Understanding how Brazilian banks finance agribusiness

This article was originally published in Portuguese in ECOA

By Fábio Machado Pasin, Researcher at Fair Finance Brazil member IDEC

Brazil is now among the main agricultural producers in the world, with large exports to China, the United States and the European Union. Managing to achieve this position on the global stage is accompanied by numerous public and private investments, but also socio-environmental costs that need to be incorporated into production chains. Deforestation is our main source of greenhouse gas (GHG) emissions, which, in 2021, was responsible for 49% of total emissions. Agriculture alone was the second largest source of greenhouse gas emissions, accounting for about 24% of the total. These two emission sources represent almost two-thirds of the total and are intrinsically connected. 

According to the  Biomas Map Annual Deforestation Report, which has just recently been published, 95.7% of the deforested area in 2022 was destined for agricultural exploitation. The study points out that 2,057,251 hectares of deforestation was recorded last year, with 58% of this area located in the Amazon and 32% in the Cerrado. The impacts of agriculture are mainly caused by the meat, soy and corn sectors. In this chain, we have livestock producers, responsible for raising animals and for making decisions regarding management practices, nutrition and animal welfare. Soybean and corn represent two of the largest crops in Brazil, with estimates indicating that 77% of the world's soy production is destined for the production of meat and dairy products.

The data on the main sources of emission demonstrates the high costs on the environment. In addition to the roles and responsibilities of rural producers, the agricultural and cattle-breeding chain must, however, be observed in an integral way. In this sense special attention needs to be paid to financial institutions, which influence the agricultural chain by allocating resources to production that aims at economic returns, either through the receipt of interest, valuation of assets or payment of dividends. Banco do Brasil alone, for example, is responsible for more than half of rural credit concessions in Brazil, with a portfolio of BRL 322.5 billion, as announced in its report on net income for the first quarter of 2023. 

Financial institutions also exert significant influence on meat-packing plants and slaughterhouses, the latter are actors in the production chain responsible for acquiring animals from agricultural producers and carrying out the slaughter and processing. In this case, in addition to offering lines of credit, there is an emphasis on the shareholdings of banks in these companies.

The company JBS, currently the largest slaughterhouse in the world, accounts for 14% of the entire BNDES investment portfolio, which is equivalent to one fifth of the company's capital. Furthermore, according to a study by the organizations Mighty Earth and Ecologistas en Acción in 2023, JBS’s methane emissions alone exceed the combined methane emissions from livestock activity in France, Germany, Canada and New Zealand. According to the same study, JBS emissions alone are also equivalent to 55% of emissions from cattle production in the United States, the country with the largest agricultural exports in the world. 

The current agricultural model clearly cannot be reproduced without these sources of funds, and without the interest of large financial institutions in the economic exploitation of this activity. On the other hand, banks have few socio-environmental criteria that prevent resources going to polluting agricultural enterprises, in illegally occupied areas and without adequate safeguards.

It is in this sense that civil society initiatives, such as the Responsible Bank Guide (GBR),  highlight the gaps that still need to be addressed for financial institutions to start promoting transformative ecological alternatives that replace the current unsustainable model of exploiting nature. The GBR project evaluates the socio-environmental policies of the eight largest banks operating in Brazil (Itaú, Banco do Brasil, Bradesco, Caixa Econômica Federal, Santander, BNDES, BTG Pactual and Safra), comparing them and proposing more robust criteria. This is an initiative built by Idec in partnership with the organizations Conectas Human Rights, World Animal Protection, Sou da Paz Institute and Oxfam Brazil.

For the present discussion, it is worth highlighting two of the eighteen themes evaluated by the project, the first being related to criteria aimed at food production.

In 2022, banks' credit and investment policies met only an average of 30% of what the Responsible Bank Guide project recommends for the responsible development of the sector. For instance, banks were assessed on whether they had implemented measures to reduce the use of pesticides and conserve water resources, as well as measures to prevent groundwater contamination as a prerequisite for accessing credit. Policies promoting organic agriculture and the adoption of seals and certifications for agricultural commodities were also evaluated. The second aspect evaluated in relation to this topic was climate change. On this issue, research was conducted to verify the policies adopted by banks to reduce greenhouse gas emissions, particularly emissions related to their credit and investment portfolios. On average, only 24% of the criteria were met in the evaluation. It is evident, therefore, that the actors who finance agribusiness do not prioritize the adoption of internal policies that effectively prevent or mitigate the climate and environmental impacts produced by the sector.

From the perspective of consumers, no bank customer expects their savings to be used to encourage activities that contribute to deforestation, exacerbate climate change, and generate products that ultimately burden the entire community. However, this situation arises when a financial institution lacks an internal policy that mandates proper checks for granting credit or investing in agribusiness. For this reason, in addition to enhancing and expanding environmental protection mechanisms, it is necessary for financial institutions to advance and improve their socio-environmental policies. These policies should include consistent commitments based on scientific evidence and the knowledge of organizations representing civil society. The website of the Responsible Bank Guide project enables consumers to review their bank's performance and send letters demanding that their internal policies be aligned with the project's evaluation criteria. The objective is to combine the efforts of diverse actors, both directly and indirectly affected, in order to show alternative ways of promoting fairer and more sustainable food production.