Traditionally, the Rural Product Note (“CPR”) is a credit instrument by which the issuer undertakes the delivery of certain rural products, following the conditions established in this instrument (date, place, quality and quantity), or to make the corresponding financial settlement, according to the conditions established in the instrument. The land, as well as accessions and improvements made on it, can constitute rural assets to guarantee such borrowing or delivery of products, except for crops and movable and semi-movable assets. Amid the evolution of this traditional instrument, the Green Rural Product Note, or simply Green CPR, has been created to foster the conservation and recovery activities of native forests and their biomes.
The Green CPR is an instrument of payment for environmental services, established in the new Brazilian Forest Code (Law No. 12.651, of May 25, 2012, as amended) as an economic mechanism to promote environmental conservation and the adoption of sustainable technologies and practices in farming and forestry productivity, with the aim of reducing environmental impacts.
On October 4, 2021, Decree No. 10,828 (“Decree“), which regulates the Green Rural Product Note (“Green CPR”) entered into force.
The CPR was created through Law No. 8,929, of August 22, 1994 (“Law 8,929“), and has become one of the main instruments for financing rural products and related products in the agribusiness chain, targeting rural producers, associations, and cooperatives, as well as other people indicated in the applicable law.
In 2020, Law 13,986, of April 7, 2020, referred to as the New Agribusiness Law, was already sanctioned, in order to enable the issuance of the CPR for rural products, including, for example, those from activities related to plantations, conservation of native forests and their respective biomes, the management of native forests, as well as simplifying the processes for issuance of the CPR.
Taking advantage of the amplitude granted by the New Agribusiness Law, the Decree presents the list of rural products obtained through activities related to the conservation and recovery of native forests and their biomes, authorizing the issuance of Green CPRs for those that result in (i) reduction of greenhouse gas emissions; (ii) maintenance or increase in forest carbon stocks; (iii) reduction of deforestation and degradation of native vegetation; (iv) biodiversity conservation; (v) conservation of water resources; (vi) soil conservation; or (vii) other ecosystem benefits.
Thus, a company or financial institution that wants to neutralize carbon emissions, but has difficulty doing so through its own business is able to purchase a Green CPR from a rural producer whose activity involves a green rural product, resulting in the conservation and management of forests, and that commits to preserve them, or even from someone who wants to expand “carbon capture” projects.
The Ministry of Economy estimates a potential market of BRL 30 billion in four years, considering carbon credit certification from Brazilian forests.
The payment methods of the Green CPR may be negotiated between the parties, which will allow the financing of non-performing projects, such as those in which trees will still grow and capture carbon.
In addition, the Decree in order to provide the necessary legal certainty for its development has determined that the Green CPR must be accompanied by third-party certification to indicate and specify the rural products that guarantee it. In this way, depending on the product that backs the Green CPR, the certification for its issuance will take into account not only the registration and environmental regularity of the real estate property that guarantees the products, but also the issuer of the instrument, which must have some connection with the property to justify the issuance.
In addition to the Green CPR’s value of encouraging environmental preservation and voluntary compensation of greenhouse gas emissions (carbon offsetting), the new mechanism will also enable large farming projects to be carried out, especially in the integration of forestry, agriculture and livestock, which is highly popular at present.
The instrument also does not prevent the issuing and trading of the rural real estate note (Cédula Imobiliária Rural, or “CIR”), introduced by the New Agribusiness Law, on rural real estate property, which consequently optimizes the economic use of the assets in the agribusiness chain.
From a tax perspective, the CPR is a fixed income security that is subject to income tax at regressive rates from 22.5% to 15%, among other taxes, depending on the legal nature of the beneficiary. Exceptionally, the income earned by individuals with CPRs traded in the financial market issued by rural producers, agricultural cooperatives or associations of rural producers whose purpose is the production, commercialization and industrialization of rural products, are exempt from income tax, including income obtained through activities related to the conservation and recovery of native forests and their biomes.
Furthermore, IOF/Bonds is charged at the rate of 1% per day, limited to the yield of the operations (from 96% to 0%) depending on the term (from 1 to 30 days). The trading of CPRs registered or deposited as financial assets in an authorized institution and issued by a rural producer, an agricultural cooperative, or an association of rural producers whose objective is the production, commercialization and industrialization of rural products is exempt from IOF/ Bonds.
In both cases, the exemptions from income tax and IOF/Bonds do not apply to CPRs issued by other individuals or legal entities, besides those mentioned above, which, under the terms of the legislation, may also issue CPRs if they commercialize native or planted forests, or that profit from or facilitate the industrialization of rural products.
Other Green Bonds
Besides the Green CPR, there are other financial instruments that are being used in order to raise capital for the financing of sustainable economic activities, among which the Green Bond, Social Bond, Sustainable Bond (combination of Green and Social Bonds) and Sustainability-Linked Bonds stand out.
According to data from Brazilian socioenvironmental impact organization Sitawi, out of the 163 (one hundred and sixty-three) ESG Thematic Bond issuances by Brazilian companies that have occurred since 2015, more than 80 (eighty) were carried out in 2021, led by infrastructure debentures related to renewable energy. Also the issuances of common debentures, bonds, agribusiness receivables certificates (CRA), real estate receivables certificates (CRI), equity investment funds (FIP) and financial bills are noteworthy.
According to the Climate Bonds Initiative in its report “Analysis of the Sustainable Agriculture Finance Market in Brazil“, renewable energy and land use are the two most financed categories in Brazil, with 45% and 27%, respectively, of the volume of green issuances. The subjects covered by the “land use” category that have seen issuances in recent years in Brazil are forestry, bioenergy, agriculture, livestock, food industry, and financial institutions.
Green bonds, used to finance sustainable agriculture projects, assets, and activities in Brazil, accounted for a cumulative total of USD 9 billion as of February 2021, according to information released by the Brazilian National Agriculture Society. 
If you would like to know more about the Green CPR and the expected impacts following the issuance of the Decree, please contact Demarest’s ESG, Capital Markets, Environmental and Sustainable Business and Agribusiness teams.