DECEMBER 2020 Monitor's seventh issue, a bulletin that disseminates Repórter Brasil sector and production chain studies, analyzes the envi- ronmental impacts of livestock and the connections that link the sector to national and international investors. 30 . MONITOR #7 STAFF EDITOR Marcel Gomes “The Money that Feeds the Cattle’” RESEARCH AND TEXT André Campos (Coordination) Piero Locatelli PHOTOS João Laet (capa, p.16 e p.17) Avener Prado (p.03 e p.04) Sidney Oliveira (p.06) https://pt.wikipedia.org/wiki/Ficheiro:Black-rock-hq.jpg (p.07) https://br.freepik.com/fotos/fundo'>Fundo foto criado por mindandi (p.08) Alvaro Rezende (p.10 e p.21) Redes socias ( p.11) Bruno Cecim (p.15) GRAPHIC DESIGN AND LAYOUT Elaine Almeida This publication was supported by Global Witness REPÓRTER BRASIL ORGANIZATION OF COMMUNICATION AND SOCIAL PROJECTS GENERAL COORDINATOR Leonardo Sakamoto EXECUTIVE SECRETARY CONTACTS Marcel Gomes [email protected] FINANCIAL COORDINATOR Marta Santana ONGReporterBrasil ASSISTANT COORDINATOR @reporterb Marília Ramos (55 11) 2506-6570 ADDRESS (55 11) 2506-6562 Rua Bruxelas, 169. (55 11) 2506-6576 São Paulo - SP - Brasil (55 11) 2506-6574 Postal Code 01259-020 . 30 . 01 . INTRODUCTION This report addresses the envi- ronmental impacts of the livestock industry in Brazil – especially in ter- ms of deforestation – as well as the sector’s connections to Brazilian and foreign investors. It includes five case studies conducted in the state of Mato Grosso and related to the supply chains of Brazil’s three largest meatpacking companies – JBS, Marfrig and Minerva. Currently, two of its main sha- reholders are major international financial groups: fund manager Bla- ckRock and investment bank Mor- gan Stanley, both based in the Uni- ted States. The report provides details of their financial inputs to the beef segment as well as the companies’ – meatpackers and investors – stan- ces on the environmental challen- ges faced by the industry. 03 . LIVESTOCK AND DEFORESTATION Deforestation is a major driver of methane (CH4) produced by fermen- 8.4 million head in 1978 – then equiva- global warming and accounts for about tation in the animals’ rumen. But its lent to 8 percent of Brazil’s total – to 87 20 percent of greenhouse gas emis- indirect impact – resulting mainly from million in 2018. This figure now accou- sions worldwide1. Protecting and res- forest conversion into farms – accounts nts for 41 percent of all cattle raised in toring forests, in turn, could mitigate for most of those emissions. Brazil4. global carbon emissions by 25 percent, Bovine cattle also play an impor- According to the most recent data according to data from the UN Intergo- tant role in this context. The segment provided by the Brazilian government, vernmental Panel on Climate Change. is now considered the main cause of the state of Mato Grosso has more than In Brazil, the consequences of de- Amazon deforestation. About 65 per- 30 million head of cattle. It is the state forestation for the climate emergency cent of the area deforested in the bio- with the largest number – 7 percent of are even more important. Agricultu- me is covered by pastures, according the country’ s total5. – and the scene re and livestock provide the largest to the most recent official data on land for important agriculture and livestock contribution to climate change in the use change mapped by the Brazilian expansion fronts in three of the Brazi- country – it accounted for 80 percent government3. The situation reflects the lian biomes affected by deforestation of greenhouse gas emissions between vertiginous expansion of bovine cattle in recent decades: the Amazon, the 1990 and 20182. in the world’s largest tropical forest in Cerrado and the Pantanal. That percentage includes both di- the last 40 years. The number of oxen rect and indirect emissions. Livestock and cows grazing in the states of the farming is the main source of direct so-called Legal Amazon has increased emissions due to the high amounts of tenfold in the period. They went from . 04 . THE FINANCIAL SECTOR AND LIVESTOCK Bank9, conditioned all loans to farm PUBLIC At the same time, no policies were owners in the Amazon biome to state- INVESTMENTS adopted that could mitigate the envi- ments that “there are no current eco- ronmental damage caused by livestock nomic interdictions for illegally defo- The three largest companies in farming. Federal Government-control- rested areas on [their properties].” The Brazil’s livestock industry went public led Banco do Brasil remains the largest measure applied to all banks operating on the stock market in the 2000s, in funder of commodity companies at risk in the country, but focused only on lan- a context of economic growth and ex- of deforestation in Brazil. This is mainly downers, without considering the su- pansion of credit in the country. JBS, a result of its role as an operator of sub- pply chain in which they were included. Minerva and Marfrig – the three lar- sidized rural credit for rural producers7. In the following