Photo: People in Pyongyang watch Kim Jong-un on North Korean TV, 2015. Credit: Wikimedia Commons - Photo: 2021

Why Finance in Common’s Big Promises Should be Seen with Caution: Examples from Brazil

By Iara Pietricovsky & Livi Gerbase

Iara Pietricovskyis, current President of FORUS – International Forum of NGO Platforms and co-director OF INESC – Institute of Socioeconomic Studies, at the Brazilian NGO Association (Abong). She has represented the institution in international fora, especially the socio-environmental and indigenous areas, and has a degree in Social Sciences, specializing in Anthropology. Livi Gerbase is the policy adviser for the Brazilian Institute for Socioeconomic Studies – INESC, working in the area of public budgeting, tax justice and monitoring of international financial institutions. She holds a master’s degree in International Political Economy from Federal University of Rio de Janeiro.

BRASILIA (IDN) — Hundreds of Public Development Banks (PDBs) gathered October 19-20 in Rome last week in the second Finance in Common Summit (FiCS), a new meeting of sub-national, national, and multilateral banks from all over the world.

This year’s theme was agriculture, and what came out of it, according to the official statement, was a specific effort to mobilize PDBs for a transition of food systems compatible with climate and biodiversity imperatives.

Civil society is apprehensive about the likelihood of a change coming from these summits, because even though the pandemic showed us the need to rethink, among other things, finance for development, nothing has really changed so far.

Today, development banks collectively spend more than $2 trillion a year, financing roads, power plants, factory farms, agribusiness plantations, etc., with little regard to the socio-environmental impacts of their investments. In light of this year’s theme, it is important to stress that it is estimated that $1.4 trillion goes to agriculture and the food sector alone.

We are talking, of course, about public money, which comes out of government revenues, so it should, by principle, respect human rights, and, at best, promote sustainable development and help us achieve the Sustainable Development Goals (SDGs).

Nonetheless, nowadays the investments are chosen within the idea of channelling private capital. This is called the cascade effect, in which the public banks lead the way to private institutions, taking all the risks away from the private banks and corporations. So public investments have become market-oriented, even though the public interest should be prioritized.

Even though this is a very important topic—the number of PDBs and the growing amounts they spend every year—it is still very unknown for the majority of people. Thus, it is fundamental to keep highlighting case studies to better understand what is going on in terms of finance for development.

Here are some examples extracted from the Brazilian reality, a country that often appears at the centre of the debate on sustainable development due to its huge natural resources and, at the same time, its big push for agribusiness, which is being sponsored by the president in office, Jair Bolsonaro.

Firstly, regarding the prioritization of investments, i.e., what is being currently decided to be invested on, a study made at the beginning of the year analyzing Multilateral Development Banks investments in Brazil in 2020 concluded that the most favored sectors by the banks were governance, finance, and infrastructure.

To the detriment of priority areas in the fight against the pandemic, such as water and sanitation, education, and health, this is a manifestation of the cascade effect.

Furthermore, the research reveals that the investment projects did not meet the necessary minimum criteria to ensure that their implementation does not worsen the social and environmental situation in the country, since half of them did not include risk analysis.

But what happens when the risk mitigation is not properly carried out? The simplest answer is that supposedly green investments prove themselves to cause a lot of harm to local communities and the environment.

That is the case, for example, of an investment executed by the International Finance Corporation (IFC), the World Bank’s private branch, in 2015. IFC invested in a company in the heart of the Amazonforest to promote waterways and ports to substitute truck traffic in the soybean’s exportation in Brazil.

What seems like a sustainable idea has led to the population’s and the forest’s harm, as indicated by a study showing the spread of soy everywhere, from the bellies of the fish in the Tapajós River to the air people breathe, injuring indigenous peoples, communities, and fishermen.

IFC is, seven years after the investment, now recognizing that it has fallen short and working on a Corrective Action Plan to oversee the company, but harm is mostly already done.

Looking to more current events, two recent investments in relation to “sustainable agriculture” have raised new flags. First, the IFC has recently invested in Amaggi, one of the leading Agribusiness companies in Latin America today.

The company has an ongoing conflict with the Rikbaktsa ethnic group, who have been fighting against the installation of a hydroelectric plant on the Juruena River, whose studies ignored the impact on indigenous lands and the flooding of an archaeological site.

Besides, Amaggi has already been notified 20 times with an Issuance of Assessment Notice by the Brazilian Institute for the Environment and Natural Resources (Ibama), the most recent one being about the use of toxic substances that harm the environment.

A second possible investment that raised concerns is a $43 million IDB Invest loan for Marfrig Global Foods, the world’s second largest beef company. According to an investigation by Global Witness, between 2017 and 2019, Marfrig bought cattle from a total of 89 ranches responsible for over 8154 acres of illegal deforestation.

IDB’s own assessment says that investment in this company carries many environmental and social risks “mainly related to Marfrig’s supply chain, including deforestation, impacts on landscapes, ecosystems and biodiversity, child/forced labor, and inadequate environmental, health and sustainability (EHS) practices by the Company’s primary suppliers.”

This investment is opposed by over 200 organizations around the globe and was recently criticized in The Guardian.

Both the aforementioned investments are labelled by the banks as being sustainable and added to their green portfolio. However, as a matter of fact, they look a lot like greenwashing: the promotion of business as usual with a green facade as a way of opening the door to more possible investors.

Those are just some Brazilian examples—there are hundreds of them all over the world that show that the PDBs, despite being public, are concerned mostly with profit margins and that the safeguards fail to make sure the banks will do no harm in their investments most of the time.

This is why, in the Finance in Common Summit, there were many demonstrations by communities, NGOs, and movements asking banks to stop funding agribusiness.

In order to head towards substantial change in the way business is made, the first step is to make sure that certain lines will not be crossed, and this is the kind of commitment that we need from the PDBs.

In the Summit, the banks have lost the opportunity to, together with civil society, face the complex agenda and challenges that lie ahead. For now, this second FIC continues on the basis of beautiful promises, with little progress in the expansion of dialogue with civil society and groups usually excluded from the decision-making table. [IDN-InDepthNews – 24 October 2021]

Image credit: Finance in Common 2021

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