Faria Lima sells bonds indicating investment in deforesters for R$70 million

Originally posted by Reporter Brasil.

Producers fined for illegal deforestation in Nova Ubiratã (MT) are listed as potential clients to benefit from the sale of Agribusiness Receivables Certificates (CRA) linked to Banco Genial; company denies doing business with offenders

RURAL PRODUCERS fined for illegal deforestation and whose farms overlap a Conservation Unit, all located in the Amazon, are mentioned among the potential beneficiaries of the sale of Agribusiness Receivables Certificates (CRA) linked to the Genial Group’s businesses. Headquartered in Faria Lima, the country’s main financial hub, the group controls more than R$210 billion in assets and is currently among the country’s one hundred largest banks. 

CRAs – private securities that finance activities in rural areas – were launched on the market in December 2023 by Genial Investimentos, a company of the Genial Group. The initial forecast for this issue is to offer investors up to 70,000 securities worth R$1,000 each, totaling R$70 million, with a maturity of 10 years.

According to financial market sources heard by Repórter Brasil , the negotiation prospectus – a document with details of the financial product offered – indicates that the funds raised from the sale of these CRAs will be used by Banco Genial, also part of Grupo Genial, to offer credit and financing to 37 rural producers and cooperatives.

This information is recorded in an annex to the public offering of the bonds, to which Repórter Brasil had access. Among these 37 clients are farmers with a history of deforestation (read cases below).

The annex “details the rural producers or agricultural cooperatives that can receive the resources from the operations described in the contract,” explains Maria Eduarda Senna Mury, director of legal research and litigation at Harvest, an organization that proposes legal actions against climate change, who analyzed the prospectus at the request of the reporter. “It functions as a specific and complete list of these beneficiaries, ensuring that the resources will be directed only to those previously identified and authorized,” she says.

Repórter Brasil presented Banco Genial with cases of producers with environmental irregularities listed in the appendix. The institution stated that the “future allocation of resources by Banco Genial described in the prospectus schedule is indicative and non-binding,” and that “Banco Genial has a diligent process for evaluating operations, which considers several aspects, and did not carry out any type of credit and/or financing operation with the 37 rural producers mentioned” in the prospectus.

Spraying of responsibilities

The negotiation of these CRAs was structured based on credit rights that Banco Genial is due to receive. The credit rights were then transferred to Companhia Província de Securitização, a securitization company responsible for “transforming” the debts into marketable financial securities. The company did not return attempts to contact the company.  

The dispersion of responsibilities among various financial agents – such as securitization companies, banks and investors – makes it difficult to track the legality of the properties involved in the transaction, says Maria Mury, from the organization Harvest. “This fragmentation allows areas with environmental problems to continue generating revenue, without investors or the public being fully aware of the risks involved,” she says.

“There should be a rigorous analysis at the beginning of the operation, at the time of structuring the bonds, to ensure that the properties comply with all legal and environmental requirements,” adds Leonardo Gava, senior manager at the British organization Climate Bonds, which certifies international financial bonds. 

From Faria Lima to the Amazon

The prospectus released by Genial Investimentos lists the state registrations of the farms of its 37 clients. Thus, it was possible to identify among them rural producers who appear on the public list of embargoes of Ibama (Brazilian Institute of Environment and Natural Resources) or Sema-MT (Environmental Secretariat of Mato Grosso) due to illegal deforestation of the Amazon rainforest. 

By law, economic activities are prohibited in embargoed areas. The areas identified in this condition by Repórter Brasil are located in the same municipality and on property with the same name as those registered in the state registrations of the prospectus.

One of them is the Bianchin Farm, owned by Amarildo Bianchin and Nilson José Bianchin. The property has three embargoes registered by Ibama in 2013 and 2016 for illegal deforestation of a total of 4,994 hectares.

In 2022, Amarildo Bianchin was the target of a Public Civil Action filed by the MPMT (Public Prosecutor’s Office of Mato Grosso) for deforestation of 908.5 hectares on the same property. Part of this deforestation, which occurred between 2009 and 2017, had already been identified by Ibama. The MPMT wants the producer to pay compensation of R$4.6 million for the environmental damage caused. Bianchin is contesting the action in court. 

