The “Rio effect”: The Priceless Value of Extra-Financial Criteria in Land-based Investments
What doesn’t show up in a business plan can be the most costly. The case of Voltalia in Brazil highlights a turning point: in Large-Scale Land Acquisitions (LSLAs), environmental and social criteria are no longer secondary. They can reshape, delay, or derail the entirety of projects. Drawing on original research into the determinants of local operator selection, this article shows how integrating ESG criteria not only mitigates investment risk, but also reinforces the relevance of partnering with local actors better equipped to navigate complex stakeholder environments.
Do you remember Blu from Rio – the little blue macaw that captured the world’s heart? While his story unfolded on screen, another real-life blue parrot, the endangered Lear’s Macaw, was fighting for survival in the forests of Brazil. In 2021, a wind farm project planned by Voltalia, a French renewable energy company, sparked controversy when it was proposed near the last remaining habitat of these birds. What began as a local environmental concern quickly escalated into a national debate that extended far beyond the project’s financial dimensions. The controversy led to community resistance, intervention by Brazilian courts, and ultimately, new protection measures for the parrots.
This dynamic, whereby environmental and social externalities transform from peripheral concerns into central constraints that reshape project design, ownership choices, and investment costs, is what this article refers to as the “Rio Effect”.
The Five Key Variables Driving Local Operators in LSLA Deals
This story is emblematic of a broader trend in Large-Scale Land Acquisitions (LSLAs), defined by the Land Matrix Initiative as transfers of land rights through sale, lease, or concession that cover 200 hectares or more. For example, a European company leasing for 99 years 800 hectares in Chile to build and operate a solar panel farm or to cultivate specific crops. While LSLAs are not a new phenomenon, their frequency has risen sharply since the 2000s, with companies exerting significant economic, social, and environmental influence in host countries. I analysed in my Master thesis what drives the participation of local companies as operators in LSLA deals.
Using data from 210 global projects between January 2021 and May 2025, I developed a logistic regression model that identifies five key variables influencing whether the operator is from the host country. Transparency, measured by the Corruption Perceptions Index (CPI), shows that countries with lower corruption levels are more likely to select local operators, as clear governance facilitates smoother partnerships. The presence of local benefits, such as jobs, infrastructure, or environmental protection, increases the likelihood of local operating company involvement, reflecting a principle of reciprocity. The existence of conflicts, whether social or environmental, strongly favours local operators who are better equipped to negotiate solutions. The year also plays a role, supporting a change in best practices over time. Finally, the Human Development Index (HDI), while less decisive, influences project governance and stability, underlining the importance of a country’s development level in shaping these deals.
The Voltalia Case: When Theory Meets Reality
To understand the magnitude of each variable, let’s look at the Average Marginal Effect (AME). AME summarizes the average impact of a small change in a covariate on the outcome in a nonlinear model. Among the independent variables, Local Benefits display the largest AME, increasing the probability of the outcome by more than 9 percentage points, which indicates a substantial economic impact despite only marginal statistical significance. CPI and Conflict are also statistically significant at the 1% and 5% levels, respectively, and exhibit economically meaningful effects, each raising the probability by around 1-1.3 percentage points on average. The effect of Year is statistically significant but modest in magnitude. HDI shows the smallest and statistically insignificant marginal effect and is included in the model despite its lack of statistical significance, as excluding it leads to a deterioration in overall model fit.
These criteria capture multiple dimensions critical for success, both at the country-level for CPI and HDI, and at the deal-level with presence or benefits or conflicts. Applied to the Voltalia context, Brazil’s CPI was 36 in 2023, the year of implementation of the project. The same year Denmark, the best-ranked, had a score of 90 and France scored 71. With Brazil positioned at the lower end of the distribution, the probability of a local operating company was not the highest. Additionally, the emergence of conflicts could have motivated Voltalia to use an independent local operator. Instead, the company chose to manage the situation internally, debates and court judgements arose, resulting in several positive measures to attenuate the risks, which will be detailed later. Also, local benefits were indeed promised by Voltalia and additional and material protective measures followed the controversy, particularly regarding bird protection.
The Hidden Cost of Ignoring Extra-Financial Criteria
However, it is important to discuss three limitations of the model. First, the analysis is conducted at a global level, and the results may differ if the focus were narrowed to specific regions such as East Africa, Central Africa, or Southeast Asia. Second, the relationships identified in the model should not be interpreted as strictly causal. For instance, the presence of local benefits may not necessarily require a local partner; instead, both could stem from an underlying corporate culture that promotes local integration. Third, firms have access to a wide range of strategies to structure project ownership and retain control. In this context, what ultimately matters is less the formal ownership structure than the effective local anchoring of the partner.
