Responsible Commodities Facility selected for development by the Climate Finance Lab

Rio de Janeiro, 15 February 2018 – Climate Finance Lab – a public-private initiative for sustainable investment – has selected a new class of investment vehicles to drive much-needed finance to action on climate change. Out of over 100 ideas submitted into a competitive pool, nine new instruments were selected to tackle persistent investment barriers in clean energy, low-carbon transit, and sustainable land use in Brazil, India, and Sub-Saharan Africa.

BVRio’s proposal “Responsible Commodities Facility” selected for the Brasil Lab’s 2018 cycle in the sector of sustainable land use, aims to increase the production and market demand for deforestation-free, Forest Code-compliant commodities in Brazil, initially focusing on soy, through incentives to plant in deforested and degraded lands. The Facility could accelerate the growth of zero-deforestation soy in the Cerrado region of Brazil, and also has the potential to generate a demand of finance of up to USD $3.4 billion, over an initial five years of operation.

About the Responsible Commodities Facility

The Problem

Growing demand for soy globally is driving a continuous expansion of the area under cultivation in Brazil, resulting in deforestation, loss of biodiversity and 51% of the national GHG emissions. Given that 89% of Brazil’s NDC is expected to come from reduced deforestation, alternative mechanisms are needed to meet this target while allowing production to grow. By redirecting the soy expansion into already cleared land and degraded pastures, deforestation can be avoided while maintaining agricultural production.

While multiple corporations made commitments to adopt zero-deforestation supply chains, trade and procurement challenges need to be overcome to create efficiencies and enable this market segment to reach the scale required to meet demand and halt current environmental impacts.

The Solution

A Responsible Commodities Facility is proposed as a vehicle to coordinate a suite of efforts to promote zero-deforestation commodities in Brazil, beginning with soy in the Cerrado.  The approach of the Facility would be to engage soy producers in a zero-deforestation trajectory through the provision of financial and commercial incentives, such as crop finance, loans for compliance with the Brazilian Forest Code, and investment in on-farm silo facilities to improve their financial returns. This will require partnering financial organizations and banks engaged in sustainability with traders and producers.

Moreover, a Responsible Commodities Exchange would be created to link producers and buyers and enable them to aggregate supply of sustainable products at scale, in an environment that is transparent in terms of price and quantity and that traces their supply chains effectively, efficiently and with low transaction costs. The Exchange would promote the use of forward delivery contracts with physical delivery, assisted through partnerships with logistics and trading companies.

The combination of innovative financial and trading tools, increased transparency and traceability, and a focused effort on facilitating compliance with strict guidelines, has the potential to accelerate the growth of zero-deforestation commodities, while promoting compliance with the Forest Code and reducing emissions in the Cerrado by more than 500 million tCO2.

About Climate Finance Lab

The Lab identifies, develops, and launches sustainable finance instruments that can drive billions to a low-carbon economy. It is comprised of several regional programs: the Global Innovation Lab for Climate Finance, the Brasil Lab for Green Finance, and the India Innovation Lab for Green Finance. The Lab’s programs have been funded by Bloomberg Philanthropies, the David and Lucile Packard Foundation, the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), the Netherlands Ministry for Foreign Affairs, Oak Foundation, the Rockefeller Foundation, Shakti Sustainable Energy Foundation, the UK Department for Business, Energy & Industrial Strategy, and the U.S. Department of State. Climate Policy Initiative serves as Secretariat.

Since its start in 2014, the Lab has launched 25 other finance instruments that have mobilized nearly USD $1 billion in sustainable investment to date. The nine new ideas will now move forward in the Lab’s 2018 cycle for analysis, stress-testing, development, and preparation for launch at the end of the year.