Farmers wanting to borrow against their environmental and social goals now have the ability to raise a loan and earn a discounted interest rate, should those goals be achieved.
BNZ has announced an agribusiness sustainability linked loan (SLL) product, claimed to be the first of its type available to farmers.
Head of natural capital Dana Muir says while there have been loans made available that link to specific sustainability projects on farm, BNZ’s product is not limited to a set amount and can be drawn from the bank’s entire capital pool.
“This is more about BNZ setting a target of $10 billion of sustainable finance lending to be achieved by 2025,” Muir.
The prototype for the SLL was founded in BNZ’s three-year $50 million sustainability linked farm loan to dairy farming company Southern Pastures, owners of Lewis Road Creamery.
The deal with the 20-farm company targeted environmental performance, with AsureQuality acting as an independent on-farm auditor visiting annually to collect data and verify progress.
Discounts on interest rates will be applied during the loan’s term when targets are met.
Muir confirmed the system would be similar for the bank’s SLL product, with greenhouse gas emission reductions being a non-negotiable outcome of the loan’s investment.
Beyond that, farmers have the opportunity to choose from a range of environmental and social measures they may wish to address.
“It is crucial we reduce greenhouse gas emissions and the structure of our SLL reflects that,” she said.
Other goals farmers may wish to incorporate include pollution prevention and control, sustainable use and protection of water and waste prevention and recycling.
Social goals like animal welfare, labour practices and health and safety are also included.
The loan’s term has to run for more than three years and AsureQuality will also be providing the auditing assessment on an annual basis.
While the auditing costs will be at the expense of the borrower, Muir said the pricing benefits of achieving the targets considers the expense and effort of assessment.
“If you achieve the targets it works in your favour,” she said.
She said the sustainable financing sector was an invaluable tool available to help farmers achieve their environmental and social targets at a time when expectations and regulations were intense.
“It is crucial we reduce greenhouse gas emissions and the structure of our SLL reflects that.”Dana Muir
Globally, the sustainable finance sector has undergone extraordinary growth in recent years.
Financial data company Refinitiv reported that in 2021 the sector, which did not exist a decade ago, had sustainability linked loans surge 300% to more than US$700 billion, more than three times the previous record.
She said the BNZ’s loan product was the first of its type in NZ and possibly the world, based on the bank’s own assessment.
The loan is also the first of its type to come in under the Sustainable Agriculture Finance Initiative (SAFI) outlines.
These were developed by the Aotearoa Circle industry and agency group last year and were aimed specifically at developing sustainable financing for the primary sector.