JGP Gestão de Crédito Ltda, a Brazilian asset manager, oversees US$1.7 billion in various investment strategies, including structured credits and ESG markets. The firm participated in a case study applying the Taskforce on Nature-related Financial Disclosures (TNFD) LEAP approach to assess nature-related issues in two key clients. This study, supported by Norway’s International Climate and Forest Initiative, focused on deforestation-related risks in Brazil’s agricultural sector.

Key findings highlight the adaptability of the LEAP approach for both client assessments and due diligence processes. Geographic Information Systems (GIS) played a crucial role in location-based risk assessments, and embedding data-sharing requirements into contracts was identified as essential for comprehensive risk analysis. Furthermore, a more detailed dataset is necessary for a robust dependencies analysis.

Business case

Agricultural expansion is a primary driver of deforestation, with large-scale agriculture responsible for 40% of tropical deforestation between 2000 and 2010. Given the financial risks associated with deforestation, asset managers must prioritise nature-related assessments. JGP aimed to align its investments with sustainability goals and enhance transparency in financial reporting by participating in this pilot.

The study enabled JGP to gain insights into best practices for nature-related risk assessment and financial disclosure. These efforts are expected to strengthen risk management, improve decision-making, and align financial activities with environmental objectives. Additionally, transparency in environmental impact disclosure is anticipated to enhance stakeholder communication.

Pilot scope

JGP selected its ESG Credit Fund for assessment, given its focus on responsible investment. The study concentrated on two medium-sized agricultural companies—one a significant investment and the other a potential financing candidate.

A series of workshops facilitated the analysis, covering:

• Introduction and scoping
• Geospatial data and nature-related risks using GIS
• Evaluation methods and tools
• Risk and opportunity assessment
• Planning for disclosure and next steps

This approach enabled JGP to integrate nature-related metrics into its investment evaluations.

Analysis

Part 1: Determining sensitive locations

JGP requested location data from assessed companies, using Brazil’s Cadastro Ambiental Rural (CAR) system to map farm boundaries. One company was excluded due to unavailable location data.

Challenges included the lack of clarity on farm locations as a percentage of total business operations and limited crop-specific data. GIS analysis identified ecologically sensitive locations based on biomes, biodiversity, water risk, and deforestation history. Sensitive locations were prioritised based on an Overall Biodiversity Impact Rating (OBIR), with higher-risk areas receiving immediate focus.

Part 2: Determining nature-related impacts and dependencies

The study identified key agricultural processes, including land clearing, planting, fertilisation, pest control, irrigation, and harvesting. Environmental assets such as land, water, and cultivated resources were mapped, alongside ecosystem services like pollination, water purification, and soil retention.

Dependencies were analysed using farm size as a proxy, categorised into five levels (very low to very high). Larger farms were assumed to have greater environmental dependencies. Nature-related impacts were assessed based on interactions with sensitive locations, with deforestation identified as a significant risk factor.

Part 3: Assessing material nature-related risks and opportunities

Risks and opportunities were evaluated based on findings from previous stages. A collaborative workshop allowed stakeholders to review risks, identify mitigation measures, and assess materiality.

An example risk was water stress in agricultural regions, leading to reduced crop yields, financial penalties, and potential conflicts with stakeholders. Financial implications included increased costs, reduced asset values, and compliance burdens. JGP integrated these insights into its risk management strategies, recognising deforestation as a key issue requiring targeted mitigation.

Part 4: Preparing for disclosure and next steps

JGP developed strategies to address identified risks, including engaging with assessed companies, updating policies, and integrating nature-related considerations into its existing frameworks. Training and awareness programs were identified as necessary to improve internal expertise.

The firm plans to disclose nature-related issues through its periodic reports, aligning with TNFD recommendations. The pilot study has enhanced JGP’s understanding of best practices and is expected to support the release of its first TNFD-aligned report in 2024.