How green bonds hit the ground: Notes from Brazilian agribusiness
Dam of a Small Hydroelectric Plant in the Juruena river basin, Source: Guilherme Ruffing/OPAN archive
Over the last decade, many international development agreements, such as the United Nations’s Sustainable Development Goals and Paris Agreement enacted in 2015, have placed the private and financial sectors as essential partners in financing climate change mitigation and adaptation. At the same time, shortage of public resources in many national contexts is highlighted to justify financial arrangements that seek to mobilize the banking and capital market sectors around the transition to a low-carbon global economy. In this scenario, a new financial tool has emerged with the promise of meeting both sustainability goals and investors’ appetite for new assets: green bonds.
Green bonds are debt instruments, the proceeds of which must be used to finance projects, activities or assets associated with generating environmental benefits. This financial product works as a loan contract whereby investors lend a certain amount of money to a bond issuer (such as countries, public bodies, companies or multilateral organizations) seeking to access capital. Through such a contract, the investors expect to receive, upon maturity of the bond, the principal amount invested plus periodic interest paid by the borrower. On the issuers’ side, green bonds have emerged as an option for attracting long-term investments in the capital market as an alternative to public and bank credit. On the investors’ side, they have been established as a means of diversifying investment portfolios. Moreover, promoters of the green bond market claim that this instrument can guarantee greater transparency in financial operations, as it mandatorily allocates resources to environmentally sustainable ventures.
The process of labelling a bond as “green” is a voluntary initiative, hence an important question regarding the green bond market is how to ensure that the capital generated through it will be allocated to sustainable initiatives. In an attempt to guarantee greater integrity and credibility to this new market, corporate governance procedures have been developed to regulate and promote the standardization of its operations. The Green Bonds Principles established by the International Capital Market Association and the certification procedures developed by the non-profit organization Climate Bonds Initiative, both launched in 2014, currently stand out in this regard. However, these types of self-regulatory instruments create totalizing assessments (as they are intended to be applied globally), such as a general cut-off date for ending deforestation, and the privilege given to reducing carbon emissions over other relevant issues involving environmental sustainability, often missing the nuances of local contexts. The case of Brazilian agribusiness is exemplary in this sense.
The sector's involvement in the green bond market has been rather slow. The few labelled bonds issued focus on very restricted activities and projects, such as the production of biofuels or the purchase of biofertilizers, contrasting with the complexity of agribusiness production chains and their impact on carbon emissions in the country. Besides, these agribusiness ventures are closely linked to intricate socio-political contexts, often engaging in land conflicts with indigenous peoples, traditional quilombola communities and small farmers. Still, through the mechanisms that have assured the “greenness” of a bond, the effects of these local dynamics are not deeply considered. As pointed out to me by technicians responsible for preparing this type of verification report, these instruments consider global parameters or several metrics constructed within a European context. The guidelines, benchmarks and thresholds against which the framework of a green bond is analysed are thus aligned with standards that do not reflect country-specific dynamics.
Does the transparency in the use of resources sought by investors therefore allow us to see everything? Or, as anthropologist Catarina Morawska has been discussing, are we rather dealing with sociotechnical artefacts that produce opacities over financial operations? In their willingness to achieve standardized models and measures, devices such as taxonomies, guidelines, frameworks and project eligibility criteria also obliterate certain connections between agribusiness chains and territorial conflicts that go far beyond climate issues and farm gates. According to my interlocutors in this market, the project for a renewable energy production plant that simultaneously deforests hundreds of hectares in the Amazon region cannot be understood as ‘sustainable’. But it is not uncommon to find what analysts have described as “green dots in a brown sea” when it comes to green bonds. As I describe below, one of the labelled bonds issued by a Brazilian agribusiness corporation helps to demonstrate these controversies.
