Statement on serious concerns over FP212 – &Green Fund: Investing in Inclusive Agriculture and Protecting Forests (FMO)


GCF Observer Network of Civil Society, Indigenous Peoples, and Local Communities

Serious concerns over FP212
&Green Fund: Investing in Inclusive Agriculture and Protecting Forests (FMO)

To Board Members of the Green Climate Fund:

During B.36, the GCF Board will be considering whether to approve FP212, “&Green Fund: Investing  in Inclusive Agriculture and Protecting Forests”, submitted by the Dutch Development Financing  Company (FMO). A decision to approve this proposal would risk impacts that are antithetical to the  just climate action the GCF seeks to support and create a substantial reputational risk for the GCF.

As civil society representatives, with extensive experience in reviewing projects seeking GCF  funding, we consider this programme to be highly dangerous. Our insights and deep concerns come  from our thorough review of the official, publicly disclosed documentation of the funding  proposal, direct communication with the FMO, and conversations with local communities and  organizations that are close to the territories where the programme is to be implemented. This  programme should not be eligible for any climate funding and much less be presented as a climate  investment deserving GCF support, as it does not comply with the most basic mandate of this  progressive and transformational Fund.

In this funding proposal, FMO requests a contribution of US$189.35 million from the GCF, with  US$180 million in loans and US$9.35 million in grants, to support the &Green Fund. It also identifies  co-funding of US$792.27 million from other sources, thus classifying the program as ‘large’. If  approved, this would represent a huge investment NOT in transformative or paradigm-shifting  climate action, but rather in business-as-usual practices that have proven to undermine  environmental integrity, effectively greenwashing the very practices that must stop if we want to  have any hope of addressing the climate crisis.

The programme seeks to transform the main production chains of tropical commodities (livestock,  soy, coffee, palm oil, rubber, cocoa and firewood/timber) to make them socially inclusive and free  of deforestation, so that they are more commercially viable and replicable on a large scale. To this  end, FMO will offer through the “&Green Fund”, which already exists, financing and technical  assistance to large agribusiness companies in Brazil, Cameroon, Colombia, Côte d’Ivoire, Democratic  Republic of Congo, Ecuador, Gabon, Indonesia, Laos, Liberia and Zambia.

It is well known that large-scale commodity production chains are particularly problematic  environmentally, climatically and socially, and are one of the main drivers of deforestation in  tropical forests. It is also no secret that some of the biggest and most profitable companies that  produce these products have been the driving forces behind illegal deforestation that public policies  in all these countries have not been able to decrease, let alone stop.

It is therefore surprising and quite disturbing that the “&Green Fund” portfolio currently funds the  major players in the agricultural market who, as extremely profitable, large transnational  companies, do not encounter obstacles in accessing traditional financing for their operations from the banking and financial system. (This was pointed out by the ITAP in paragraph 44 of its assessment of the programme). As such, the implementation of sustainable practices by these  companies is not determined by lack of access to funding, but rather by the willingness to do so.

In this regard, many of the companies who will be beneficiary of the programme have evidenced  little to no willingness to implement sustainable practices, and instead have shown a poor  environmental record. For example, the Brazilian company Marfrig is the second largest animal  protein processor in Brazil and one of the beneficiaries of the “&Green Fund”. Marfrig has been  accused several times of fueling illegal deforestation (see, for example, here and here). The IDB even  canceled a planned investment to Marfrig given the risk it would violate the IDB’s sustainability  policies. Moreover, two of the Indonesian companies that are part of the program proposal, PT  Hilton Duta and PT Lestari Utama, have already been accused of illegally growing palm oil in  protected forest areas.

Additionally, the proposed programme does nothing to acknowledge and address some of the main  challenges and dynamics that promote illegal deforestation in commodity production chains, such  asthe practice of ‘cattle laundering’. Cattle laundering, very common in some of the target countries  -particularly Brazil and Colombia-, refers to fattening cattle in “dirty” ranches that have been illegally  deforested -including deforestation in protected areas-, only to move them to “clean” ranches  before they go to the slaughterhouses. This practice obscures the damage the cattle have caused,  and has proven extremely difficult for both companies and supervisory bodies to trace. In this sense,  governments might have strong regulations on illegal deforestation in place, but lack the capacity  to track down and monitor the extremely complex dynamics which sustain it. On the other hand,  private sector initiatives on their own have shown little evidence to have the capacity to carry out  this task on their own, as it would require an actual strengthening and strong collaboration with the  public sector to respond to this problem. Failing to acknowledge and address this, while funding companies that have been accused of it, gives us no guarantee that FMO will properly prevent it in  the context of the” &Green Fund”.

The due diligence processes to be implemented within the scope of the programme, are weak,  especially for a I-1 category high risk financial intermediation approach. As this is a programme that  intends to fund subprojects post funding proposal approval, the GCF will have little opportunity to  oversee the type of subprojects that will be implemented with its resources. Moreover, the  proposed audit process seems to only be applied in the initial stages of the subprojects and not  sustained throughout subproject implementation. As a guarantee that companies will comply with  environmental and social safeguards, companies must publish non-deforestation policies. However,  there are no particular measures envisaged by the “&Green Fund” to cancel the provision of funds  if companies engage in illegal deforestation and/or other illegal practices in their activities. In our  meeting with the FMO they openly said that a breach in the action plan of the beneficiary companies  would render a reputational implication, not necessarily a financial one.

Finally, we were contacted by Duda Salabert, Brazilian congresswoman, who is a member of the  Commission on Environment and Sustainable Development of the Legislative Chamber of Brazil,  who was deeply worried by this programme. She has placed an indicação parlamentar”, which is a  ‘parliamentary recommendation’ sent from the Legislative to the Executive power of State,  regarding a specific matter. In her statement, addressed to the Ministry of Finance (where the  Brazilian NDA is located), she recommends opposing the programme. In addition to some of the  main concerns we have raised about the project here, she also questions the “country ownership” of the programme, considering that the non-objection letter from the Brazilian government was issued in 2022 during Jair Bolsonaro’s tenure, which was marked by the dismantling of  environmental and climate policies in Brazil.

We have heard the Board assert before that scarce climate funds coming from the GCF should not  be allocated to financing large companies that face no obstacles in accessing funding. This is a clear  case of missing additionality in providing GCF financial support simply on financial terms. Even more  significant is the reputational risk that the GCF faces – as it is seeking replenishment – in supporting  such an ill-conceived financing request. We also believe we can agree on the fact that the companies  fueling deforestation should not receive climate funding.

As civil society organizations, working tirelessly to bring you the voices of the communities and  people from programme-affected territories, we urgently ask you to consider our concerns, the  reputation of the GCF, and the devastating precedent that such a programme would set (which pays  polluters, instead of making polluters pay) when deciding on FP212. The fund should not act from  the level of hopelessness where we have no other alternative, but to fund the companies that are  causing the problem, as a last resort to have them follow environmental norms and regulations that  they should have embedded in their practices years ago, as a matter of business obligations and  good corporate stewardship. This will likely result, not in the companies actually changing their  practices, but using the GCF and &Green funding to greenwash themselves. There are so many  initiatives that are conceptualized and originated with the purpose of advancing real climate action,  designed with the participation of the people that have guarded the forests forever, that go with nature and not against it, and that would thrive with GCF funding. We have not yet reached the  point where there is no other alternative but to fund the problem in the hope that those responsible  for it may decrease it.