Deforestation could ‘quickly’ become credit risk for Brazil’s agribusiness – Moody’s

RIO DE JANEIRO, BRAZIL – Deforestation and the risks related to climate emergency may cease to be only reputational risks and “quickly” become material risks for the credit quality of agribusiness companies operating in Brazil.

The alert is from Moody’s risk rating agency, which released an extensive report on the subject.

The document was prepared by five analysts: Barbara Mattos, Ana Rayes, Erick Rodrigues, Marcos Schmidt, and Marianna Waltz. On a scale from “low risk” to “very high risk”, Moody’s considered the Brazilian livestock and agriculture sector to have “moderate” risk associated with climate, applied to both environmental and social issues.

The livestock companies were classified as a “very high risk” activity, while the risk was considered “high” in agriculture.

Considering exposure to several specific aspects, the agency felt that livestock farming and agriculture have “high” risks associated mainly with climate change risks, the issue of waste disposal and pollution, and responsible production.

“While not always immediately material to corporate credit quality, these threats include reputational risks and reduced revenue from boycotts and bans,” Moody’s analysts warned.

The threat of consumer pressure has become a reputational risk for these companies. Moody’s recalled that 87% of the population of the European Union supports laws that block products that cause deforestation.

The agency also explained that it considers the image risks of agribusiness companies related to the impacts they cause on natural resources and their dependence on them. “Sectors or emitters that depend on natural resources are also vulnerable to these resources becoming scarce.”

Meanwhile, the sugar and ethanol sector was rated as a “low” risk. Moody’s considered that the segment has demonstrated “good sustainable practices” over the past few years and noted that for companies to issue credits related to ethanol’s carbon footprint, they need to prove they have not deforested their areas.

The pulp and paper sector, in turn, was classified as “moderate” risk, while mining was considered “very high” risk.