Banks will deny credit to slaughterhouses linked to deforestation – 05/30/2023 – Market

Brazilian banks will start checking whether slaughterhouses have purchased cattle from deforested areas in the Legal Amazon and in the rest of Maranhão before approving credit requests.

The protocol was approved by the Self-Regulation Board of Febraban (Brazilian Federation of Banks), formed by representatives of eight banks —Itaú Unibanco, Banco do Brasil, Banco Votorantim, BMG, Bradesco, Caixa Econômica Federal, Daycoval and Santander.

According to the federation, 21 financial institutions adhered to the text (see the complete list at the end of the text).

The news was anticipated, this Monday (29), by the newspaper O Estado de S. Paulo.

In order to comply with the new rules, approved in March, the participating banks will have to request that slaughterhouses in the area in question implement a traceability and monitoring system. This will make it possible to verify that the establishment has not purchased cattle associated with illegal deforestation from direct and indirect suppliers.

The businesses involved will have until December 2025 to comply.

This program will include information on the animals’ properties, such as environmental embargoes, overlaps with protected areas, identification of deforestation polygons, authorizations to suppress vegetation and the CAR (Rural Environmental Registry).

The system will also include verification of the records of employers who have subjected workers to conditions analogous to slavery.

Financial institutions now need to define appropriate plans, incentives and applicable consequences for slaughterhouses.

Febraban also defined performance indicators, to be disclosed by the slaughterhouses on a periodic basis.

The measure is in accordance with the best practices in the meat chain, according to Febraban’s sustainability director, Amaury Oliva. Cattle tracking is pointed out by experts as the main tool for Brazil to reduce forest clearing.

Still according to Oliva, there are a series of obstacles for traceability to reach producers in the initial stages of the supply chain. “That’s why we started with the direct suppliers of slaughterhouses and the first level of indirect ones, which already demonstrates progress, and we defined some alternative mechanisms, for example for small businesses.”

From the perspective of banks, financing activities associated with deforestation can increase credit, reputational and operational risks. In recent years, global economic actors have criticized deforestation in the Amazon.

According to Febraban, the current rule deals with social, environmental and climate risk management and responsibility policies. The last version of the document was revised in 2020 and is now undergoing a new update, to be completed in 2023.

“Banks that adhere to self-regulation undertake, voluntarily, to follow even higher standards of conduct and are periodically supervised, and may be punished in case of non-compliance”, says a statement from the entity.