BRASILIA/SAO PAULO, April 1 (Reuters) – After years of struggling to track and punish deforestation in the world’s largest rainforest, Brazil is recruiting a new ally in the fight to protect the Amazon: bankers.
New rules that take effect on Wednesday require banks to use a government tool that provides data based on satellite imagery to check whether rural loan applicants have had deforestation on their farms.
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If bank managers discover that deforestation has occurred in the Amazon or other forest areas since 2019, farmers applying for government-funded rural loans will have to show proof of deforestation permits to have their loans approved.
“We have turned all bank managers who handle subsidized loans into inspectors for illegal deforestation,” said Andre Lima, who leads the fight against deforestation at Brazil’s environment ministry.
The new policy has sparked a backlash from Brazil’s powerful agribusiness sector, whose deep pockets and growing opposition to the government could decide October’s elections. The Ministry of Agriculture, Forestry and Fisheries itself advocated for the abolition of this rule late last year.
But supporters say the government needs more weapons to fight deforestation. The rule change is aimed at cornering loggers by withholding billions of dollars in subsidized public credits as on-the-ground enforcement becomes more difficult.
The new rules will cover about $53 billion in federally subsidized loans to farmers, about a third of Brazil’s rural credit, according to central bank data.
It would also affect a burgeoning form of private financing for farmers known as agribusiness letters of credit. This is because it is a popular asset for individual investors who are exempt from income tax, and about half of it goes through the same credit route as local banks. By 2025, investment in letters of credit has increased to $114 billion. Farmers use the money to invest in their farms and cover operating costs such as planting new crops.
“This is a signal to the industry: the financial system will no longer be a partner in these (deforestation) activities,” said Juliano Asuncao, executive director of the Climate Policy Initiative.
This policy, and its reaction, reflects one of President Luiz Inacio Lula da Silva’s most prominent global promises: his commitment to end deforestation in Brazil by 2030. This is an ambitious goal in a country that records the highest loss of tropical forests each year.
Farmers rebel
Denying public credit to some farmers on Brazil’s rapidly expanding agricultural frontier could further intensify opposition from local authorities already skeptical of the left-wing Lula and undermine his appeal in agricultural states such as Mato Grosso and Goias, where he is seeking re-election.
The new policy includes a provision that blocks subsidy loans to farmers if the funds are used to clear native vegetation, even if the farmers have permission to clear the forest.
“You can still do it, but with your own money instead of public money,” Lima said.
Brazil’s National Agriculture and Livestock Confederation (CNA), the largest farm lobby group, said it would work to change the rules in Congress, which has a powerful farm caucus.
The group said in a statement that a government tool that uses satellite imagery to detect deforestation is flawed and could lead to banks unfairly withholding credit.
Beyond technical limitations, the CNA argued in its statement that the new policy “shifts responsibility to the financial system and not to them.”
However, previous government regulations already involved banks in environmental policy. In 2008, the government blocked loans to farms that received environmental fines. In 2024, new rules mean that farms located in protected areas are no longer eligible for financing.
Financial industry groups have not complained about the new rules, saying the measures strengthen their already stated sustainability commitments.
The move will strengthen sustainability efforts and ensure that decisions about banks’ operations are made safely, bank lobbyist Febraban said in a statement.
An executive at a large bank, who requested anonymity to discuss internal processes, said the move could reduce banks’ risk by rejecting loan applications from farmers who could later be blocked from the supply chain due to environmental concerns.
If environmental violators are boycotted or blacklisted, “the risk of non-repayment increases,” the banker said.
Reporting by Marcela Ayers and Lisandra Paraguas in Brasilia; Reporting by Manuela Andreoni in São Paulo; Editing by Brad Haynes and Aurora Ellis
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