Marfrig Global Foods S.A. (Marfrig)

Country:

Brazil

Jurisdiction:

Mato Grosso

Investee Companies:

Marfrig Global Foods S.A.

Supply Chain:

Cattle production

Total &Green Investment Size:

USD 30 million loan

Effective Date:

7 January 2021

Loan Term:

10-year tenor

Co-investor:

The loan enables full flexibility of the Borrower’s utilisation of the USD 500 million Transition Bond which it issued on the capital markets.

Description:

&Green’s financing will be used by Marfrig to enable and implement a no-deforestation requirement across its entire supply chain in the Amazon and Cerrado biomes. This project’s objectives include full supply chain traceability; environmental and social (E&S) standards (including forest protection) that go beyond the Borrower’s legal requirements (including the Brazilian Forest Code) for purchasing cattle from direct and indirect suppliers (i.e. cattle ranchers); and promoting technical assistance to support the suppliers’ ability to comply.

Country:

Brazil

Jurisdiction:

Mato Grosso

Borrowers:

Marfrig Global Foods S.A.

Supply Chain:

Cattle production

Total &Green Investment Size:

USD 30 million loan

Loan Term:

10-year tenor

Co-investor:

The loan enables full flexibility of the Borrower’s utilisation of the USD 500 million Transition Bond which it issued on the capital markets.

Description:

&Green’s financing will be used by Marfrig to enable and implement a no-deforestation requirement across its entire supply chain in the Amazon and Cerrado biomes. This project’s objectives include full supply chain traceability; environmental and social (E&S) standards (including forest protection) that go beyond the Borrower’s legal requirements (including the Brazilian Forest Code) for purchasing cattle from direct and indirect suppliers (i.e. cattle ranchers); and promoting technical assistance to support the suppliers’ ability to comply.

VIEW PROJECT AREA
VIEW PROJECT STRUCTURE

Investment Rationale

&Green is partnering with one of the three biggest meat producers in Brazil to enable and implement its transition to deforestation-free cattle production across various levels of the Brazilian beef sector.

Marfrig’s supply chain in the Amazon and Cerrado biomes encompasses around 30,000 direct suppliers and between 60,000 and 90,000 indirect suppliers (all cattle ranchers) spread across the two biomes. A no-deforestation requirement by a market-leading meatpacker like Marfrig will trigger significant impact on the land and on its people. It will result in the substantial inclusion of the company’s suppliers into truly sustainable global value chains bolstered by improved access to technical assistance and financial services.

Marfrig’s commitments have been described in two detailed roadmaps: the Landscape Protection Plan (LPP) and the Environmental and Social Action Plan (ESAP). Through these public documents, Marfrig is contractually committing to achieve a full deforestation-free supply chain, including indirect suppliers, and for both the Amazon and Cerrado biomes.

Environmental Return & Social Inclusion

Marfrig’s ESAP and LPP cover the company’s interventions across multiple Brazilian states because they relate to all suppliers located in both the Amazon and Cerrado biomes. The E&S returns which Marfrig has committed to achieving reflect the expected impact which it will have on forest, cattle production and social inclusion. They are based on the company’s influence on suppliers, as it works with them to achieve a deforestation-free supply chain (direct and indirect suppliers) in the Amazon and Cerrado. The Environmental Return targets and Social Inclusion targets, quantified at the time of the transaction, are set for direct suppliers in the Amazon biome only. However, Marfrig will – as its visibility of the supply chain improves over the loan term – report on Environmental Returns and Social Inclusion from direct and indirect suppliers as well as for both Amazon and Cerrado biomes.

The LPP sets out how the Environmental Return and Social Inclusion impact will be generated over the loan term, within the landscape and project area (Mato Grosso).  The LPP is the legal representation of actions to which Marfrig is committing in order to achieve traceability, legal compliance and a deforestation-free cattle supply chain in the Amazon and Cerrado biomes, whilst maximising the inclusion of suppliers (especially smallholders). For more information refer to the LPP.

Marfrig’s LPP builds on Marfrig’s Verde+ plan, which was launched by Marfrig, in collaboration with IDH – the Sustainable Trade Initiative.

Environmental Return

The transaction’s Environmental Returns are to be established as the sum of (a) results of Marfrig’s actions with its direct suppliers, and (b) the results of the programs which Marfrig is supporting in order to reach and assist indirect suppliers within the Mato Grosso state (Amazon and Cerrado Biomes).

