Dave Whillans says sustainable finance has a strong future on farms around New Zealand. Photo / Supplied
Dave Whillans says sustainable finance has a strong future on farms around New Zealand. Photo / Supplied
Dave Whillans says sustainable finance has a strong future on farms around New Zealand.
There was an uproar last month in response to a Country Calendar episode that showed a farm in Central Otago exploring novel ways of farming.
While some of the practices drew attention because they were unconventional, Kiwi farmers have been trialling bold new ideas for generations. In a world of changing markets, consumer expectations and tastes, this innovation has helped New Zealand farms thrive.
One of the next big forces of change in agriculture is sustainability — driven by consumer demand and increasing climate risk. To help with these changes, our team at Westpac is embarking on a trial of our own — we're piloting sustainable agriculture loans with a small group of farming customers.
The loans will provide a discount on interest rates if farmers can provide independent verification that their practices align to Sustainable Agriculture Finance Initiative (SAFI) guidance.
This guidance, created by Toitū Tahua Centre for Sustainable Finance, includes practices to reduce greenhouse gas emissions, deliver more sustainable water, waste, pollution and ecosystem outcomes, and improve long-term resilience.
These are goals many farmers are already pursuing with enthusiasm. Many recognise they are kaitiaki of their land, and want to leave a legacy for the generations that will follow them.
They also want to do their bit to reduce emissions, recognising the challenges droughts, floods and other extreme weather events exacerbated by climate change will increasingly have on agriculture.
Banks can help support these farmers, and sustainable finance is one way to do that.
We know farms need to stay productive and continue producing the high-quality food that New Zealand agriculture is known for.
So, as a bank, we need to listen to farmers when they talk about which practices will be more easily adaptable on the land, and which will take more work to change. At the same time, we need to ensure transition plans are scientifically robust and follow best practice so that environmental outcomes are meaningful.
Technology and innovation will play a key role in helping farmers to reduce their emissions, which means backing farmers who want to try something different.
We are also there to support the transition of non-productive or marginal land to native bush or forestry.
Another trend we expect to see more of is farmers converting some land to lower-emitting uses with better economic potential and lower environmental impact, for example, livestock to horticulture.
Purely from a financial point of view, it makes business sense to back farms that are making their operations more resilient, so they're better prepared for the storm clouds brewing in the distance.
But putting the dollars to one side, we know climate change will have increasingly severe environmental, social and health consequences for future generations. We want to play our part in taking action.
It's not our first foray into sustainable finance and agribusiness. Last October we signed a significant sustainability-linked loan with Pāmu, also known as Landcorp, this country's largest farming business.
The $85 million loan was the first sustainability-linked loan in the agricultural sector to include a 1.5-degree science-based emissions reduction target that will be validated against global best practice.
One of the targets it's pursuing in order to qualify for a discounted loan is a reduction in emissions of at least 4 per cent a year.
We know other countries, especially in Europe, are integrating climate considerations into all facets of life.
With significant funding needed to finance Aotearoa's climate transition in the form of both debt and equity, sustainable agriculture will help attract funding and capital from investors in those countries. This is also important to our consumer markets; while our farming practices and food quality are already world-leading with low emissions during production, the distance to market and ongoing debates about "food miles" means we need to give overseas buyers another reason to choose Kiwi.
Farmers reading this may wonder when our Sustainable Agribusiness Loan will be available. We want to ensure the loan delivers on its potential and is attractive to customers while also driving meaningful environmental outcomes. We are open to adapting our loan as a result of lessons learned through the pilot and plan to make it available for general use next year.
We will also be sharing what we learn with other agribusiness customers and the Centre for Sustainable Finance.
Although still a relatively new idea today, we believe sustainable finance has a strong future on farms around New Zealand.
Owl Farm joint venture joins sustainable finance pilot
Owl Farm says sustainable finance will be an attractive proposition for farmers looking to mitigate the cost of environmental improvements they are introducing.
Spanning 144 hectares and home to 380 dairy cows, Owl Farm is a joint venture between St Peter's School, Cambridge, and Lincoln University.
It has signed on as a participant in Westpac NZ's Sustainable Agribusiness Loan pilot.
Owl Farm demonstration manager Jo Sheridan. Photo / Supplied
The farm focuses on running a productive farm that is both financially and environmentally sustainable and shares its techniques with other farmers.
Its demonstration manager, Jo Sheridan, says the farm has put significant effort into improving processes that are likely to meet minimum guidance requirements set out in the Sustainable Agriculture Finance Initiative (SAFI).
"A lot of the work around biodiversity, ecosystems, recycling, management of nitrogen and greenhouse gases, and protection and use of water is ingrained into our business."
She says work is continuing around climate change mitigation, addressing methane emissions, and a new adaptation plan will look at new approaches to issues like animal welfare as the climate warms.
"Our goal is to be in the top 20 per cent of the industry in terms of operating profit while achieving in all these other areas."
Sheridan says students from St Peter's School will also benefit from learning about sustainable finance.
"The students are very interested in the sustainable approach taken at Owl Farm.
"Sustainable finance as a concept helps students link the concepts of environmental improvements and long-term financial resilience."
She says sustainable finance can help farmers meet the cost of farm improvements.
"Every time we add another 30 to 50 cents per kg/milk solids of extra cost in our budget because of increasing standards, we need to extract added value in the form of a SAFI discount, extra value from livestock, additional milk premium, and that's how as a business we manage the risk of increasing farm costs.
"I meet farmers all the time who provide inspiration around the progressive work they are doing.
"I think we severely underestimate their capacity to move in this regard, and there should be a lot of opportunities for farmers to find value in what SAFI can offer them.
• Dave Whillans is Senior Manager of Agribusiness Sustainability at Westpac NZ. Westpac is an advertising sponsor of the Herald's Sustainable Business and Finance report
