on illegally deforested land. At the time, JBS received R$24.7 million (US$7.7 million) in fines.

In a separate report from June of this year, Greenpeace showed that JBS, along with two other meatpacking firms, — Marfrig and Minerva, in which Morgan Stanley, an American transnational investment bank, has a stake — bought cattle from livestock owners with cattle ranches located inside a protected area in Mato Grosso state, (the Serra de Ricardo Franco State Park, which includes areas from three biomes: the Amazon rainforest, Cerrado savanna, and Pantanal wetlands).

Deforestation risk of Brazil’s 5 top beef exporters. Image courtesy of Trase.

As is common in Brazil, the cattle were “laundered” by being transferred to a “clean” ranch, not associated with deforestation, just before being sent to a JBS slaughterhouse. This laundering scheme, which could easily be remedied by tagging cattle at birth and electronically tracking them through multiple sales, is allowed to continue due to legal loopholes which the Brazilian government refuses to close. This control is especially relevant because the F&F study shows that the cattle and beef sector attracted 43% of the bank loans, becoming the sector with the greatest risk of causing environmental damage.

The Federal Public Ministry (MPF), a group of independent litigators in Brazil, has in the past tried to hold big banks to account. In 2011, the MPF filed an action against the Banco do Brasil and the Banco da Amazônia (BASA) for providing credit to ranches in Pará state found to have violated environmental regulations and to have employed slave labor. The MPF was not successful in its suit, but has since appealed.

Though the Forest & Finance report doesn’t directly accuse any of the companies financed by the banks of violating Brazil’s environmental legislation, Daniel Azeredo, a public prosecutor, argues that the banks need to improve their controls over the loans they grant. Indeed, many independent analysts have provided data suggesting that the present environmental appraisals made by the banks when approached for credit are ineffective.

Top 15 global investors financing forest-risk companies in Brazil, Southeast Asia, and Central and West Africa since the Paris Climate Agreement was signed in 2016. Image courtesy of Forest & Finance.

Deforestation tracking readily available to banks

Banks have no technical excuse for not better scrutinizing supply chain-related deforestation. Due to huge technological advances made in recent years, methods now exist to easily detect illegal forest clearance and identify those carrying it out.

Daniel Azeredo helped launch Amazônia Protege, a project conceived by the Federal Public Ministry to combat illegal deforestation in the Brazilian Amazon. Amazônia Protege compares the land that property owners claim to own with satellite deforestation images from PRODES (Programa de Cálculo do Desflorestamento da Amazônia, the Program for the Calculation of Deforestation in Amazônia). PRODES is run by INPE, Brazil’s space agency.

When Amazônia Protege detects alleged crimes, it then prosecutes those responsible for illegal deforestation of more than 60 hectares (148 acres). Since Amazônia Protege was created three years ago, it has carried out over 3,500 prosecutions.

An enthusiastic advocate of high tech, Azeredo believes that the big banks could, and should, follow suit. “The banks could use satellite images as Amazônia Protege does,” he says, to detect ranches where land has been illegally cleared. In the case of cattle rearing, he adds, another approach could be adopted — track the cattle electronically and via documents to detect where they were born, who bought and sold them, and when they have been “laundered.”

The adoption of these technological innovations is also a recommendation made by the Igarapé Institute, a Brazilian think tank, in a recent report. It says that it is now possible for banks to carry out thorough environmental background checks on their clients before they authorize loans.

For soy, it says, the banks could use the government’s digital land registry system, CAR, to establish the size and location of properties, and then verify whether or not illegal deforestation is occurring by using satellite images provided by MapBiomas, the Brazilian Annual Land Mass and Land Cover Mapping Project.

But, before any of this can happen, the Igarapé Institute study says, the federal government’s CAR itself must be cleaned up. The study explains: “As its data is not public, CAR, a land registry in which property owners themselves declare the land they own, suffers from the lack of transparency of its data and the lack of verification of the information.”

