FIP Which Buys the Forest to Protect It
The EQI has just raised 50 million Brazilian riyals for its first fund linked to agricultural activities to a model that has not yet been heard in Brazil: investment in land in environmental preservation areas. The funds of the fund, called FIP Forêt, will consist of rural real estate located in the conservation units, mainly the state gardens established by the government and which have not yet been confiscated.
The target is land that has not been confiscated in the state of Sao Paulo. It has already been traded over approximately 5,000 hectares to form this first piece. The native vegetation of these properties can be converted into Environmental Protection Certificates (CRA), which can be sold.
The EQI plans to sell these addresses to rural producers or companies with agricultural production that ultimately compensates for the deficit in their legal reserve area. In the case of Sao Paulo, the forest law determines that 20% of the total area of the properties with this legal reserve should be maintained.
The performance of the fund depends on the long-term trading of these securities.
“Sao Paulo suffers from a deficit of approximately 360,000 hectares of legal reserves, and the owners of this deficit until the end of this year must announce how they intend to compensate for this liability, which can be with the re-alluence,” Olivier Collas, Co-Head of the EQI agriculture department, told the Brazil Journal.
Colas leads the business sector with partner Eç Correia, a former executive director of PWC. The two started conceiving just over 12 months ago.
The expected return is around 30% per year, with a payback period of ten years. “We have the option of doing the first-year consumption operations on the fifth year, but it’s not mandatory,” explains Coria.
The original bet can also help solve the Sao Paulo farm problem. Since the government of São Paulo began issuing decrees and laws to confiscate areas and establish government parks, environmental stations and environmental protection areas in the early 1960s, a torrent of lawsuits began by the owners of these lands asking for compensation.
Thousands of lawsuits are considered in various court cases, and the compensation can cost the state more than 50 billion Brazilian riyals.
The partners seek out the target lands with these legal conflicts – and therefore they are cheap – to generate environmental actions.
Currently, the focus is on Sou Paulo, where, according to Collas and in Korea, the environmental inspection is more mature and the deficit in the legal reserve areas clearer. But they are already developing plans to create a new investment fund also in Minas Gerais and Paraana.