Opinion – Marcos de Vasconcellos: Boycotted in Europe, Brazilian slaughterhouses have BNDES incentive to join the ESG

Will your Christmas dinner have meat? Where? Marfrig, JBS, BRF or Minerva? Shares in the first two (MRFG3 and JBSS3) have risen a staggering 80% and 76% this year, respectively. And the other two (BFRS3 and BEEF3) also performed well above the Ibovespa, the main indicator of our market, which has fallen more than 11% since January.

Those who follow the papers of meatpackers know that, as the good exporters they are, they benefit from the rise of the dollar. As a result, even our fiscal disaster drives prices up.

These exchange variations have a strong impact in the short term. For those who invest with the long-term in mind, however, interesting news comes from the BNDES (National Bank for Economic and Social Development). More specifically from a circular published this Wednesday (22).

The new rule changes the rules for releasing bank money to slaughterhouses. To put it mildly, companies that receive BNDES financing from next year will have to prove, through independent audits, that none of the suppliers in their entire production chain have criminal convictions related to deforestation, nor were they included in the list of embargoed areas of IBAMA.

The requirement, which innovates by putting all of the chain’s suppliers in the crosshairs, and not just direct suppliers, comes right after a striking boycott of Brazilian meat by European supermarkets.

On the last 15th, consolidated brands of retailers, such as the subsidiary of Carrefour in Belgium and the British Sainsbury’s, stated that they will no longer sell meat from Brazil, nor products linked to JBS.

The basis for the boycott was the investigation carried out by the NGOs Repórter Brasil and Mighty Earth, according to which JBS would be buying cattle raised in deforested areas, doing what they called “cattle washing”.

According to the report made by the NGOs, right before being resold to the giant with global operations, the oxen were sold to regularized farms. Thus, they disguised the criminal origin of the animals, presenting only the documentation of the direct suppliers.

Questioned by journalists, JBS said it has “zero tolerance” for illegal deforestation and that it has blocked more than 14,000 suppliers for this reason; that the report cites only five of its more than 77,000 direct suppliers; and that it intends to create a system to monitor indirect suppliers by 2025.

BNDES’ little push

A week after the boycott was announced, the BNDES published the new circular, taking an important step towards strengthening what the market today calls ESG initiatives — an acronym to highlight good environmental, social and governance practices.

It is important to understand that the four large slaughterhouses on the Stock Exchange received and receive superlative amounts from the BNDES. Recently, by the way, JBS paid off the last loan it had taken out, for a simple R$ 3 billion.

Putting the vast production chain of these players under the magnifying glass is a more than interesting way to value them in the long term, says lawyer Yun Ki Lee, Partner at Lee, Brock, Camargo Advogados, a firm specializing in ESG.

The assessment is that the sequence of highs in the sector’s shares, for reasons such as increased demand or the appreciation of the dollar, will have a lower ceiling if they do not adapt to long-term market requirements, such as good environmental practices.

Thus, in addition to the threat of drying out the financing faucets, the new BNDES rule calls attention to the urgency of putting all suppliers under strict scrutiny, before customers change their minds and increase the number of boycotts.

For the investor who closely follows the companies in which he is a shareholder, this is a strong sign to check who actually has active areas of ESG, in addition to a position or a mention on the website.