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SIM launches deforestation free soy supply chain backed by green bonds

© Shutterstock / PARALAXISAerial view of deforestation in the Amazon forest.

UK supermarket chains Tesco, Sainsbury’s and Waitrose are investing £11 million in a deforestation-free and conversion-free soybean growing initiative. This is part of a global commitment to end deforestation by 2030, and is the first time UK supermarkets are addressing the soy supply chain directly.

What: SIM launches deforestation free soya supply chain initiative with backing from Tesco, Sainsbury’s and Waitrose

Why does it matter: The only way to address commodity supply chain risk is to ensure farmers are properly incentivised and the supply is accurately tracked and monitored

What next: Pressure will grow on corporates to take action on the biodiversity and natural capital impact of their supply chains.

The three UK supermarkets are backers of the Responsible Commodities Facility (RCF), a new approach to funding action on deforestation. This is an initiative to promote the production and trading of responsible soy and corn in Brazil, by creating a financially sustainable vehicle to provide incentives to farmers and help meet the growing international demand for zero-deforestation supply chains.

The RCF is part of a suite of programmes supporting the goal of ending deforestation by 2030, that 100 governments signed on to at COP26. It is one of the first out of The Innovative Finance for the Amazon, Cerrado and Chaco (IFACC) programme, created by TNC, World Economic Forum, and UNEP, where pledges of $3 billion were made to accelerate deforestation and conversion-free soy and cattle production in South America.

Production and compliance to be constantly monitored

By partnering with actors involved with the soy supply chain, the RCF plans to provide funding for the production and trade of deforestation- and conversion-free (DCF) soy from the Cerrado region of Brazil. Soy buyers like UK supermarkets Tesco (LSE:TSCO), Sainsbury’s (LSE:SBRY), and Waitrose, have all participated in the design of the RCF Cerrado Programme 1, so that this initiative can address their environmental objectives while producing large amounts of DCF soy.

The goal of the RCF is to provide attractive crop financing and land restoration loans for soy producers, combining lower interest rates and longer repayment terms than most existing alternatives, to redirect production into previously cleared and degraded lands. Then the commodities generated are to be sold to international markets in a dedicated selling platform linked to a blockchain registry. Most importantly, production and compliance with strict eligibility criteria will be constantly monitored by employing a range of traceability systems – and that is where the rubber hits the road.

RCF to provide finance to 36 farms in areas at risk of deforestation

The initiative is financed through a first of its kind approach: dollar-denominated green bonds (CRAs – Certificates of Receivables from the Agribusiness) registered in the Vienna Bourse. The capital raised will be used to offer low interest loans to farmers who comply with its eligibility criteria, and commit to zero deforestation of native vegetation, over and above their legal reserves, preventing negative climate impacts and loss of habitat.

The RCF was designed by BVRio group company, Sustainable Investment Management Ltd (SIM) and will be financed through the issuance of green CRAs (Certificates of Receivables from the Agribusiness) issued by Planeta Gaia, a securitisation company in Brazil, and Traive, a credit risk and collateral management company specialised in the Brazilian agribusiness. Its goal is to provide tangible climate and biodiversity impacts through action on the ground.

The RCF will provide finance to 36 farms, located in the Cerrado region of Brazil, producing 75,000 tons of soy per year, resulting in the conservation of around 11,000 ha of native vegetation, 4,200 in excess of legal reserves. The Cerrado, which lies mostly in Brazil, is the world’s most biodiverse savanna and it is under threat from high levels of deforestation, with over 28% estimated to be linked to soy expansion. All farms in the trial stage will be in the Matopiba, Goiás and Mato Grosso region, areas at risk of deforestation and biodiversity loss.

After an initial 12-month trial phase, it is expected that the Responsible Commodities Facility (RCF) will be scaled up to include hundreds of farmers across Brazil, helping to protect vast tracts of native Cerrado vegetation in Brazil, protecting biodiversity, water quality and enabling carbon sequestration.

Soy a deforestation-related commodity

It’s well known that soya in the meat and dairy supply chains of UK supermarkets are contributing to illegal deforestation in the Amazon. It’s part of $80 billion in supply chain risk identified for users of soya, meat, coffee and more. The Amazon Soya Moratorium – first agreed in 2006 – bans the sale of soya grown on Amazon land deforested after July 2008. But beef and other crops are not restricted under the soy moratorium, meaning farmers can sell their soya to traders as “deforestation-free” while destroying rainforest for cattle, corn and other commodities.

The thing about supply chain risk is not only in terms of potential negative impact on commodity supply, but on the relationships that open companies up to reputational risk. In 2022, Greenpeace published the results of an investigation showing that soya grown in deforested regions of Brazil was being shipped to the UK, Spain and other European countries for use as livestock feed on factory farms by major grain traders including Bunge (NYSE:BG). Bunge itself then suppliers soya to Spain and to privately held Cargill, a major UK supplier. Cargill’s customers include Tesco, Asda and Lidl.

The challenge, especially for those supermarkets saying they are committed to removing deforestation-related commodities from the supply chain, is that there is very little segregated soya. The majority of it is put in animal feed and is traded on global markets, making it hard to track.  Many end users, such as the supermarkets, buy credits that state they are contributing to sustainable agriculture, but the reality is the only way to know if a supply chain is actually sustainably is to buy from sustainable farms, and monitor those farms with satellite imagery. Rarely is more than a couple of percent actually tracked this way.

Ken Murphy, Tesco group chief executive said: “Soy is the single most impactful forest-risk commodity in Tesco’s supply chain. Which is why we’ve already made a commitment that by 2025 we will only source soy from whole areas verified as deforestation-free… We urge more businesses and organisations to join us in providing funding for the RCF, to aid its roll-out in future years.”

The RCF complements other responsible soy production initiatives such as the Cerrado Manifesto – a commitment to reduce deforestation from soy production signed by major consumer retailers and primary production groups, the UK Soy Manifesto and the Consumer Goods Forum’s Forest Positive Coalition. SIM is a member of the Innovative Finance for the Amazon, Cerrado and Chaco (IFACC), managed by UNEP Climate Finance Unit, TNC and the Tropical Forest Alliance.

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