ESG

The Amazon rainforest is on the verge of collapse — and the finance industry can help to conserve it

A view shows a deforested plot of Brazilian Amazon rainforest near the Transamazonica national highway, in Apui, Amazonas state, Brazil, September 6, 2021.

The Amazon rainforest is the lynchpin of our planet’s health, and innovative approaches to financing can help to protect it and the communities it supports. Image: REUTERS

Marina Grossi
President, CEBDS
Ian Thompson
Executive Director, Brazil, The Nature Conservancy
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ESG

  • Deforestation, climate change and rapid loss of biodiversity in the Amazon rainforest could lead to the collapse of the lynchpin of our planet’s health.
  • Innovative financial mechanisms can play a key role in conserving the Amazon.
  • The Brazilian government can aid this effort by committing to innovative policies that support the finance industry.

Brazil is one of the most biologically diverse countries in the world. It is home to between 15 and 20% of the entire world’s biodiversity, and, every year, as many as 700 new species of animals are discovered in the country. This ever-expanding biodiversity is thanks to the Amazon rainforest — a lynchpin of our planet’s health that must be conserved.

Protecting the Amazon and the biodiversity that it secures will not only support a forest-led economy that sustains livelihoods, but it will also begin to heal some of the worst global impacts of deforestation.

While the urgency of addressing biodiversity loss and climate change in the Amazon is no longer in doubt — deforestation took center stage at the recent COP26 negotiations — many leaders struggle with how to tackle these seismic challenges.

This problem can only be addressed with innovative solutions — including new approaches to financing that tap stakeholders throughout the value chain.

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Finance's role in the Amazon rainforest

The finance sector has the ability to secure flows of investment that reforest, restore and recover ecosystems. By bringing its considerable influence to bear, the industry can support and propel ongoing regenerative practices such as agroforestry, sustainable cattle intensification and crop expansion over degraded pastureland, as well as drive investment towards carbon and biodiversity offsets.

But challenges remain. One of the most important of them being the need to balance risk and reward for lenders, particularly in terms of the expected payback times.

Financial returns in regenerative practices often take years to materialize, but, without adequate funding, even producers that are willing to adopt more sustainable and climate-resilient practices will be unable to shift their production models.

Additionally, smallholders, indigenous peoples and local communities in the Amazon rainforest require special attention and conditions so they can continue to protect and restore lands. Without proper support, the livelihoods of millions of people and the land they live off remains at risk.

The sizeable financial returns currently offered by unsustainable practices are just too difficult to pass up.

Innovation in the private sector

In the absence of effective measures to halt illegal deforestation, some parts of Brazil's finance sector have taken the issue into their own hands.

In 2020, Bradesco, Itaú and Santander — the three largest private banks in the country — developed the Amazon Plan, a commitment to focus on environmental conservation, the bioeconomy, sustainable infrastructure investments and to guarantee rights for local populations that steward and depend upon the forest ecosystem. This kind of approach has the potential to grow a vibrant bioeconomy, replete with incentives to maintain standing forests and clean, free-flowing rivers.

Of course, banks alone cannot provide the funding that is needed to protect the Amazon. Innovative ideas from other players are just as important.

For example, the BIDLAB bioeconomy fund injects finance into promising — but unproven — regenerative economy projects across Latin America. This solves a key problem for many hoping to protect and conserve their land: access to finance. It opens access to funds for organizations and individuals with a limited or unproven financial history.

Further, the Kaeté private equity investment fund, launched in 2011 with seed money from the Brazilian Development Bank (BNDES), invests in companies in the Amazon able to generate growth and income for local populations. The fund's strategy is to invest in mid-sized businesses with growth potential that target low-income consumers. The fund also aims to deliver positive social and economic impact in low-income families and cooperatives located in communities with limited access to jobs and entrepreneurial activities, while also promoting more sustainable use of natural resources. One example was the investment in protein production companies in the state of Acre, generating income to local populations.

How soon the Amazon rainforest will reach the tipping point, depending on how much deforestation increases by every year, between 1% and 5%
How soon the Amazon rainforest will reach the tipping point, depending on how much deforestation increases by every year, between 1% and 5% Image: TNC

How Brasilia can help

While projects like these are clear progress toward a nature-positive economy, there is still more to be done — and the private sector cannot act alone.

The Brazilian government must implement ambitious policies to create an enabling environment for business and financial institutions to take action on nature and strengthen efforts to reduce deforestation.

Now is also the time to direct investment toward the environment, and fully fund existing programs to counter deforestation; a complex challenge that requires multiple solutions. Thankfully, in this regard, the Brazilian government has options.

The Leaders Pledge for Nature — signed by 88 heads of state and the European Union — commits signatories to actions aimed at reversing the loss of nature this decade.

Under this rubric, the government could invest in enforcement mechanisms, strengthen the scientific basis for policies and ensure that development guarantees sustainable livelihoods, respects the rights of indigenous peoples and local communities, and develops a bioeconomy that benefits people and nature.

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The public sector can reinforce its role by reassessing its investment policies to enable private and blended finance solutions that, combined, are key for the implementation of solutions at scale.

With innovative and adequate financing, and a willingness from the financial sector to work collaboratively, industry players can also be incentivized to shift to restorative practices. Market prices could reward investment in nature-based solutions, and value commodities according to their local and global impacts.

The Brazilian Amazon delivers ecosystem services to the entire world. The world, in turn, must acknowledge the sociocultural value of the Amazon rainforest, and the importance of Brazil being equipped with the tools it needs to protect this vital, vibrant and irreplaceable ecosystem.

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