The UK and Dutch governments, alongside IDB Invest, have contributed to the Responsible Commodities Facility, which will provide $60m in loans to soy farmers committed conserving their forest reserves in the Brazilian Cerrado.
The UK and Dutch governments and IDB Invest, the multilateral development bank focused on Latin America and the Caribbean, have backed the Responsible Commodities Facility (RCF), a blended-finance initiative that promotes the responsible production and trade of deforestation and conversion-free (DCF) soy in Brazil’s Cerrado biome.
The UK and Dutch government investment of $10m (€17.1m), which is being made through the Mobilising Finance for Forests (MFF) programme, and the IDB Invest commitment, also for $10m, will be used towards a total of $60m in loans provided to soy farmers for the 2025/26 crop season.
The RCF, now in its fourth crop season, operates a blended finance structure of junior, mezzanine and senior debt tranches and was inaugurated in 2022 with anchor investments in the junior tranche from UK supermarkets Tesco, Sainsbury’s and Waitrose, which invested to support their commitments to responsible commodities sourcing. Other existing investors include Dutch cooperative lender Rabobank and impact fund AGRI3 Fund.
Speaking to Impact Investor, Pedro Moura Costa, CEO of Sustainable Investment Management, the environmental finance advisory firm which designed and manages the facility, said: “Like the supermarket investments, the MFF programme investment through the junior tranche is catalytic for the facility, allowing us to blend other sources of capital, such as from IDB Invest (which invested through the senior tranche), in order to multiply the impact.”
The MFF programme, managed by the Dutch development bank FMO, and funded by the UK and Dutch governments, was launched in 2021 as a blended finance investment initiative to help mobilise private investment to combat deforestation and other environmentally unsustainable land use practices contributing to global climate change.
Financial structure
The RCF is capitalised through the issuance of agribusiness receivables certificates (CRAs), a type of bond issuance used in Brazil to finance agribusiness. The firm said that the CRAs had been independently assessed by environmental advisory firm ERM-NINT, which concluded that the facility was in alignment with both the Green Bond Principles of the International Capital Market Association and the Green Loan Principles.
“The way it works is that we package the loans we offer to farmers in a CRA, which is registered on both the Brazilian and Vienna stock exchanges, and the investors subscribe to quotas of this CRA to capitalise the facility, which in turn disburses the loans to the farmers. When the farmers repay their loans, we pay the annual interest to investors before reinvesting the principle for the next crop season,” explained Moura Costa.
The facility offers low-interest loans to farmers who comply with the facility’s eligibility criteria and commit to zero deforestation of native vegetation from the expansion of soy cultivation. This includes foregoing their legal land clearance rights and maintaining their farms’ forest cover over and above the minimum required by law. The aim is to support farming practices which help to limit negative climate impacts and loss of natural habitat.
“Soy is an annual crop and every year farmers are in need of credit to buy seeds, fertilisers and everything needed to run a soy farm,” said Moura Costa, who explained the credit market for soy farmers in Brazil is estimated to be in the region of $30bn.
“Our loan has a lower interest rate than those offered by traditional lenders with the conditionality that the farmers do not clear the forest cover on their farms,” he added.
The firm also announced that the facility is expected to raise more than US$200m for the 2026/27 crop season, with new investments including commitments from the UN’s Green Climate Fund (GCF), which has included the RCF in a pipeline of projects for a country programme in partnership with the Brazilian Ministry of Finance. It is anticipated that the GCF will invest into the junior tranche of the facility.
Protecting the Cerrado
Sustainable Investment Management said that Brazilian agriculture and forest protection is a major focus of world climate action this year, not least with November’s COP30, to be held in Belém, a city in the north-east of Brazil known as the gateway to the Amazon river, being billed as ‘the forest COP’. According to the firm, the expansive and biodiverse region of the Cerrado is where much of the country’s soy crops are produced, and yet it does not have the same level of protection as the neighbouring Amazon, and as such is more at risk from land clearance for agriculture.
“One of the big priorities of the Brazilian government is to introduce financial instruments for the protection of the Cerrado because deforestation is rampant. When you consider the sheer size of the credit market for soybean farmers, it would be impossible to replace that with grants. Equity investments are also impractical, unless you plan to own huge swathes of land,” said Moura Costa.
“If you want to change whole landscapes towards more sustainable models in the Cerrado, debt finance through properly designed credit lines is the most promising vehicle to do that,” he added.
The facility’s target of offering finance to 280 farms in the 2025/26 crop season is expected to produce more than 240,000 tonnes of DCF soy. This would result in the conservation of around 90,000 hectares of native vegetation, around 29,000 hectares of which are in excess of legal obligations, including foregoing their legal land clearance rights, thereby protecting over 22 million tonnes of CO2e carbon stocks.
“Are we going to have a significant impact in the grand scheme of things? Not yet,” admitted Moura Costa.
“But what we are doing is paving the way for the adoption of our model for new credit lines that have the potential to be transformational. Ultimately, we’d like to see the Brazilian government adopt a similar approach ensuring their credit lines have the same conditionalities as the RFC loans,” he concluded.
