Mongabay Series: Illegal Deforestation in the Amazon
Last year, journalist Deborah Gastal started putting some money in to be comfortable in her golden years. At the age of 31, he joins 13.5 million Brazilians with a personal or supplementary pension plan, an investment option in which the bank uses the client budget to play in the money market and generate profits. Because he works for a nonprofit organization on climate change, Gastal did not need to fund fossil fuel corporations or other non-environmental corporations. But unless he knew, his cash helped fund the petrochemical, pulp and paper and pesticide industries.
He tried to figure out where the Bank of Brazil was putting the money, but his branch manager couldn’t tell him. You searched for the data in the investment report you receive each month by email. Again, there was no mention of the corporations in which their savings were invested, only a budget list with pompous values that managed them: Premium IV, Multi Dividends I, Strategy 2035 III, etc., as well as the setback in each one investment was generating for it.
“I then looked for the decision on the corporations I invest in, even the reasons I believe in. But I had to invest in the dark betting only on profitability,” the reporter lamented.
Like Gastal, millions of Brazilians investing in budgets can help corporations concerned about serious environmental problems. “Funds, whether pension budgets or shares, are intermediate investment structures. You accept as true with an administrator with your cash: you pay others to make decisions for you. And historically, investors are more concerned about profits generated through their portfolios than about social benefits. and environmental hazards that generate,” says Gustavo Pimentel, director of SITAWI, an organization that develops monetary responses with positive social and environmental impact.
If the customer’s goal is to deposit their savings in smart corporations for the planet, it is worth doing some studies by opting for one of 67 inventory agents and 94 suppliers indexed at cvM, or Brazilian Securities and Exchange Commission. These are corporations that deposit their chips on easy-to-use online platforms with little bureaucracy to win over non-specialized customers. One of their responsibilities is to direct those who do not fully perceive how the market works on the most productive investments to be made, which would be to point out the dangers of investments infected by practices destructive to nature, according to a popular in Brazil. Central Bank: “National monetary establishments identify criteria and mechanisms for assessing hazards in operations similar to economic activities that can cause social and environmental damage.”
But if this is done, it is not achieved at the end of the chain where Deborah Gastal and other consumers are located. For example: in December last year, XP Investimentos – one of the largest agents in Brazil that manages 409 billion reais owned by 1.7 million other people – consumers to buy JBS shares. “The company’s functionality is expected to remain strong with a strong U.S. call to […] brazil exports and a favourable environment for the protein sector due to African and Chinese swine fever.” That same month, BTG Pactual also named JBS as a “star product” on its shelf.
They appear to be smart recommendations for the world’s largest beef producer, who recently announced its results in 2019, the highest production ever achieved: a record profit of 6 billion reais (US$1.2 billion). But JBS is also the corporate maxim exposed to deforestation in Brazil according to an Imazon study. It has 32 meat packers (21 of which are operational) in the Amazon, and the region where its potential suppliers are located contains 1.75 million hectares under embargo through IBAMA due to environmental crimes. Another 1.65 million hectares in JBS’s procurement domain were cut down between 2010 and 2015 and 1.24 million hectares of forest were in an alarming threat of exploitation after 2016, when the researchers’ paintings were completed. Overall, JBS’s activities cover 4.6 million hectares of cut forest or forest threatened with logging, a number equivalent to 1% of Brazil’s total rainforest domain.
This type of knowledge is not included in XP visitor reports, although they are vital to foreign investors. At the height of forest fires in the Amazon in September 2019, an organization of 254 fund managers around the world with portfolios valued at more than China’s GDP (a total of US$18 trillion) issued a letter expressing fear about “money has an effect on deforestation can have on corporations invested due to the greatest reputational hazards to operational and regulatory requirements.”
Another manifesto, this time signed through 46 investors worth US$6.8 trillion, in particular addressed the beef sector and called for an end to deforestation in the chains of origin. In some cases, two-thirds of all logging in the biomes of the Brazilian Amazon and the Cerrado are lands that are then converted into pastures. Each year, the Amazon rainforest loses up to 580,000 hectares due to the rearing of farm animals, a domain of almost 4 times the length of the city of Sao Paulo, although it is already known that no more trees are to be cut for economic gains. domain.
Aware that the savanization of the Amazon, which will result from uncontrolled logging, will affect the global climate and, in turn, “will seriously damage the agricultural sector and other economic activities, reducing rainfall and increasing long-term temperatures,” managers who signed the first letter warned that corporations whose reputation has been infected by deforestation “will place it increasingly difficult to access foreign markets.”
“Investors’ motion to incorporate social and environmental points into their decision-making processes began for moral reasons. But over time, they learned that this would lessen the investment threat and could also lead to higher profits, notes Pimentel, who asks for “more critical mass in Brazil”: “We want other people like Deborah Gastal to wonder why their cash is going to stop at safe companies. What investor companies tell us to the fullest is that their clients don’t want to know more,” he regrets.
