In collaboration with experts from the Sustainable Finance Group of S&P Global Ratings, we investigated the hidden, unpriced costs of beef production in Brazil. 

The Challenge:

Beef production in Brazil is a major economic driver, but its expansion is closely linked to deforestation in the Amazon, leading to severe environmental and economic externalities. A critical challenge is that financial accounting standards do not recognize these losses and the true socio-economic cost of increased meat production remains underestimated. As deforestation depletes natural capital, we near a critical threshold where ecosystem functions can no longer sustain essential services like water regulation, carbon storage, and soil fertility. Beyond this tipping point, economic and societal costs will outweigh gains from increased production, threatening the long-term viability of the livestock sector. Our client needed to get a grasp on the value of standing tropical forests in Brazil to estimate the magnitude of natural capital loss as a result of cattle ranch expansion. 

Our Approach:

We applied Ecosystem Services Valuation (ESV), to quantify the economic value of lost ecosystem services due to deforestation for cattle pasture expansion. 

Our analysis revealed that:

• A hectare of standing Amazon rainforest generates $4,741 worth of ecosystem services annually. 

• By assessing deforestation trends and their link to cattle ranching, it was estimated that 0.9 million hectares of rainforest were cleared for pasture in 2020 alone—resulting in a $4 billion loss in natural capital. 

• When compared to the $34.74 billion revenue of Brazilian beef processors that year, this suggests that had the cost of nature loss been internalized, it would have represented approximately 12% of the industry’s revenue. In other words, for every $100 of beef-related sales, there is an additional hidden cost of $12 due to lost ecosystem services. 

Outcomes & Impact:

• These findings highlight the severe externalities of cattle-driven deforestation. These costs that are currently borne by society rather than incorporated into production expenses. Failing to account for natural capital loss risks undermining the very resources that sustain the industry itself.  This poses long-term risks for both society and industries that depend on natural capital (e.g. fisheries, agriculture), underscoring the need for sustainable practices.

• At the corporate level, our work shows how integrating natural capital considerations into financial assessments, credit ratings, and ESG evaluations can help businesses and investors better understand supply chain risks in the livestock and other resource-intensive sectors. 

• From a policy perspective, it provides a starting point for strategies that mitigates environmental impacts and promotes positive trade-offs. Potential policy tools include taxes on damaging practices, Payments for Ecosystem Services (PES), and subsidies for sustainable farming. 

This collaborative project demonstrated how Ecosystem Services Valuation can drive stronger incentives for conservation. By valuing natural capital appropriately, we can encourage more forest-friendly farming practices, reduce deforestation, and strengthen the fight against climate change. Ultimately, these insights emphasize the urgent need for the beef industry to adopt strategies that mitigate its impact on natural ecosystems while ensuring long-term sustainability.