Extra-financial criteria should be considered a lever in international trade. The Voltalia case demonstrates how ignoring environmental and social risks can undermine a project’s success. When local authorities ruled that the company had violated Brazilian environmental laws, construction permits were frozen, a decision driven by opposition from NGOs and community groups. Had Voltalia partnered more with a Brazilian company or established a joint venture to operate the investment, one could hypothesise that this would have resulted in fewer regulatory hurdles, smoother negotiations with stakeholders, and more community-friendly project design, although this mechanism is not directly tested in this case. By integrating these factors from the start, Voltalia could have avoided delays, reduced unplanned costs, and improved its return on investment.
Stakeholders, the New Key Success Factor
Indeed, a research paper written by Kerstin Nolte in 2020 (Leibniz University, Hannover, Germany) explains that out of the 743 African land-based projects studied, 20% have been reported to fail due to various reasons. Nolte used data from the Land Matrix Initiative as well and focused on agricultural deals, the most prominent category. She ran a survival analysis to estimate the time for a land investment project to fail. To go further, she revealed that the probability of failure is reduced by 55 to 59% if domestic investors are involved while it is increased with government investors. The involvement of domestic investors in Nolte’s model refers, in our framework, to the role of institutional transparency as captured by the CPI, even though these two measures do not fully coincide. Interestingly, she notes that, as a surprise, the “generally good institutional quality and political stability are related to more project failures”, highlighting the complex nature of governance and corruption in the unique investment strategies that are LSLAs, which can still handle lower quality of institutions to be functional. Therefore, while governance conditions do not act as a guarantee of project success, they shape the ownership and structural choices firms make when undertaking an investment.
While involving a local partner and integrating extra-financial criteria are distinct mechanisms, they address a common underlying challenge revealed by these results: the management of governance‑related risks and stakeholder expectations in international contexts. Today, companies increasingly recognize Environmental, Social, and Governance (ESG) criteria not just as ethical guidelines, but as strategic tools in risky environments. Understanding the potential claims of stakeholders, as well as what matters to the other parties beyond financial aspects, is a key success factor in negotiations. It allows companies to better align interests and address non-financial concerns. As a result, they are more likely to win contracts, gain market share, and grow. Foreign economies also gain from international collaboration that could happen through LSLAs as international companies can create jobs, bring technical expertise and capital that could lead to a knowledge transfer, reinforcing the local economy in the long term. To sum up, understanding and weighting all the drivers of international business decisions can benefit companies, States, populations and Nature.
Taking Into Account the Negative Externalities
The public outcry to protect the Lear’s Macaw also highlights how extra-financial impacts now carry real weight. According to NielsenIQ, 73% of global consumers, especially younger generations, are willing to change their habits to support environmentally responsible companies. While this stated willingness does not always translate into actual purchasing behaviour, a well‑documented attitude–behaviour gap in the literature, it nevertheless reflects rising expectations and reputational pressures faced by firms. In response to the controversy, Voltalia rightly committed to monitoring the macaw population, creating nesting areas, and using bird-detecting technology to halt turbines when parrots are nearby, along with other commitments. These measures show how stakeholder demands can materially alter project outcomes. By internalizing negative externalities, which have long been a blind spot in economics, companies can make better decisions for shareholders, communities, and the environment alike. Hence, the cost analysis of a project is more complete, reflecting what is normally hard or impossible to incorporate in the pricing function, leading ultimately to a better capital allocation worldwide.
Read also: Climate injustice: What can we expect from the Global South?
In 1968, Garrett Hardin’s Tragedy of the Commons warned that unpriced shared resources, like clean air or biodiversity, would be overused. The Lear’s Macaw controversy reveals how this dynamic is changing: externalities are no longer ignored, they are being priced into business strategies to some extent, when the investors care about them and their impacts. Information accessibility is central as well, meaning NGOs, watchdogs, populations and other actors must have the possibility to access information and intervene. This reminds us of Coase’s analysis of externalities and transaction costs (1960). As information becomes more accessible and actionable, the transaction costs associated with identifying, contesting, and discussing externalities are reduced, allowing them to be, though still imperfectly, incorporated into the price function.
The result? Strategies should be conceived in a more multidimensional framework, and financial costs should stand alongside extra-financial metrics. Modern LSLAs must now aim to create value for shareholders, produce goods and services, and protect what’s often considered priceless, like endangered species. What once seemed as marginal as saving endangered blue parrots is now discussed in Board meetings as part of a broader reflection on externalities, both as a global concern and as a core component of firms’ decision processes when acknowledging a “Rio Effect risk”. This shift profoundly alters investment strategies and project drivers, which can no longer focus exclusively on shareholder value or production objectives.