The same mechanism that does not allow Deborah Gastal to track her cash in the petrochemical industry, which she would not do if asked, works to hide the financing of corporations involved in environmentally destructive practices through giant investors. But as Gastal struggles for more information, the channel’s top players take advantage of the lack of transparency, making sure to make a profit without having to show their faces.
It is true that public data must be obtained on the CVM website. It includes the portfolio of budget investments to which Gastal’s Money has been implemented and the corporate disposition of the companies operating on the stock exchange. Here, everyone can see that BNDES (Brazilian Development Bank) has 21% JBS.
But in addition to promoting stocks, corporations operating in money markets have other means to increase the budget that are harder to track because they are provided as a direct participation in the corporate structure. They can factor debt, offload loans to companies, and sell a number of other products to which the money market provides complicated names: debts, bonds, bonds, etc.
In search of these hidden investors, the foreign organization Global Witness published a study in September last year that reveals major investors in three beef companies who buy the maximum of farm animals in the Amazon. The studio’s call is evocative (Money to Burn) and aims to show “how banks and investors finance the destruction of the world’s largest rainforests,” the Amazon added. The document shows that, outdoors from BNDES, JBS is based on funding from American Capital Group, BlackRock and Deutsche Bank, Germany’s largest bank.
The list of Marfrig investments (the fifth highest exposed to deforestation according to the Imazon study) includes Santander and North American Brandes Investment Partners.
At the same time, Minerva awarded nearly $1 billion in Bank of America credits between 2013 and 2019. And while publicly included in the global fight against poverty and sustainable solutions, the World Bank has lent $62.5 million to the company. which ranks tenth in danger of deforestation in the Amazon.
In total, the 3 meat processors operating in the rainforest obtained more than $18 billion in financing between 2013 and 2019 in the form of monetary products, according to research developed through (or) echo on global Witness raw knowledge. This number is in the form provided through 255 investors in 26 countries. Most of the cash came here from Brazil (48.1%), yet the US has a 22.7% percentage and the UK 12.1%. Spain, represented only through Santander, ranks fourth with 7.6% of investments.
While revealing, the Global Witness exam was unable to delve into the factor as it desired. Once again, the challenge is the lack of transparency. Chris Moye, forestry researcher at Global Witness, explains that it is only imaginable to track resources with variable capital corporations that market their inventories on the Brazilian stock market. This is the case with JBS, Marfrig and Minerva.
But each of these corporations has subsidiaries internal and external to Brazil, corporations that it directly controls or contribute to its activities, but which have other tax identification numbers. The challenge is that many do not inventory on the stock market and are therefore not subject to transparency controls on currency transactions as are their parent companies. “It is very unlikely that knowledge about subsidiaries will be found, it is a dark world that no one can investigate. Not to mention that these corporations use tax havens, which makes it even more difficult to track their operations. The fact that they keep their cash in offshore accounts shows that they are looking to hide something,” Moye says.
Minerva, for example, controls five corporations in Brazil and 24 in countries. Three of these corporations exist only to obtain monetary resources and are in monetary havens. In total, the 29 corporations constitute Minerva’s main business, but none are subject to inventory market control, as they all have closed capital.
The scenario is even more complex in the retail sector, which buys beef and sells it to consumers. For example, the Poo group of A’acar has no less than 67 controlled companies and 27 related companies. Of this total, only two have open capital and cannot be investigated very well.
All major players in the beef industry (JBS, Marfrig and Minerva), as well as the largest retail chains, Oo de A’acar, Walmart and Carrefour, have signed agreements to assure consumers that the meat they buy is free from illegal deforestation. In the case of meat packers, the main agreements are the public commitment to the rearing of Amazonian farm animals (Greenpeace initiative, which defected from the agreement) and the deferred processing agreement created through the Federal Prosecutor’s Office (MPF), now known as TAC da Carne or TAC. But in November last year, when the deal was 10 years old, federal prosecutor Daniel Azeredo was adamant in publishing new TAC audits: “No company that buys farm animals in the Amazon today can say that it has no cattle from deforested spaces at its source.” Chain. (…) Neither packers nor supermarkets.”
It’s simple for bank managers to forget about Americans who save their money, but giant investors have the strength to replace money market practices. Banks and stockbrokers are used to proposing products and policies, particularly for those with more than 10 million reais to invest. In Brazil, only 0.23% of tax returns have assets close to or greater than this value. “This is the magic number, above which the investor receives special treatment,” says SITAWI director Gustavo Pimentel.
But in practice, the highest heavy vehicles are ready, for the time being, to finance deforestation in exchange for a rate of return.
Between July and September last year, chimneys lit in the legal Amazon broke records, bringing 39,176 outbreaks in August, according to INPE data. In December, research hounds showed that, based on Imazon data, nearly 70% of NASA’s fireplace alerts of the era were in prospective procurement spaces for meat packers, while the domain covers less of the Brazilian component of the forest.