The producer was also responding to another action by the MPMT for failing to comply with an embargo on 1,295 hectares registered by Ibama in 2013 at Fazenda Bianchin. A 2019 preliminary court decision determined that he comply with the sanction and present a recovery plan for the degraded area. 

Another case of environmental irregularities among the clients mentioned in Genial’s prospectus involves producer Francisco Afonso Guollo. The São Francisco de Assis Farm, registered in his name, has two embargoes for illegal deforestation. The first was issued by Ibama in 2017, which identified the unauthorized removal of 108.7 hectares of native forest. In 2021, it was Sema-MT’s turn to embargo 1.7 hectares on the farm. 

In 2019, Guollo had already become a defendant in a Public Civil Action brought by the MPF (Federal Public Ministry) for the illegal deforestation of 64.8 hectares on the São Francisco de Assis Farm. The Federal Public Ministry requested compensation totaling just over R$1 million and the case is still being disputed in court.

The Bataguassu Farm is also in Francisco Guollo’s name. The property overlaps with the Ronuro River Ecological Station, a state conservation unit with full protection created in 1998. Since 2016, Guollo has been trying to obtain authorization in court to raise cattle and grow soy and corn on the property. 

According to the lawsuit, consulted by Repórter Brasil , the producer deforested areas within the property in 2001, years after the creation of the conservation unit. In this type of protected area, the suppression of vegetation is prohibited, as are all economic activities, with the exception of those for educational and scientific purposes. In 2021, the Court denied Guollo’s request. 

Both a state registration for the São Francisco de Assis Farm and one for the Bataguassu Farm are listed in the prospectus released by Genial Investimentos. 

The Dois Irmãos Farm has 92.4 hectares that have been embargoed by Ibama since 2015. The penalty was registered in the name of Nelson Antonio Heuert, the owner of the property. In this case, too, the prospectus includes a state registration in Heuert’s name and with the same name as the deforested farm. 

A lawsuit filed by the MPMT demands that the producer pay compensation for material damages and reforest the degraded area. Convicted in the first instance, Heuert appeals the decision. In 2019 and 2023, new embargoes were carried out on the Dois Irmãos Farm, this time by Sema-MT: the first of 28.9 hectares and the second of 76.2 hectares, both for illegal deforestation of native vegetation. 

Repórter Brasil contacted the three rural producers mentioned above, but none of them responded to the questions sent by the time this report was published. The space remains open for future comments.

Experts demand regulation

CRAs are financial market securities used to raise funds to finance agricultural activities. At one end of the operation are investors attracted by the exemption from income tax and the higher profitability than other types of fixed income. At the other end are rural landowners, who take on debt to finance the harvest. These debts are securitized, that is, converted into securities that can be traded. 

In Brazil, the Central Bank vetoes the granting of rural credit to properties with environmental embargoes . These guidelines, however, do not apply to private debt securities, such as CRAs, which are regulated by specific rules of the Securities and Exchange Commission (CVM).

Maria Eduarda Mury, from the Harvest organization , states that it is the CVM’s responsibility to establish environmental rules for the issuance of agribusiness bonds. “The agency needs to create its own regulations or make subsidiary application of the Central Bank’s Credit Manual,” she suggests. 

Tasso Azevedo, coordinator of the Mapbiomas project , suggests that the Rural Environmental Registry (CAR) be mandatory for the issuance of agribusiness titles, in order to ensure that only properties without embargoes or environmental irregularities can participate. “This would allow for greater transparency and control, preventing embargoed areas from benefiting from financial resources,” he points out. 

In response to Repórter Brasil , the CVM stated that securitization companies are required to ensure the environmental regularity of bond issuances and that, in the event of alleged non-compliance, the companies will be subject to sanctions. The agency also reinforced that it is “permanently modernizing the regulation and supervision” of bond trading in the capital markets.