• Out of the 5,570 municipalities in Brazil, focus municipalities must have at least 95% of their territory in the Cerrado.
• The area of planted soy in focus municipalities must be larger than 5,000 hectares (PAM/IBGE 2020).
• Focus municipalities must be within the region’s top municipalities as measured by:
  • Area of native vegetation converted to soy (Agrosatélite 2019/20 Soy Expansion Report, and PRODES 2018/2019); and
  • Availability of remaining native vegetation in legal reserves suitable for soybeans.
• Focus municipalities must have at least two SCF members operating (sourcing or have physical presence) within their boundaries.

We will review and update our scope and focus municipalities every three years, according to the latest data available.

• Soy volume sourced in the Cerrado: The proportion (in tons) of soybean volume sourced by the member company from the Cerrado biome, in municipalities with at least 95% of its territory in the biome, compared with the total volume sourced outside of Brazil by the reporting company. This information is reported as the percentage of soy sourced in Cerrado and the percentage of soy sourced in other biomes.
• Soy volume sourced in focused municipalities in the Cerrado: From the total determined in the first step, the percentage of soybean volume produced in the focus municipalities, by considering the origination municipality. This information is reported as the percent of soy sourced in focus municipalities and the percent of soy sourced in other Cerrado municipalities.
• Direct and indirect sources: From the total in the second step, the percentage of soybean sourced directly from farmers and the proportion sourced from third parties, by considering the type of activity of the supplier (using the supplier’s tax registry number as a source to determine whether they are indirect resale, cooperative, warehouse or trading sources). This information is reported as the percentage of direct sources in focus municipalities and the rate of indirect sources in focus municipalities.

For each of these, there is a yes/no answer. The consolidated scenarios are:

• If it sources from the JV: report as indirect.
• If it does not source from the JV: report volume as indirect based on the financial revenue from the JV through the mathematical rationale described below:
• As a participant of the JV, company has revenues from JV expressed in USD $ 000 (A)
  • • Company has its own total revenue for the country expressed by USD $ 000 (B)
    • A/B = X% of JV revenue representativeness over the company revenue. Companies shall consider such X% as a percentage of the company’s total origination volume.
    • Companies shall add X% to the % of sourcing from the area and report as indirect.

Data sources:

• Average municipality yield of the last three crop years (2018/19, 2019/20, and 2020/2021) with available information from IBGE (Brazilian Institute of Geography and Statistics)
• Conversion data from PRODES Cerrado 2020, adopting a threshold of 25 hectares as minimum converted area
• Soy area from Agrosatélite study commissioned by ABIOVE for crop year 2020/21 

To calculate the percentage of DCF soy at landscape level in the 61 focus municipalities, the following indicator is used:

The verification will be carried out by assessing a sample of traceable suppliers. The sampling should be based on soy sourcing commercial reports, presenting a list of contracts from the 61 FMs with indication of farm polygon for the ones that are traceable to farm, including direct and indirect purchases.

In terms of the definition ascribed, “verification” considers that the information is validated by persons other than those involved in monitoring the operation or entity being assessed. Furthermore, “first-party verification” considers that the verification is carried out by personnel from the same company who did not participate in the operations under verification; whereas “third-party verification” encompasses an independent entity that does not provide other services to the company being audited.

A set of information should be checked by the party responsible for carrying out the verification process. Those include, but are not limited to:

• Digital copies of purchase contracts
• Digital copies of invoices (minimum one)
• Farm areas (polygons)
• Deforestation and conversion assessments
• Registries of DCF indicator calculation

1. SCF members send a list of farms to the manager of funds. The list needs to contain the following KPIs, which are not criteria for selection:  
   • • Surplus legal reserve or deficit legal reserve 
     • The willingness of the producer 
     • Smallholder yes/no 
2. The list is reduced according to the farm selection criteria set by SCF members and implementing partners.
3. Implementing partners are responsible for prioritizing farm selection.

Compensation for surplus legal reserve

• Overview: Brazilian soy farmers are required by law to maintain a proportion of their properties as native vegetation coverage, referred to as a legal reserve. If the native vegetation area exceeds that which is required by law, producers can choose to convert the area to agricultural production or to apply for payments for conserving the area of surplus native vegetation. Such incentive programs already exist in the form of Forest Reserve Credits (CRAs, Cotas de Reserva Ambiental in Portuguese).
• Value proposition: Payments for surplus legal reserve compensate for the producers’ opportunity cost of legally converting native vegetation. It recognizes the value of forests and invites producers themselves to see economic opportunities in non-conversion.

