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.

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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.

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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.

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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.

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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

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An update to the organisation’s ‘green equity approach’ policy, which is aimed at intermediary clients such as commercial banks, explicitly states that IFC investment will no longer support new coal.

The policy previously only required financial clients to reduce their exposure by half by 2025, and to zero by 2030.

Financial intermediaries represent more than half of IFC’s investments and have received almost $40 billion of IFC support since May 2019.

The loophole had allowed the IFC’s financial clients to support a number of substantial new coal projects over the past five years.

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Hana Bank in Indonesia, for example, financed a 2 GW coal power plant in Indonesia in 2019. The plant is predicted to release 10 million tonnes of carbon dioxide a year, a similar amount to the the whole of Jamaica, for 25 years.

PVI Holdings, another IFC client, provided insurance to the Vung Ang II coal power plant in Vietnam in 2021.

Kate Geary, co-director of sustainable finance watchdog Recourse, said the change in policy sent a signal to the wider investment community that “the era of coal is over” and called on the IFC to extend the exclusion to oil and gas investments too. “This is a welcome step but a long time coming.”

David Pred, executive director of NGO Inclusive Development International, said it needed to enforce the new policy with its existing financial intermediary clients like Postal Savings Bank of China, which is among the leading financiers of coal in Asia.

Private backers

A growing number of financial institutions around the world have committed to ending support for coal.

But a report published today by Global Energy Monitor found that, while international public coal financing has all but dried up, new and expanded projects are still being backed by private money.

Of 99 private financial institutions that adopted new or updated coal policies in 2022, the report found most were “insufficient to align banks, insurers, and investors with climate science”. Only 12 of these policies were considered strong enough to halt support for the developers of new coal mines and power plants or set deadlines to end all coal power-related finance in the timeframe required.

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The IFC is expected to publish a plan to align its portfolio with the Paris Agreement during next week’s World Bank meetings.

The Compliance Advisor Ombudsman has received several complaints about the environmental and social impacts of the IFC’s support for coal. The Centre for Financial Accountability filed the first such complaint in 2011 over the backing of a coal project in India’s Odisha state, which the ombudsman is still monitoring.

Joe Athialy, the centre’s executive director, noted that it had taken over a decade for the IFC to finally end its support for new coal. “In the meanwhile, communities got scattered, their livelihood stolen and the climate crisis made more severe, with nobody held accountable for all these, and more. We can only hope it moves faster to stop funding oil and gas.”

As well as fossil fuels, the IFC has been involved in other controversial projects such as a hydropower project that threatens to displace thousands of people in Mozambique.

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