The private sector arm of the World Bank has delayed a decision on whether to loan money to a Brazilian dairy company, following concerns raised by civil society about its impacts on the climate, environment and human rights.
The International Finance Corporation’s (IFC) board was initially due to vote at its 30 April meeting on a BRL160 million ($32 million) loan to Alvoar Lacteos intended to help the company expand its operations in Brazil and support wider food security.
Alvoar Lacteos owns and manages industrial facilities in the Midwest and Northeast regions of Brazil, making products such as UHT milk, powdered milk, yogurt, cheese and sweets. The money would be used to install new equipment, renovate existing industrial units and build a new unit for cheese production, as well as for improving the company’s environmental and social standards.
A group of 16 Brazilian and international organisations, including Friends of the Earth, the Global Forest Coalition, the International Accountability Project and the Brazilian Network for Social Justice and Human Rights, wrote to the IFC in April urging it to reject the loan, arguing it had not properly accounted for the project’s environmental and social impacts.
The decision has since been rescheduled to the end of May. Emails sent by IFC and seen by Climate Home News imply is so the IFC board can consider evidence presented by the group, although an IFC spokesperson told Climate Home “the timing of when projects are taken to the board is dependent on numerous factors”.
Neither the IFC nor Alvoar Lacteos responded to questions about the concerns raised or the delay.
Suppliers emissions ignored
Civil society groups raised numerous concerns about the loan, including a claim that it is incompatible with the IFC’s commitment to align investments with a 1.5C global warming threshold.
The only current climate-related requirement in the project’s environmental and social action plan is for Alvoar Lacteos to prepare its first greenhouse gas inventory and estimate the emissions under its direct control (scope 1 and 2) “following an internationally recognized methodology, and local regulations”. It has until April 2024 to do this.
There is no requirement for the company to monitor scope 3 emissions from its suppliers, like the chopping down of forests to graze cattle, which comprise the vast majority of a dairy company’s climate impact. The civil society organisations argue these emissions should be “the focus of reduction and mitigation measures”.
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Kelly Anne McNamara is a senior research and policy analyst in the international climate and agriculture finance programme of Friends of the Earth, one of the organisations that has challenged the loan.
She told Climate Home the IFC had clarified that it was working with Alvoar on addressing its scope 3 emissions by avoiding deforestation on dairy farms and farms associated with sourcing feed. But she pointed out that no actual mitigation or reduction is required under the terms of the loan.
Paris alignment
Two years ago, the World Bank pledged to align all its financing with the goals of the Paris Agreement and it says it is on track to do this for all its new operations from July 2023. The IFC has a weaker target of aligning 85% of new operations by that date and 100% from July 2025.
However, a new climate framework for multilateral development banks is under development which the IFC will be using to assess its investments. It says that”non-ruminant livestock” are consistent with the Paris agreement’s goal but it does not mention ruminant livestock like cows and sheep.
Campaigners said the framework suggests that such projects will require evaluations against specific greenhouse gas reduction criteria but have seen no evidence that the IFC has assessed the Alvoar project in this way.
“Had IFC done so, it might understand that there is a need for a major reduction in production in the cattle sector in the [Latin America and the Caribbean] region, along with a heightened focus on measures to significantly cut the [greenhouse gas] footprint of existing operations through better management practices,” they wrote in their letter.
This, they said, could include a shift away from intensive feed and milk production, toward silvopasture and agroforestry practices that increase sequestration and do not rely on fossil fuel-based fertilisers and pesticides.
International development banks, including the IFC, have spent billions supporting the meat and dairy industries over the past decade. Although the IFC stopped supporting new coal projects in April, it has made no explicit restrictions on other activities that generate greenhouse gas emissions.
The civil society groups also pointed out that Alvoar has not set itself a net zero target, and said this should be a requirement for the project.
And they criticised the IFC for not doing enough to understand other potential environmental and social issues linked to dairy supply chains, such as child and forced labour, land rights and deforestation.
Alvoar does not own any cattle farms so its milk is sourced from 5,500 farmers, including dairy cooperatives and individual farmers, as well as middlemen. Campaigners say it has no supply chain management system in place to address these.
No hard requirement
Although the IFC expects Alvoar to develop such a system if the loan is approved, campaigners note that there is no hard requirement to achieve full supply chain traceability or zero deforestation by a specific date.
Campaigners argue the IFC was wrong to conclude that any risks from the project would be short-term and localised and said it should have required a more comprehensive environmental and social assessment and mitigation plan.
Although the loan is in part intended to help Alvoar boost its environmental and social standards, critics said the onus was on the IFC to understand those risks in advance.
Campaigners also question whether the loan will actually help increase food access for the neediest Brazilians.
IFC loans are normally approved without controversy. But last year a decision on whether to approve another agricultural project – soy and corn feed sourcing by the Brazilian arm of a major European meat producer – was also delayed after campaigners expressed doubts about its impact on deforestation.
McNamara said that, although the earlier loan was eventually approved, some IFC board directors abstained and several encouraged campaigners to keep raising concerns. In the case of the Alvoar project, however, she thinks food security arguments are likely to over-ride other considerations.
The IFC board is made up of 25 representatives of different governments.
This article was updated on 26 May 2023 to include IFC’s statement