Febraban: deforestation is a climate challenge – 05/30/2023 – Market

The self-regulation measure announced this Tuesday (30th) by Febraban (Brazilian Federation of Banks), which aims to check whether slaughterhouses have purchased cattle from deforested areas, was justified by the entity as a sector reaction to concerns about climate issues. involving the country.

The change occurs in a context in which economic agents have been pressured by investors to prove good environmental practices.

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.

The self-regulation protocol was approved by the Self-Regulation Council 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.

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. “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.

According to the federation, 21 financial institutions have already adhered to self-regulation, and the number of adhesions should soon increase.

The BNDES (National Bank for Economic and Social Development) recently had its name approved by Febraban’s governance to join its membership and is currently in the process of consolidating its membership of the entity’s technical forums.

The development bank will join Febraban’s socio-environmental self-regulation, as well as adhere to protocols for managing the risk of illegal deforestation in the country’s meat chain.

In response to the protocol, the association of meat exporters stated that it does not accept that “other sectors outsource their responsibilities”.

“We assume our responsibilities, but we do not accept that other sectors outsource their responsibilities to slaughterhouses”, said the Abiec (Brazilian Association of Meat Exporters) in a note.

The association also demanded that the demands laid down by the banks to the slaughterhouses be adopted “to all their account holders”.

In an interview with Sheet in August 2022, Idec’s Financial Services Program researcher, Fábio Pasin, stated that the level of commitments assumed by large Brazilian banks was still very timid. Idec has a team responsible in the country for the Responsible Bank Guide, which assesses the socio-environmental commitment of the eight largest Brazilian banks.

In a scenario of growing concern in developed economies with sustainability, the European Parliament, which creates the laws that will be applied by the 27 countries of the European Union (EU), approved in April a rule that prohibits the sale on the continent of products derived from deforestation in forests.

It’s not just about the felled wood. Any crop that uses places where there has been illegal deforestation, such as in the Amazon, will be subject to purchase sanctions by EU countries.

According to Febraban’s sustainability director, Amaury Oliva, the sustainability agenda is not new within the financial sector, which over the last few years has already adopted measures to improve environmental controls for granting credit.

In July 2020, the three largest private banks in Brazil —Santander, Itaú and Bradesco— launched the Plano Amazônia, an initiative that aims to curb deforestation in the biome and contribute to the sustainable development of the region.

Asked if the sector intends to expand self-regulation to other fronts that also impact the environment, Oliva says that the development of sustainable practices is a “permanent evolution work”, which tends to spread to other fronts such as mining and oil, but which still there is no set schedule for this.

“This is an agenda that is convergent and involves the entire banking sector, customers, the government. Everyone wants a more sustainable environment, directing resources and efforts towards an increasingly green economy”, says the director of Febraban.

Financial institutions already needed to comply with some legal requirements when granting credit to rural producers and agro companies. The Central Bank, for example, has resolutions that create impediments for people with environmental irregularities and undertakings that overlap indigenous lands, conservation units or quilombola communities.

The victory of President Luiz Inácio Lula da Silva (PT) had been received with some relief by international private capital, due to the expectation of a change in management compared to the last years of Jair Bolsonaro’s (PL) administration.

The Nordic asset manager Nordea Asset Management, for example, removed Brazil’s bonds (fixed income securities) from its internal list of restrictions in November last year after Lula promised to protect the Amazon rainforest.

“Following positive pledges by President-elect Luiz Inacio Lula da Silva following his election victory on Sunday, Nordea’s veto of Brazilian government bonds has been lifted, effective immediately,” Nordea said in a statement at the time.

In an interview with Sheet in November 2022, Thede Rüst, manager responsible for the area of ​​debt securities for emerging markets at Nordea Asset Management, stated that the track record of President Lula gave comfort to the manager for the decision to lift the investment restriction related to Brazilian government bonds .

However, this excitement has been cooling down in recent days, with the clash between Petrobras’ intention to explore for oil in the Foz do Amazonas region and the Minister of the Environment, Marina Silva.

BB auctions properties with possibility of payment in carbon credits

As part of the banking sector’s efforts to encourage sustainable activities, BB (Banco do Brasil) announced this Monday (29) the launch of the first auction notice for rural properties with the possibility of partial or full payment in carbon credits.

The bidding phase is now open, and the dispute session will be online, at 2 pm on June 7th.

There are six properties –located in Goiás, Mato Grosso, Mato Grosso do Sul, Paraná and Santa Catarina–, with discounts of up to 55% in relation to the market value. Those interested, individuals or legal entities, must register on the website of the official auction house of BB, www.lancenoleilao.com.br, up to 24 hours in advance of the dispute.

The purchase can be made 100% online, with payment in local currency; currency and carbon credit certificates; or wholly in carbon credits. These will be accepted at a maximum unit value of BRL 88.27 in both possibilities.

Carbon credits must be generated according to standards and terms recognized by the regulated market or the voluntary market, such as the Verified Carbon Standard.

“Rural assets now have the new payment method, which aims to encourage the carbon credit market as a way of supporting the country’s sustainable development,” BB said in a statement.

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Understand what banks are demanding

What does Febraban’s self-regulation establish for the beef chain? Brazilian banks, when offering credit to slaughterhouses and slaughterhouses, will have to comply with a protocol with common minimum requirements to combat illegal deforestation. The new rules determine that banks ask their slaughterhouse customers, in the Legal Amazon and Maranhão, to implement a traceability and monitoring system that allows demonstrating, by December 2025, the non-acquisition of cattle associated with illegal deforestation from direct suppliers. and indirect. In order to promote the adoption of these practices, financial institutions will also define the adequacy plans, incentives and applicable consequences.

Are there consequences for non-compliance with the regulations? Banks that adhere to self-regulation undertake, on a voluntary basis, to follow standards of conduct and will be periodically supervised, with the possibility of being punished in case of non-compliance. Proof of compliance occurs through compliance reports and submission of evidence. In case of non-compliance, the bank may respond to administrative procedures, which may include signing a conduct action plan; the payment of fine; the suspension of participation in the Banking Self-Regulation System, the suspension of the use of the Self-Regulation Seal and the suspension of the term of office of its Board Member on the Self-Regulation Board; and the exclusion of its participation in the Banking Self-Regulation System.

Is there a channel for complaints about non-compliance with the regulations? Febraban’s self-regulation has a channel called “Conte Aqui”, through which any non-compliance with the regulations by the signatory financial institutions can be reported. The complaint will be evaluated and may form part of the self-regulation monitoring and supervision plan.

Why the December 2025 date for slaughterhouses to implement a traceability system? According to Febraban, the date of December 2025 is in line with commitments made by some of the large slaughterhouses to monitor their suppliers and with public commitments from banks.