Of the 554,000 alarms, 250,000 (45%) activated in JBS’s grocery shopping spaces, 80,000 (14%) Marfrig’s grocery shopping spaces and 66,000 (12%) Minerva. However, the cost of JBS shares rose to R$33.20, its value since September 2015.
“Most beef manufacturers made a price for the burn crisis because investors knew that demand for Brazilian beef would increase with swine flu in China and industrial warfare between the United States and China,” said Martin Cole, an analyst at Fitch Solutions. The corporation produces reports and projections on various sectors of the economy, which lend a hand in making decisions for its clients, which come with entrepreneurs, investors, banks and governments.
“There is a magic word in the money market: materiality. There’s no point talking to an investment manager about the jungle, the environment. He knows how many billions he’ll be charged,” adds Paulo Barreto, senior researcher at Imazon. and a willing observer of investment profiles in farm animal production chains.
There are already reports of foreign establishments cutting investment in Brazilian beef producers, but this is due to their involvement in corruption scandals rather than deforestation. In the case of JBS, the relative importance of corruption losses is clear. In 2017, the company promised to pay R$10.3 billion as a component of an indulgence agreement for the investigation of Operation Car Wash. This led a shareholders’ organization to take legal action opposed to corporate, claiming damages of 1.4 billion reais from scandals involving the Brazilian political class.
This tendency leads Barreto to have fined JBS in 2018 when the company was charged with a 19% irregularity in the beef TAC audit, deforestation would result in a palpable loss and could drive out investors. At the time, the Prosecutor’s Office liked not to apply the sanctions specified in the court agreement.
A more favourable situation to penalise deforestations began to take shape after the 2019 burn crisis, which was used through European nations as an argument for a imaginable boycott of the Mercosur industry agreement with the EU. Signed by national leaders last June, the treaty is still pending approval through the parliaments of the nations concerned. “If the government does not fight illegal timber and reduces it to 2017 levels, I don’t think there’s a chance of ratifying [the agreement] in Germany,” the German ambassador to Brazil, Georg Witschel, said in an interview. Daily Economic Value.
Apart from that, the media – adding foreigners – have begun to link deforestation with the meat industry, designating those who finance it. “One of the elements of materiality is reputation, which is applicable because it can inspire others to avoid buying from a secure enterprise and make monetary organizations prevent investment or at least lend cash at higher interest rates. But this motion is still slow. Things don’t go as they deserve, ” concluded Barreto.
Brazilprev (read the full document here):
Brasilprev states that it does not buy assets directly, but investment budget from administrators. As a component of this purchase, the company is subject to a compromise procedure with the administrator to ensure that all assets in Brazil’s portfolio are evaluated in accordance with environmental, social and corporate governance (ESG) concerns. This assessment made through the administrator can lead to the removal of an asset or increase/decrease its weight within the budget.
The reaction of the Pactual BTG (read the full one here):
BTG Pactual states that the BTG Pactual Equity Research team performs fundamentalist and independent analyses, one of whose objectives is to outline recommendations to buy or sell shares of indexed companies for their clients. All threat points that can compromise companies’ ability to generate prices are taken into account by adding esG (Environment, Social and Governance) criteria.
In the express case of JBS, the BTG Pactual Equity Research team a report of 6 November committed exclusively to projects similar to the company’s ESG criteria.
The JBS reaction (read the full one here):
JBS states that it meets the social and environmental criteria established across all nations that participate as high as possible in the global protein market. The company also respects public commitment to deforestation and monitors its entire production chain through independent annual audits that “show that the company’s livestock purchases do not come from farms related to deforestation”. JBS also says it is investing in projects to develop indirect supplier controls.
The Marfrig (read the full document here):
Marfrig here says that it is fulfilling the public commitment on the breeding of Amazonian farm animals that he assumed in 2009, of “Zero Deforestation” in the Amazon biome, and that he has also signed the TAC of Mato Grosso. The corporate says it uses satellite systems to monitor its suppliers and that for the seventh consecutive year an independent audit has shown a hundred percent compliance with its purchases. Marfrig also asks its suppliers to voluntarily provide the names of manufacturers and farms from which they have been able to obtain animals in the afterlife to build on indirect suppliers.
Minerva’s reaction (read the full one here):
Minerva states that the audits carried out for the Public Commitment for Sustainable Livestock and the Meat TAC show the environmental compliance of their purchases within the Amazon biome, which are 100 percent controlled. With respect to indirect suppliers, the company says it is “evaluating the option of electronically testing GTA, developed through the University of Wisconsin, called VISIPEC”, which “can help outline methods to mitigate the threat of illegality in the percentage of indirect providers.”
This story was originally published in Portuguese through (or)) echo.
Cover image: remains of burning forest in the town of Juara, Mato Grosso state. Image via Christian Braga / Greenpeace.
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