year, BNDES an- gest Brazilian meatpackers – started Federal investment bank BNDES nounced that it would condition its su- offering shares on the São Paulo Stock plays a prominent role in corporate in- pport to individual tracking of all bovi- Exchange in 2007. vestments linked to the risk of defores- nes10. The measure would help control Much of these companies’ growth tation – mainly due to its relations to the so-called indirect suppliers, which took place in the Legal Amazon region. the beef industry. Through BNDESPAR, are still the main bottleneck in com- In Mato Grosso, the three companies the bank is now JBS’s second largest bating deforestation in the livestock together gained a market share of two shareholder, with 21.82 percent of the industry. According to the guidelines, thirds of the total slaughters during the company8. Until 2019, it also had signi- all animals slaughtered by meatpacke- last decade6. ficant shareholding in Marfrig. rs that received financial support from Brazilian state-owned banks were Over the past 20 years, the finan- the bank should be traced from birth essential for their growth in the period cial sector, especially its private seg- to slaughter by January 2016. The de- by granting them credit or acquiring ment, had modest participation in dis- adline, however, was never met, as the their shares. The federal government’s cussions on combating deforestation in bank itself admits11. policy of creating international players, Brazil. Even so, specific measures were which led to higher concentration in taken, with different degrees of suc- the industry, played a central role in cess. state financing for livestock. A 2008 resolution of the National Monetary Council of Brazil’s Central . 04 . 05 . for being listed is the presentation of legislation to prevent products linked PRIVATE an inventory of greenhouse gas emis- to deforestation from being impor- INVESTMENTS sions. JBS – Brazil’s leading meatpacker ted13. The European Union, meanwhi- – is one of 25 companies with shares le, conducts consultation on how to Regarding private investments, traded through the index. address deforestation in its legal fra- despite all the problems, the Brazilian But the inventory that validates mework, after a report on the subject beef industry continues to benefit from companies’ listing in the index focu- was published earlier this year14. financial funds supposedly linked to ses only on their direct operations. In both cases, several civil society sustainable practices. Emissions associated with their supply organizations have been pushing for The chief examples are the Envi- chains are not considered. the financial sector not to be excluded ronmental, Social & Governance (ESG) This is a relevant gap, out of step from this process. Voluntary agree- funds, whose criteria in Brazil are disse- with the reality of emissions in the Bra- ments signed by companies and banks minated mainly by the Brazilian Asso- zilian case. As already explained, the have repeatedly failed to provide solu- ciation of Financial and Capital Market agricultural sector – that is, supply of tions to deforestation in commodities’ Entities (Anbima). ESG funds announce raw materials – is the largest source of supply chains. And legislation aimed that they are based on social, environ- greenhouse gases in Brazil. only at product importers, leaving out mental and management responsibility funders and investors, would not be parameters. But in several cases, their able to contain the problem15. portfolios distort these concepts to INTERNATIONAL Distinctions between agricultural include Brazilian meatpacking compa- LEGISLATION and financial companies are not always nies12. clear, as the former may be fully con- Investments linked to the Carbon Internationally, a number of cou- trolled by the latter or even fund their Efficient Index (ICO2) are an example ntries have been discussing legisla- producers and suppliers. Thus, if due di- of that. That is one of the main sustai- tion that would make due diligence ligence legislation excludes the financial nability indexes of B3 – Brazil’s official on environmental issues mandatory sector, it may result in scenarios where stock exchange. It was created by B3 in to importers, including the issue of a company is prevented from engaging partnership with BNDES. deforestation. This would compel in harmful practices that drive defores- ICO2 is advertised as a fund that companies to check their suppliers’ tation while a separate arm of the same “favors companies with lower emis- chains in order to prevent, mitigate company is able to fund itself and profit sions of greenhouse gases” and provi- and inform about deforestation risks. from the same activities16. des a “low-cost, socially responsible in- The United Kingdom is currently vestment solution.” The main criterion consulting on whether or not to adopt . 06 . MAJOR INVESTORS achieved the progress expected in re- disclose any initiatives” to achieve defo- BLACKROCK ducing their environmental impacts.