Fragmented sustainability: when renewable energy production meets agribusiness
Amaggi is one of the main agribusiness corporations in Brazil, occupying a central position in the grain and fibre supply chains in the country and in Latin America. The company has operations in all stages of the production of commodities such as soybeans, corn and cotton, from grain cultivation and seed origination, to processing, fertilizer production and trading. Amaggi also carries out logistics operations, managing warehouses and ports, road and river transport services, and produces electricity from small hydroelectric and solar plants. Over the decades, the corporation has been associated with cases of deforestation, intensive use of pesticides and infrastructure projects that have posed major environmental risks and threats to indigenous territories. In recent years, however, Amaggi has been adopting initiatives that aim to improve the sustainability of its supply chain. Through mechanisms to track the origin of grains purchased from suppliers, for example, the company seeks to exclude those grains grown in areas recently deforested or embargoed due to land conflicts. According to its 2022 Progress Report, Amaggi aims to achieve deforestation and conversion-free soybean and corn supply chains, 100% monitored from field to port, by 2025.
As a financing strategy for activities related to sustainability goals, in 2021 the company raised US$ 750 million from foreign investors through a sustainability bond (adding both characteristics of a green bond and social goals to the use of proceeds). Until 2028 these resources must be directed to a wide range of activities, such as the purchase and sale of certified soybeans, responsible grain origination, natural resource preservation projects, socioeconomic empowerment initiatives, and renewable energy production. A closer look at the latter – renewable energy production – offers a glimpse into the type of opacity produced by this financial instrument.
Part of the resources raised by the sustainability bond were used for the construction of the Small Hydroelectric Plant (SHP) Jesuíta, the sixth powerplant implemented by Amaggi in the Juruena river basin, northwest of Mato Grosso state. The Juruena basin is made up of a large network of rivers that originate in the Chapadão dos Paresi in the Brazilian Cerrado (a Savanna-like biome) and flow through more than 19 million hectares until they join the Tapajos river in the Amazon region. The SHP Jesuíta project was announced as an initiative to produce renewable energy for sustainable agriculture, supplying the company’s own ventures, while also selling the surplus to the Brazilian national supply network.
However, as shown by the monitoring of hydroelectric projects in the Juruena basin, carried out by the indigenist organization Operação Amazônia Nativa (OPAN), the Jesuíta SHP is just one of 179 projects in operation or planned for this complex of rivers. According to OPAN, the cumulative impacts of the sequential installation of hydroelectric plants have not been considered in the licensing studies that support these projects. Although they are presented to investors as independent projects to produce clean and renewable energy, the large number of plants has generated profound ecological imbalances and social impacts for the region’s inhabitants. This includes more than a dozen indigenous communities and 25 rural settlements of small family farmers. The Juruena Vivo Network, for example, has been reporting that the Enawenê-Nawê people no longer have enough fish for food and ritual practice. Similarly, the tutãra, a mollusk central to the Rikbaktsa people’s social organization, is at risk of extinction.
Hydroelectric plants in the Juruena river sub-basin (August 2022), Source: OPAN archive
This extensively damaging impact produced by the sequential installation of hydroelectric plants is not captured when they are evaluated as detached sustainable projects and deemed compliant with the generalizing guidelines and criteria that regulate the green bond market. “On the ground” then, these projects lose the transparency that investors aspire to by leveraging green bonds, and remain opaque. For OPAN, this sort of operation reflects a model of agribusiness expansion that generates pressures for infrastructure and for removing bureaucracies in environmental licensing. Artefacts produced to assure transparency in investments, such as those that self-regulate the green bond market, can then be aligned with these pressures. The result is territorially disembedded analyses of complex production chains and of their relationship with local socio-ecologies. This has not gone unnoticed by promoters of sustainable finance, who are debating integrated approaches that aim to be more attentive to situated landscapes. But it is yet to be seen how these new instruments will hit the ground.
Vanessa Perin is a postdoctoral fellow in the Graduate Programme in Social Anthropology, Federal University of São Carlos, Brazil, and was a visiting researcher at the School of Business and Management, Queen Mary University of London in 2023-24.