Brazil enlists bank managers to combat deforestation

After struggling for years to track and punish deforestation across the world's largest rainforest, Brazil is recruiting new allies in the battle to protect the Amazon: bank managers. A new rule taking effect on Wednesday requires banks to check if rural loan applicants have any deforestation on their farms using government tools that provide data about them based on satellite imagery, reported Reuters. If bank managers detect any clearing since 2019 in the Amazon or woodlands, farmers applying for government-funded rural credit must show proof of deforestation permits to get their ⁠loans approved. "We turned every bank manager who handles subsidized credit into an inspector of illegal deforestation," said Andre Lima, who leads efforts to fight deforestation in Brazil's Environment Ministry.

The new policy has drawn blowback from Brazil's powerful agribusiness sector, whose deep pockets and growing opposition to the government may shape October elections. The Agriculture Ministry itself argued to scrap the rule late last year. But advocates argue that the government needs more weapons in its anti-deforestation arsenal. As on-the-ground enforcement has become more difficult, the rule change aims to bring deforesters to heel by withholding billions of dollars of subsidized public credit, said Reuters.

About 17% of all rural lending disbursed from 2020 to 2024 went to farms on land deforested between 2020 and 2023, according to an ⁠analysis of public data and satellite images by the Climate Policy Initiative, a think tank in Rio de Janeiro. The new rule will cover about $53 billion in loans to farmers with federal subsidies, or roughly a third of rural credit in Brazil, central bank data show.

It will also affect a fast-growing type of private lending for farmers known as agribusiness letters of credit, a popular asset for individual investors exempt from income taxes, because around half of it goes through the same rural credit channels in banks. By 2025, investment in letters of credit had grown to $114 billion. Farmers use the funds to invest in their farms and to cover operational costs, like planting new crops.

"This signals to the sector: look, the financial system will no longer be a partner in these (deforestation) activities," said Juliano Assuncao, the executive director of the Climate Policy Initiative. The policy and its blowback reflect President Luiz Inacio Lula da Silva's commitment to one of his most globally salient pledges: to end deforestation in Brazil by 2030 - an ambitious goal in a country that still records the most tropical forest loss every year.

Denying public credit to some farmers on Brazil's fast-expanding agricultural frontier may stir deeper resistance from rural ⁠powerbrokers already skeptical of the leftist Lula, and hurt his appeal in farm states such as Mato Grosso and Goias as he runs for re-election. The new policy includes a provision blocking subsidized credit to farms if those funds would be used to clear native vegetation, even where farmers have permits to deforest, reported Reuters.

"You can still do it, but with your money, not with public money," Lima said. Debate over the new rule may wind up in Congress, where Lula has already lost many battles over the environment, including over a law that gutted the country's permitting process.

Brazil's National Confederation of Agriculture and Livestock (CNA), the biggest farm lobby group, said it will work to change the rule in Congress, which has a powerful farm caucus. In a statement, the group said that government tools using satellite images to detect deforestation make mistakes and could lead banks to withhold credit unfairly.