Igarapé Institute estimates that about 30% of the land ownership registrations made at CAR are fraudulent and that up to 10,000 registered properties are superimposed illegally atop land occupied by Indigenous or traditional communities. For ranching, the Igarapé Institute says it would be relatively easy to clean up existing tools and make them effective instruments for detecting illegal deforestation.

The study lays the blame for tracking lapses firmly at the door of the federal government, saying that some big companies, like Marfrig, JBS and others, are keen to clean up their environmental record as they fear suffering consumer boycotts and national reprisals abroad — and rightfully so, considering the precarious state of the Mercosur trade agreement.

Beef deforestation per municipality shown for all Brazilian biomes. While it is well known where cattle-driven-deforestation is happening, the Brazilian government has long resisted the technologically easy task of tracking cattle electronically and via paperwork from birth on ranches where deforestation has occurred, to “laundering” ranches where no deforestation has occurred, and then to slaughterhouses. Image courtesy of Trase.

Critics: Banks need to take responsibility and act

Given the reluctance of the Bolsonaro government to push through tougher environmental regulations, analysts suggests that the ball is now in the court of the big banks. To prevent Brazil and its commodities from being blacklisted, lenders need to put pressure on companies to be responsible, and provide evidence that the nation is cleaning up its environmental act.

Others are putting on pressure. Brazil’s Public Ministry, for example, has repeatedly called on FEBRABAN (Federação Brasileira de Bancos, or the Brazilian Bank Federation), which represents the country’s banks, to scrupulously examine deforestation data and a company’s record on illegal deforestation before authorizing loans. But the MPF has had little success so far. When Mongabay contacted FEBRABAN, it responded that its procedures are already satisfactory: “FEBRABAN and the banks associated to it, treat environmental protection as a central element in the concession of loans and do not tolerate in any way illicit acts.”

Still, there is some progress. Rabobank, the world’s largest food and agribusiness sector bank, has incorporated MapBiomas data into its loan approval process. But there have also been setbacks, with other banks taking little action to red flag companies active in deforestation.

According to federal prosecutor Ubiratan Cazetta, one of the main problems is that “the financial system benefits from many of the problems we face today.” One example; deforesters need large and costly loans to purchase the expensive equipment required to access and cut trees. But, said Cazetta, banks cannot wash their hands of responsibility: “If the bank is funding an environmentally irresponsible activity and doesn’t question the documents, it is in the field of environmental responsibility for the damage generated.”

But here too there is some good news for the environment. Cazetta said: “The financial system itself seems to have become aware of the situation, as three of the largest private banks in Brazil (Itaú, Bradesco and Santander) have announced a plan for sustainable activities and have even taken part in a public hearing in the Supreme Federal Court (STF) at the end of September about environmental issues.”

Even so, Cazetta believes it will be a long struggle. “Today it’s in the interest of some sectors to question the credibility of the [satellite] images. Discrediting DETER [INPE’s Detecção de Desmatamento em Tempo Real, Deforestation Detection in Real Time, which provides actionable deforestation alerts] is part of a process. If you question everything, you can end up just doing what is in your own interest.” The Bolsonaro administration has repeatedly attacked and undermined INPE and its deforestation satellite monitoring, though the system is considered to be among the best in the world.

Reiterating what many scientists say, the Igarapé Institute report agrees there is little time left. It states: “Amazonia is reaching a critical point. If we don’t act, the Amazonian biome and our global climate will suffer irreversible damage, with a severe impact not only on local communities but also on entire industries in the regions of Amazonia and the Cerrado.”

Banner image: attle ranching is the leading cause of deforestation in the Brazilian Amazon. Photo credit: Eduardo Amorim on Visualhunt / CC BY-NC-SA.

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Construction of Brazil’s controversial Belo Monte mega-dam largely financed by Brazil’s BNDES development bank. While the Forest & Finance report evaluated bank investments for forest-risk commodities industries, it did not evaluate investments in infrastructure (dams, roads, railways, industrial waterways, etc.) or mining, all of which contribute significantly to global and tropical deforestation. Image courtesy of International Rivers.