01 / DEFORESTATION-FREE CORN SUPPLY CHAIN
Fueling Sustainability (FS)
&Green is partnering with FS for the establishment of a deforestation-free corn and biomass supply chain in the Brazilian State of Mato Grosso (MT), which encompasses around 800,000 hectares of planted area per year in both the Amazon and Cerrado biomes. With the support of &Green's loan, FS will drive the transformation of land use practices of corn and soy producers in MT, proactively engaging with suppliers to enable effective protection and restoration of forest and sustainable intensification of degraded lands.
Project summary
| COUNTRY | Brazil |
| PROVINCIAL JURISDICTION | Mato Grosso |
| INVESTEE COMPANY | FS Agrisolutions Indústria de Combustíveis Ltda. (FS) |
| SUPPLY CHAIN | Grains |
| TOTAL &GREEN INVESTMENT | USD 30 million |
| EFFECTIVE DATE | 13 May 2022 |
| LOAN TERMS | 8-year tenor |
| CO-INVESTORS | Additional investments of over USD 100 million to fund future expansion activities are expected from a combination of banks and bilateral and multilateral investors. |
02 / blended finance
INVESTMENT RATIONALE
In Mato Grosso, soy is one of the main drivers of deforestation. In recent years, Brazilian corn has emerged as a secondary crop to soybeans and the considerable expansion of its production in the region has been driven by the intensification of soy producing areas.
The commitments undertaken by FS will drive the transformation of sourcing practices used by corn producers in MT, and, by implication, the production practices of soy producers from whose farms the corn is sourced as a second crop. FS’ commitments have been detailed in two documents developed together with &Green: the Landscape Protection Plan (LPP) and the Environmental and Social Action Plan (ESAP).
As part of the company’s sustainable sourcing strategy, current and future suppliers will be required to conserve their forests to be regarded as eligible suppliers of FS’ production plants. Consequently, corn production in this area, and by virtue soy production, will need to be deforestation-free, a commitment that has historically been difficult to secure from Brazilian soy producers.
With this investment, &Green aims to showcase a model where climate change mitigation, food production and forest protection are integrated through sustainable intensification of land and transformation of sourcing practices in the Amazon and Cerrado biomes, where FS operates.
03 / the action plan
ENVIRONMENTAL RETURN & SOCIAL INCLUSION
FS is committed to gradually roll out an NDPE* policy across its supply chain in order to reach a deforestation-free corn supply chain by 2026 and biomass supply chain by 2027.
With the support of &Green’s loan, FS aims to enable effective protection of forests and sustainable intensification of degraded lands through proactive engagement of suppliers.
The Landscape Protection Plan (LPP) describes FS’ landscape and the context of its operations in Mato Grosso, providing an overview of the strategies needed to achieve the expected Environmental and Social (E&S) impacts over the loan term.
FS’ environmental and social targets include:
(i) forest protection and restoration;
(ii) improved and increased traceability of corn supply chain through engagement with suppliers;
(iii) a model for renewable biomass production on degraded lands;
(iv) a blueprint for enhanced agricultural management for intensified corn production; and
(v) a corporate management system compliant with IFC Performance Standards (PS).
The Environmental and Social Action Plan (ESAP), a contractually binding part of the LPP, sets specific targets for the on-the-ground implementation of strategies, as well as performance indicators for the E&S impacts.
* NDPE stands for No Deforestation, No development of Peatlands, and No Exploitation and is a policy commonly used to ensure sustainable operations.
ENVIRONMENTAL RETURN
Effective forest protection is a key component of this transaction.
Through the NDPE policy implementation across its supply chain, FS is committed to conserve at least 224,000 hectares of native forest through its suppliers, out of which 28,000 are in excess of Legal Reserve and would otherwise be potentially subject to legal deforestation.
To deal with the shortage of biomass for power generation in the coming years, FS also aims to secure at least 96% of its biomass demand from renewable biomass by 2027. The business will therefore not be relying on sawmill waste and agricultural residues, both potentially linked to environmental and social issues. To secure the sustainability of its biomass, FS will establish partnerships with eucalyptus and bamboo producers, aiming to convert 40,000 hectares of degraded lands in MT into renewable biomass plantations. Intensifying degraded land means reducing further deforestation pressures in neighbouring areas.
In partnership with local actors, FS will also engage with suppliers and assist them in restoring 5,000 hectares of degraded native forest by the end of the loan tenure.
The environmental targets of this project include:
- 224,000 hectares of forest conserved;
- 40,000 hectares of agriculturally intensified land;
- 5,000 hectares of forest restored.
SOCIAL INCLUSION
FS aims to include in its supply chain at least 15 smallholders that are currently not compliant with the Brazilian Forest Code and are subject to backlisting due to deforestation or Forest Code non-compliance. FS will assist these farmers in making progress towards environmental compliance.
04 / ASSESSING RISKS
ENVIRONMENTAL & SOCIAL RISK ASSESSMENT
Various expert consultants, namely ERM, Imaflora, and Proactiva, have conducted E&S due diligence and gap analyses of FS’ supply chain and main operations.
- ERM was engaged to perform an Environmental and Social Impact Assessment and IFC PS gap analysis. ERM’s recommendations served as a basis for the development of FS’ ESAP for it to be compliant with IFC PS.
- Imaflora conducted a screening of biomass availability – particularly in light of purchases of wood residues from local sawmills – and potential linkages to deforestation in MT, recommending mitigation options.
- Proactiva analyzed potential human rights risks and IFC PS 5 and 7 triggers related to possible purchases of corn from farms located on indigenous lands. The preliminary understanding of local and legal contexts allowed for the identification of risk mitigation pathways.
FS has also commissioned a Climate Risk Analysis, which concluded that the exposure of its assets to future climate hazards is high: temperatures and average precipitation are expected to rise in MT in the next decades. Based on the results of the climate hazards assessment, the consultancy elaborated a Climate Change Adaptation Plan. FS is working to integrate this in its strategic planning and has already started implementing some of the recommended activities.
