'Natural capital' set to impact farm credit

28 Jan, 2015 06:17 AM
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There was a clear correlation between farmers' ­environmental performance and their profitability

NATIONAL Australia Bank (NAB), the country's biggest agribusiness lender, is ­moving to change its policies so that credit assessments put more weight on the sustainability of farmers' ­business practices.

As banks face growing ­pressure over their role in responding to ­environmental problems, NAB says it will include 'natural capital' in ­lending policies and is raising the issue with farmer customers.

Eventually, the change is likely to mean farmers judged to have better environmental practices could receive higher credit ratings from the bank.

Natural capital refers to the world's stock of environmental assets such as water, soil or forests.

There is a push for financial services firms to consider how they may be exposed to risks in these areas – which could be significant for the major banks given their large exposure to farming.

In a move that is also aimed at lifting market share, NAB says it will incorporate natural capital into a range of bank policies over the coming years, and it is raising the issue with customers through its bankers in the mean time.

General manager of agribusiness, Khan Horne, said that within three to five years the concept of natural ­capital was likely to feed into its credit assessments. For instance, borrowers who are managing their natural resources more sustainably may ­eventually receive a credit rating upgrade. How a farmer managed a ­natural resource such as land or water was an important part of how they managed the overall business, he said.

"I think it will eventually feed into credit scoring, pricing models," he said.

The move comes amid warnings about the economic risks of businesses ignoring 'natural capital' in their ­decision-making. The running down of Australia's ­natural capital assets was a "material risk" to the economy and businesses should treat it as they other financial risks, a paper by NAB, KPMPG, the Melbourne Sustainable Society Institute, and Flora and Fauna International said last year.

NAB is one of several big financiers to endorse the Natural Capital ­Declaration, which acknowledges the risks, alongside Rabobank, Standard ­Chartered, and Italy's UniCredit.

The latest change is driven by ­competition as much as it is by ­environmental concerns.

Mr Horne, an experienced agri­business banker, said there was a clear correlation between farmers' ­environmental performance and their profitability. Those with better ­environmental management practices tended to have more reliable yields and lower input costs, he said.

A survey of 5000 of the bank's ­farming customers last year said almost three quarters were changing their businesses in response to ­sustainability concerns such as water scarcity or soil health.

"We're making these investments because we know that farmers who effectively manage their natural capital assets, such as water, soil and energy resources, generally have a more robust and resilient business model," Mr Horne said.

The policy change would not change how the bank responded to customers affected by drought, he said.

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READER COMMENTS

Top Ender
28/01/2015 10:54:27 AM

Be interesting to find Bankers who understand the whole "Natural Capital" field. Most of them struggle to understand farming time lines (cycles) at the best of time.
Geronimo
28/01/2015 11:13:17 AM

Will be interesting too see if the process of growing GM crops will be classed as a "better environmental practice".
Qlander
28/01/2015 11:26:19 AM

Sounds good, but as always the devil is in the detail. You would have to hope, that this is not the thin edge of some eco religious wedge. As has happened all too often in the past.
genazzano
28/01/2015 12:04:03 PM

I wonder if NAB see GM as a risk to Natural Capital ?
Love the country
28/01/2015 12:32:13 PM

Would like to know what criteria the bank is using. Will they look after the organic farmers, or will they look after chemical farming ,which seems to be the rage at the moment and.removall of many thousands of trees from our landscape I suppose time will tell. One thing you do notice driving around the land does not look healthy.
Freshy
28/01/2015 12:45:04 PM

It depends on their definition of natural capital too.......if they have someone in there with some funny ideas it could leave a lot of farmers paddling up that well known creek in a barbed wire canoe. Sounds like just another excuse to make banking tougher to me
Bushfire Blonde
29/01/2015 5:34:09 AM

Sounds like good news for those operators who want to make a quid but look after their land in the process.
Two bob
29/01/2015 7:15:05 AM

Sounds a lot like what the earlier dev bank did in the 40s,50s. Clear here against farmer protest only for land to go salty and not perform and leave a legacy we are still trying to clean up ????
Steve
29/01/2015 8:26:33 AM

This will mean more regulation and cost for everyone involved. I've found farmers who look after their "natural capital" are usually the more profitable ones anyway!!
John Hine
30/01/2015 4:37:36 AM

Note the line in the article that says that those farmer who manage natural capital better are those with better yields and lower costs? There is not going to be any way to avoid using sound land management techniques, either from banks, supermarkets, restaurant chains etc. Farmers organisations do need to be able to offer better criteria if they can can see gaps in the science.
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