Technical assistance for sustainable production and Forest Code compliance

• Overview: Soy farmers are interested in technological and innovative agricultural practices that can lead to more sustainable, productive and cost-effective farms. Additionally, legal compliance with Brazil’s national Forest Code and rural environmental registry (CAR) improves producers’ access to global supply chains. Still, not all farmers manage to fulfill their conservation obligations under the law and to register their compliance with relevant institutions. This solution addresses non-compliance by combining extension services in sustainable production with supports to meet Forest Code standards.
• Value proposition: Companies seek to source from producers who comply with the Brazilian Forest Code and customer sourcing policies to protect and promote their reputation, generate shared value along the supply chain and attract investors by safeguarding against financial and reputational risks. If properly implemented, the Forest Code can be a major competitive advantage for the Brazilian cattle and agricultural crop industries in both domestic and international markets.

Native vegetation restoration on degraded land

• Overview: The term restoration refers to “any intentional activity that initiates or accelerates the recovery of an ecosystem from a degraded state.” It is the focus of the United Nations Decade on Ecosystem Restoration (2021–2030), which seeks to fast-track worldwide restoration of severely degraded landscapes through partnerships with both the public and private sectors. Restoration includes avoiding, reducing and reversing land degradation.
• Value proposition: Restoring degraded land into forested areas can improve soil and water quality over a much larger area, provide income to local communities under agroforestry systems, and offer an important story-telling opportunity about alternative land-use approaches. Restoration is vital to sustaining the health of existing ecosystems that support the livelihoods of farming communities.

Integrated farming of livestock, crops and forests (ICLFS)

• Overview: Integrated crop-livestock-forest systems (ICLFS) implement a mixed land-use approach to simultaneously allow for the production of multiple crops, livestock and forests on individual farms. They apply innovative approaches to optimize resource use. Taking an ICLFS approach to farming allows land managers to repurpose waste streams from one component of their farm production as valuable resource inputs in another component, closing the resource use loop at the farm level. The integrated farming approach supports the transformation to localized production systems and can contribute to community-led water conservation efforts.
• Value proposition: Integrated farming systems aim to optimize land use by reducing input costs, diversifying production, generating jobs and income, as well as increasing productivity within the existing production land area. Additionally, it has significant potential benefits for carbon sequestration.

Incentives for soy expansion over pastureland

• Overview: The Cerrado hosts millions of hectares of degraded pastureland, of which a significant portion is deemed suitable for agriculture. This solution area incentivizes producers to use this degraded land rather than clearing native lands through a mix of financing and infrastructure provision. These provisions include staff, equipment, seeds and other supplies. Participating farms are also encouraged to adopt sustainable practices, including no-till farming, crop rotations, cover crops and integrated pest management.
• Value proposition: Degraded pastures are currently considered to be a major opportunity in the sustainable expansion of Brazilian agriculture. Restoration and recovery efforts could turn these areas into a new frontier by expanding agricultural yield while restoring forests. Fostering the use of converted lands, mainly degraded ones, optimizes their potential to boost productivity, support environmental conservation and reduce pressure to clear new lands.

Green finance or favorable finance in exchange for zero-deforestation commitments

• Overview: Green financing in the soy sector aims to increase the level of financial flows from the public, private and not-for-profit sectors to soy farmers who fulfil requirements set out in the favorable credit terms for sustainable agricultural practices. As an FFC solution, a financial partner would implement green financing by providing favorable credit terms to producers who are willing to commit to zero deforestation and land conversion, among other potential sustainable production terms.
• Value proposition: According to the Nature Conservancy, studies have shown that relatively small improvements in credit lines can tip the balance in favor of more sustainable practices in soy farming by compensating for the opportunity cost of avoided deforestation. In addition to traditional sources of capital from banks, traders and input companies, concessional capital (usually sourced from public, philanthropic or development finance institutions) can catalyze and leverage investments from the private sector to promote sustainable economic development. Concessional capital offers more favorable financing terms, such as below-market interest rates, longer repayment terms, longer grace periods and customized amortization schedules.