21 Jun Case – PUSHING THE LIMITS OF GREEN FINANCE
The Brazilian Ministry of Agriculture, Livestock and Supply’s (MAPA) rollout of the Investment Plan for Sustainable Agriculture, together with the Climate Bonds Initiative (CBI), back in June 2020, triggered debate on Brazil’s huge potential to make sustainable investments in agriculture. The country was dubbed one of the markets with the highest growth prospects for green bonds in the farming industry. According to a 2020 CBI report, BRL 700 billion in investments were expected to be made by 2030, considering sustainable investments in agriculture, livestock, and renewable energy, among others, always aimed at environmental conservation and recovery. As broadly promote to both the community and the market, the idea of the plan was precisely to unleash such potential, and provide a clearer and safer connection between producers who have or are planning on applying best practices for the sustainable production of farm products, and the financial and capital markets, which look for profitable investments that meet their social-environmental responsibility criteria.
The market has reacted positively to the green bond-based project planning and execution, revealing growing demand for such assets, which, in turn, encourages the agribusiness industry to abide by social-environmental criteria required for sustainable credit transactions, the issuance of green bonds included. According to SITAWI data, since the first issue in 2015, sustainable credit transactions total approximately BRL 17 billion – USD 5.3 billion in 2020 and USD 5.8 billion from January 1 to March 29, 2021, alone[1].
There are clear signs, in the market, of the closer relationship between agribusiness and the securities market, which always looks for a sustainable investment methodology. Leading companies in the industry, in response to the demand of large investors, are making increasing efforts to meet the highest sustainability criteria, in order to attract investments based on the ESG methodology, ever the more reported on in industry-specific media. Such convergence of agribusiness and large investors has also been recently noticed among small producers, especially among farmers looking into the options in terms of private credit, within the scope of the constant cut down on government subsidies. Gaia Impacto Securitizadora, together with Produzindo Certo and Traive Finance, issued a total of circa BRL 66 million in green Agribusiness Receivables Certificates (CRAs) in March 2021, backed by agribusiness credits stemming from structured finance related to the producers’ issue of Rural Product Certificates (CPR).
This was the first issue of Green CRAs backed by widely-held collateral, and included the participation of seven producers as CPR issuers and debtors of the agribusiness creditors tied to the CRAs. Such producers agreed to recomposition and conservation obligations related to areas of environmental interest, within the scope of the structured finance, in addition to other obligations related to the issued CPRs. Debtors are still to be supervised in relation to the environmental aspects of the production process of the agribusiness products tied to the CPRs, whereby each producer’s relationship to the transaction will depend on one’s performance in the fulfillment of the applicable environmental criteria. Produzindo Certo is responsible for supervising the producers, within the scope of its environmental advisory services.
The structured finance is referred to as CRA Verde.Tech, and has opened way for direct communication between producers and large investors. Small producers now have access to a dynamic and booming market, on practical and bureaucracy-free terms, which has growing demand for new assets. The transaction also represents the progress made in implementing sustainability policies, which now cover the industry as a whole.
VBSO Advogados advised the parties to the issue of the CRA during the structured finance phase of the project. Also, VBSO Agro, the law firm’s unit in Vinhedo, was also party to the transaction as the billing and delivery agent of the issued CPRs, and is liable for the court collection of any nonperformed agribusiness credits.
[1] Data available at: https://docs.google.com/spreadsheets/u/1/d/e/2PACX-1vRDp7Z82Qovj9VuupGGQGSiBi66hQPdRL5ucb6kZ80HyjtQtVjjtf7Qekh99_DVs2FRG-8ADHE05ASP/pubhtml (online access on March 29, 2021).