Southern Pastures - the owner of Lewis Road Creamery - is to get discounts on the interest rate of its loan if it meets certain environmental targets in a deal with the BNZ and its funding syndicate.
The three year $50 million loan is the first farm sustainably-linked loan to be done in New Zealand.
It will see Southern Pastures receive financial incentives for meeting water quality and biodiversity targets and reductions in on-farm carbon emissions.
Southern Pastures owns 20 farms in Waikato and Canterbury and produces milk under an independently certified 10 Star Certified Values programme which stipulates strict environmental, climatic, animal and human welfare requirements.
Its Waikato farms which supply Fonterra include the largest organic farm in the country.
Prem Maan, Southern Pastures executive chairman, said the deal recognised that farming to mitigate climate change and environmental impacts was in the common interests of both the business and its lenders.
"In my view, farming in New Zealand should be driven by the ambition to become carbon neutral."
Dana Muir, BNZ head of natural capital, said Southern Pastures was a leader in the New Zealand primary sector with ambitious environmental goals.
Listen to Rowena Duncum interview Dana Muir on The Country below:
"It made sense to partner with them to show that capital incentives can deliver financial and environmental benefits.
"The environmental targets linked to the loan are ambitious and go beyond compliance minimums – achieving them will require innovative on-farm planning, practices and reporting," Muir said.
BNZ chief executive Angela Mentis said the bank had developed the loan structure to help deliver carbon reductions and sustainable benefits.
She said the BNZ would increasingly seek to use Environmental, Social and Governance (ESG)-linked lending with New Zealand farmers, agribusinesses and other sectors to help meet New Zealand's climate change obligations.
"We want to partner with businesses who are striving to go above and beyond compliance minimums and show what best practice in environmental management, labour and governance looks like."
AsureQuality will act an independent on-farm auditor, visiting the farms on an annual basis to collect data and verify progress against targets.
Discounts to interest rates will be applied during the term of the loan provided interim and final targets are met and verified.