BRASILIA/SAO PAULO, April 1 (Reuters) – After struggling for years to track and punish deforestation across the world’s largest rainforest, Brazil is recruiting new allies in the fight to protect the Amazon: bank executives.
A new law that goes into effect on Wednesday requires banks to check whether applicants for rural loans have deforestation on their farms using government tools that provide data on them based on satellite images.
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If bank managers see clarification from 2019 on the Amazon or forests, farmers who apply for a rural loan financed by the government must show proof of permission to cut down forests for their loans to be approved.
Andre Lima, who leads efforts to combat deforestation at Brazil’s Ministry of the Environment, said: “We turned every bank manager who deals with subsidized debt into an inspector of illegal deforestation.
The new policy has drawn criticism from Brazil’s powerful agribusiness sector, whose deep pockets and growing opposition to the government could sway October’s election. The Ministry of Agriculture itself argued for the repeal of this law late last year.
But advocates argue that the government needs more weapons in its deforestation battleground. As ground operations become more difficult, legislative change aims to bring loggers to heel by blocking billions of dollars in subsidized public debt.
The new law will cover about $53 billion in loans to farmers with government subsidies, or about a third of rural loans in Brazil, central bank data show.
It will also affect the fast-growing type of private loans for farmers known as agribusiness letters of credit, which is a popular asset for individual investors who are exempt from tax, because almost half of it goes through the same channels of rural credit in banks. By 2025, letter of credit investments had grown to $114 billion. Farmers use the money to invest in their farms and cover operating costs, such as planting new crops.
“This shows the sector: look, the financial system can no longer be a partner in these (deforestation) activities,” said Juliano Assuncao, executive director of the Climate Policy Initiative.
The plan and its return show the commitment of President Luiz Inacio Lula da Silva to one of his most important global commitments: ending deforestation in Brazil by 2030 – a major goal in a country that still records the loss of tropical forests every year.
FARMERS BREAK THE WALL
Denying public credit to some farmers in Brazil’s fast-growing agricultural frontier could spark strong opposition from powerful rural traders who are already suspicious of the leftist Lula, and hurt his appeal in states such as Mato Grosso and Goias as he runs for re-election.
The new policy includes a provision that prohibits financial credits to farms if those funds would be used to remove natural vegetation, even where farmers have permission to cut down forests.
“You can still do it, but with your own money, not with public money,” said Lima.
Brazil’s National Association of Agriculture and Livestock (CNA), the largest farm lobby, said it would work to change the law in Congress, which has a powerful farm lobby.
In a statement, the group said that government tools that use satellite images to detect deforestation are flawed and could lead banks to unfairly deny loans.
Beyond the technical limitations, CNA argued in a statement that the new policy “shifts responsibility to a financial system that is not theirs.”
But previous government regulations had already included banks in the environmental policy. In 2008, the government banned loans to farms that received environmental sanctions. In 2024, a new law prevented farms located in protected areas from receiving credit.
Financial industry groups have not complained about the new law, saying the move reinforces performance commitments they already have.
Banking representative Febraban said in a statement that the measures strengthen its operational commitment and ensure that the bank’s operational decisions are made safely.
The move could reduce the risk for banks by rejecting loan applications from farmers who may later be blocked from supply chains due to environmental concerns, said a senior bank executive who asked not to be identified to discuss internal processes.
When environmental violators face boycotts or blacklists, the bank said, “my risk of not being reimbursed increases.”
Reporting by Marcela Ayres and Lisandra Paraguassu in Brasilia, Manuela Andreoni in Sao Paulo Editing by Brad Haynes and Aurora Ellis
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