If farmers met their environmental and social performance targets across the term of their loan, they would pay less to borrow the money.
Bank of New Zealand has launched the country’s first sustainability linked loan that will reward even small-scale farmers for meeting environmental and social goals.
Dana Muir, BNZ’s head of natural capital, said the loan set key performance indexes around greenhouse gas reductions, eco-system protection, improved care for staff, protecting waterways, improving biodiversity and animal welfare.
If farmers met their environmental and social performance targets across the term of their loan, they would pay less to borrow the money, Muir said.
“There is a key role for sustainable finance in the agriculture sector. Our farmers and growers are working really hard to meet their environmental and social goals and there are frontrunners who go above and beyond what regulations require,” Muir said.
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Previous sustainability-focused loans would finance single environmental projects on farms or were for big commercial operations, but the new loan was different because it could be used to finance any farming operation and was tailored to the specific business, Muir said.
The Frost have converted the rundown dairy into a sustainable business
When a loan was started, Assure Quality, a verification agency, would visit the farm to set a baseline position for environmental and social performance.
Over the term the bank would require verifiable proof from the agency that a farmer had met the goals they set out to achieve. If they did, there would be an interest cost saving, Muir said.
Although there were many global sustainable finance models, they were mostly aimed at corporate entities, Muir said.
“I think sustainable financing can be most impactful for ‘mum and dad’ farmers, and for really aspirational farmers who are trying to improve environmental and social measures across their business. That’s what we have done,” Muir said.
Farmers could choose up to five areas they wanted to improve on their farms, however climate change mitigation was mandatory as emission reduction was crucial, Muir said.
The ability to prove to consumers of New Zealand food and fibre that environmental progress was being made beyond what was required at regulatory level was a key benefit of sustainable financing, Muir said.
The loan was in line with the direction the industry was going and followed the same principles as initiatives like He Waka Eke Noa that rewarded farmers for their positive actions, Muir said.
This was the first example of Sustainable Agriculture Finance Initiative (SAFI) guidance being used to underpin a sustainable finance product for the primary sector, Muir said.
“It brings the bank in as a partner and would align the sustainability ambitions and capital or debt funding. It is a great chance to put up your hand as a leader and show other farmers the work you do to improve environmental and social targets,” Muir said.