The Environmental Returns generated are currently estimated for Marfrig’s direct suppliers (1,200,000 hectares of forest conserved, of which 600,000 hectares is in excess of the legally required reserve) and those programmes where Marfrig has visibility on indirect suppliers. Environmental Returns generated by indirect suppliers in general will be reported from 2023, when Marfrig will have more reliable information on, including quantifying the number and location of, those indirect suppliers.

Additional Environmental Returns are expected from Marfrig’s programmes for cattle ranchers, such as the Sustainable Production of Calves Program (in partnership with IDH); supporting forest conservation (ER 1) and sustainable intensification of pastureland (ER 2). Marfrig is also working closely with the local government agencies and certification bodies to create the mechanisms for the training and re-introduction of suppliers that are currently non-compliant with Marfrig’s requirements. These mechanisms will be based on a set of different interventions related to the implementation of restoration plans and these programmes are expected to contribute to forest restoration (ER 3).

FOREST COVER IN THE AMAZON & CERRADO BIOMES

Forest Cover Map will follow

Forest Conservation:

Agricultural intensification:

Forest restoration:

Social Inclusion

Marfrig’s LPP also describes the company’s strategy to foster permanent inclusion of cattle ranchers in their direct and indirect supply chain while implementing no-deforestation requirements. To do so, Marfrig is partnering with various institutions (international donors, financiers, service providers, NGOs) to create a network of technical assistance and financial services and products to enable these suppliers to work towards and maintain compliance with Marfrig’s purchasing policies. Given the large number of indirect suppliers (60,000 to 90,000 cattle ranchers), it is expected that the reported numbers of ranchers benefitting from social inclusion programmes will be significantly greater than the targets set out below. These represent the inclusion of 157 producers through Marfrig’s support of the Sustainable Production of Calves Program. This pilot programme is supporting smallholders in Juruena Valley to comply with the Brazilian Forest Code, providing training in good agricultural practices, guidelines on restoration and biodiversity management, amongst other things.

Number of smallholder farmers benefitting:

Social Inclusion

Marfrig’s LPP also describes the company’s strategy to foster permanent inclusion of cattle ranchers in their direct and indirect supply chain while implementing no-deforestation requirements. To do so, Marfrig is partnering with various institutions (international donors, financiers, service providers, NGOs) to create a network of technical assistance and financial services and products to enable these suppliers to work towards and maintain compliance with Marfrig’s purchasing policies. Given the large number of indirect suppliers (60,000 to 90,000 cattle ranchers), it is expected that the reported numbers of ranchers benefitting from social inclusion programmes will be significantly greater than the targets set out below. These represent the inclusion of 157 producers through Marfrig’s support of the Sustainable Production of Calves Program. This pilot programme is supporting smallholders in Juruena Valley to comply with the Brazilian Forest Code, providing training in good agricultural practices, guidelines on restoration and biodiversity management, amongst other things.

Number of smallholder farmers benefitting:

Environmental & Social Risk Assessment

Because of its size, Marfrig’s most significant E&S risks are related to its supply chain: the risk of exposure to forced or child labour, illegal activities (deforestation) and the destruction of High Conservation Value areas. Locating and addressing these supply chain risks is the investment rationale for the transaction. In addition, the most important E&S risks for Marfrig’s slaughterhouses and processing & distribution facilities are related to health & safety, labour conditions, waste disposal, community safety (explosions, traffic, odour & noise); animal welfare, and sanitary compliance.

A gap analysis against the IFC Performance Standards was conducted by qualified expert consultants who reported that Marfrig has a range of good E&S practices including: an advanced and effective supply chain monitoring system for direct suppliers, a strong E&S management system (ESMS), health & safety procedures, stakeholder engagement, a grievance mechanism and sustainability reporting. All of the above provide a strong platform to meet the IFC Performance Standards, which are key E&S conditions for &Green’s investment.

The actions to be taken by Marfrig to mitigate deforestation risk in its supply chain and to reach its zero deforestation goal in the Amazon and Cerrado biomes are defined in the ESAP, along with actions to address key E&S risks in their slaughterhouses, as identified in the IFC Performance Standards gap assessment. For more information refer to the ESAP.

&Green will receive reporting on Marfrig’s progress with respect to its commitments under the LPP and ESAP, initially bi-annually for the first two years of the loan term, and thereafter annually. Progress reporting will be verified through an annual audit by an independent external consultant every two years.