In a covid-19 adapting world, it’s easy for moments to pass by.
Absorbed as we are by the latest issue and the ever-present focus on the virus, it’s easy to forget that out there, good work is happening — good work that doesn’t make a front page but is no less important because of it.
So it is with farming because while it hit headlines recently for protests, we forget that a month before, in the atmosphere of Fieldays, the vibe was altogether different. The mood was upbeat and while there was recognition of challenges and the difficulties of implementing environmental measures at pace, there were plenty of examples of good work underway to not only meet increasingly tough compliance requirements but also to go above and beyond them.
That can-do attitude is something of a hallmark for New Zealand’s primary sector and it speaks volumes of our farmers’ commitment to doing the right thing.
Change, the likes of which we haven’t seen before
Farming is facing a once-in-a-generation level of change as new regulatory frameworks, consumer demands and environmental, social, and climate change pressures combine to create a perfect storm.
Without a doubt, it’s tough on the farm. Irrespective of your views on changing compliance requirements, that change is being conducted at pace.
Farmers are grappling with increasing compliance requirements, pressure on capital as changing regulation sucks up financial flexibility, and a vast array of ever-changing options to choose from to do the work.
They’re doing this as they continue to maintain high standards of animal welfare, care for their land and staff, and produce the high quality, healthy food we are globally recognised for.
I would argue that while new compliance mars the headlines, there’s a large group of farmers striving for environmental, social, and governance (ESG) practices well beyond what is being imposed by regulation. Those farmers understand the importance of showing the ‘values’ which drive the worth of our food and fibre, to consumers domestically and globally, and understand the importance of integrating the financial and the non-financial into visionary business plans.
But far from going it alone, farmers are working together and at BNZ we’re aligning how we support farmers to make the environmental mahi financially beneficial.
Tackling climate change and environmental stewardship requires a partnership approach and we are developing innovative funding solutions to help farmers meet their Environmental, Social, and Governance ambitions.
For us, we’ve been incorporating a greater offering to our farmers to support their achievement of environmental goals through education and leadership.
In recent times we’ve also acknowledged an opportunity to partner with farmers 1:1 with a new way of thinking about how to drive the right behaviours and partner with farmers to incentivise those with ambitions to go above and beyond the minimum. To that end, we’re trialling a new incentive-based sustainability linked loan, the first of its kind in the NZ marketplace, which links a borrower’s performance against an agreed set of social and/or environmental KPIs, to their cost of lending.
This sustainability linked loan (SLL) partners with farmers and growers nationwide who are going beyond the minimum standard and putting their agribusiness in a strong position for the future.
For example, in February 2021, BNZ matched a portion of Dairy Group Southern Pastures Limited Partnerships (owner of Lewis Road Creamery) cost of funding, to pre-agreed environmental targets which, if achieved, will lead to a discounted loan rate.
The three targets identified in the loan related to greenhouse gas reductions, plant biodiversity, and water quality improvements. They were agreed at the outset and an independent auditor engaged to measure progress. Other examples of metrics could include improvements to animal welfare, labour practices, or waste reduction.
Unlike other forms of sustainable finance, SLLs have the ability to capture all of a business’ current debt in one facility, allowing potential savings to be reinvested back into any area of the business.
Going further than simply supporting farmers to reach environmental compliance, this allows a business to be truly rewarded for striving for excellence and to bring the bank along with them. It’s an unprecedented funding approach, but one we see as pivotal to help farmers build long-term sustainability.
Understanding what’s needed
Let’s be clear, the level of information required to build a heightened level of sustainability in any business is greater than our traditional business reporting models. Where once we considered a few key factors such as cashflow, collateral, expenditure, and equity to evaluate ‘bankability’, there are now additional considerations from outside the financial sphere that determine the current health and future prospects of a business.
To that end, we include how well a business considers, measures and manages their ESG factors and how this integrates into their future planning. In practical terms, that means it’s useful to share with your Agribanker these ESG factors which we know you are working hard to achieve across your agribusiness. For example:
- How you’re implementing and reviewing your business plan to address future environmental risks like waterway management, or how you plan to manage your on-farm emissions.
- If you’re aiming for a higher level of certification or entering best practice awards.
- Any need for environmental capital expenditure, such as upgrades to your effluent pond.
- Your succession plan — a tricky one to approach, but essential to have so everyone is clear on where the business is heading. How you wish your land to look and feel in the long term is a key consideration in a good succession plan.
- Monitoring and managing your farm’s social responsibilities, such as animal welfare, health and safety plans, and managing staff to ensure an enjoyable place to live and work.
The real beauty in linking lending to sustainability and ESG action is that it is not prescriptive. Farmers can select from goals that are tangible and important to the sector they are in and their business.
There’s an ability to tailor the terms to the most material issues facing a particular agribusiness, provided it produces an environmental or social benefit. So where one farmer might target biodiversity improvements or soil heath, another might seek to improve labour practices.
And while it might seem that sustainability linked loans are only for larger, corporate farming operations, this is not the case. Any farmer with debt has the potential to take advantage of lending that links costs to the achievement of ESG goals. A key determinant of eligibility is a passion and action plan for delivering material environmental and social performance improvements within your business, something we see many of our farmers achieving in spades.
Keeping New Zealand on top
Sustainable farming is a key focus for BNZ. It is not only driven by our desire to keep NZ farming at the top of the podium globally and to continue to drive our economy, but by consumers who are demanding ever higher standards of the businesses who produce their food and those they work and bank with, and investors who see higher upside in companies and their partners who take a sustainable approach.
Whether on-farm or elsewhere, higher levels of sustainability matter. They represent inherently lower risk for us and investors, and help ensure a longer and more prosperous future for an agribusiness and the natural capital stocks which make it tick.
It’s an exciting time, certainly not without its challenges, but New Zealand is well positioned.
We have amazing farmers who are striving for continuous excellence. Farmers who are looking to protect and enhance their natural capital and improve environmental and social outcomes.
This work is already part of New Zealand’s global brand for natural, healthy food and, supported by financial measures to increase its uptake and effectiveness, we will help ensure it remains so.
Any views expressed in this article are the personal views of Dana Muir and do not necessarily represent the views of BNZ, or its related entities.
This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of this article.
Lending criteria, terms and fees apply to the products and services mentioned in this article.