Environmental Framework

As the pressure for deforestation-free supply chains grows both internationally and in Brazil, increasing the capital committed to soy expansion through Deforestation and Conversion Free (DCF) financial mechanisms can generate benefits for stakeholders across the soy value chain. Lenders and investors can gain reputational benefits and new business opportunities from better serving producers. Traders can create longer-term contractual relationships with farmers and improve access to markets with stricter environmental requirements. Producers can gain access to improved lending terms to expand their businesses and avoid reductions in yield losses attributed to the effects of regional deforestation.

The Nature Conservancy’s Environmental Framework was created to guide lenders and investors in successfully expanding their environmental finance programs, or adapting existing products to a DCF approach. It contains a consistent set of requirements and monitoring approaches that is effective in ensuring DCF production while also practical for producers and investors to implement. 

“There is enough evidence now that maintaining native vegetation contributes to soy productivity by limiting extreme heat days. This is a win-win for nature and farmers."

Anna Lucia Horta - Business and Investment Manager at The Nature Conservancy

The Environmental Framework is a practical guide with a consistent set of requirements and monitoring approaches to simplify the integration of environmental risks and opportunities. It will support more rapid scaling of DCF-mechanisms by investors and lenders seeking to promote the sustainable growth of soy production in the Cerrado, while also benefiting producers with practical, streamlined compliance requirements. The Environmental Framework is comprised of the following core environmental requirements for deforestation and conversion-free financial mechanisms:

• Legal compliance (i.e. environmental laws, labour legislation, no overlapping with conservation units and others);
• Reference date for no conversion and deforestation, which we suggest January 2018;
• Irrigation (Water permits and predicted water stress).

Beyond the core requirements, including additional elements in soy financing mechanisms can generate even greater positive environmental impact . They are:

• Cross-farm applicability;
• Spatial prioritization;
• Land conflict disputes (beyond legality);
• Good agricultural practices;
• IFC performance standards.

This customization beyond the core requirements allows lenders and investors to manage their portfolios to meet even greater institutional ambitions for positive environmental impact or apply a more conservative approach to minimizing exposure to environmental risks related to soy production. The additional requirements may be integrated as mandatory elements of a lending or investment program or can be encouraged by offering preferential access to the program for producers who will follow them or through incentives such as lower interest rates and other more favorable financing terms. 

The Nature Conservancy has identified 139 “high conservation impact” municipalities for DCF finance mechanisms, shown in the Dashboard below. These are regions with higher stocks of pastureland suitable for soy, significant risk of conversion for soy by 2030, and where attainable soy yields are sufficient to make production economically viable. These priority areas are also regions with existing soy production, so investments in DCF soy expansion here are not creating new soy hotspots that could become unintended drivers of deforestation.

TNC has classified the areas below in three priorities for directing DCF investments for soy expansion: medium (yellow), high (light green) and highest (dark green). However, the Dashboard allows users to analyze the characteristics of any municipality in the Cerrado to determine its relevance for a lender or investor´s objectives. See the "How to Use" tab in the Dashboard for instructions on how to interpret data and consult sources.

The Framework also offers guidance on monitoring and verification processes to assist lenders and investors in understanding capacity needs and adapting internal procedures to guarantee producer compliance with the environmental requirements and enhance transparency for DCF financial mechanisms. The guidance outlines five steps (active origination, eligibility assessment, preparation for monitoring, annual monitoring and ongoing oversight) and includes lists with suggested documentation or evidence for meeting each environmental requirement.

Financing soy expansion exclusively over pastureland will likely generate deviations from the projected BAU pattern of conversion of a given region. The Nature Conservancy developed a Carbon Benefit Calculator based on spatially explicit modelling in which you can estimate the expected avoided carbon dioxide emissions that can be attributed to financing production decoupled from conversion in each municipality. Run your own simulation below!

There is a growing interest among a range of stakeholders to decouple future soy expansion in the Cerrado from deforestation and conversion of native vegetation. Emerging new lending and investment products that support producers in expanding on cleared lands and raising yields have the potential to play a key role in this transition. The Environmental Framework offers a practical guide to help financial institutions design and implement these programs, and to finance the growing global market for soy while avoiding the conversion of an additional 2.2 million hectares of Cerrado habitat over the next decade.  

The Nature Conservancy acknowledges and thanks the many traders, domestic and international banks, environmental groups, procuders and input companies, who participated in the stakeholder engagement process, providing invaluable insights that made the Framework more agile and pragmatic while remaining consistent with our environmental goals.

Find out more about the project at our  official page  where you can find the media repercussion (as  this article  in Valor Econômico), about TNC´s work on  Providing Food and Water Sustainably,  and our 2019 report on  Financial Incentives for Sustainable Soy in the Cerrado .

This project is funded by the Gordon and Betty Moore Foundation.