Are green loans and their lower interest rates for environmentally and socially conscious moves on-farm worth the attention of producers?
Maybe not right now, and certainly not in isolation. There are, arguably, many more powerful drivers for looking at sustainable farming practices.
But there will come a time, and it's not that far away, when a family-run agricultural enterprise could be left behind if it is not preparing for a future where it can prove its sustainability credentials.
This seems to be the consensus as the great ESG - environmental, social and governance - juggernaut continues to roll out.
Nowhere it is touted as strongly as in the financial world.
For that reason, rural research and development leader AgriFutures Australia funded a report aimed at helping producers better understand what they will need to do to meet the requirements of financial institutions offering sustainability products.
Among other things, the report, compiled by KPMG and called Banking on Sustainability, found that the costs and benefits of taking on new farming practices for the purposes of accessing sustainable funding still needed quantifying.
AgriFutures Australia's Michael Beer said ESG was heading from the theoretical into the practical at a fast pace.
While the offering from Australian banks was narrow now, it was expected the product list would expand quickly, he said.
In Australia, the annual green-type funding amounted to around $175 billion annually but that was a drop in the ocean in terms of global investment, where forecasts are now heading towards the trillions, he said.
"There are going to be policy shifts around climate and hence responses from the finance sector," Mr Beer said.
"It could be a very different business environment for a farmer in the future.
"ESG issues, such as climate change, are now becoming material risk factors for lenders.
"More than 95 per cent of Australian rural businesses are family owned, and access to finance is essential for acquiring new land, infrastructure and equipment. Insurance also provides critical support to primary producers by lowering the risk to their operations."
The idea that agriculture would be relied on heavily to help banks meet swelling ESG targets has been pushed at farmers for some time now.
The warning has been loud that finance, and insurance, won't be available - or at least will come at a far greater cost - to those who can't show they meet targets around those three areas, particularly the environmental one.
However, there has been some scepticism that so far, it's all just been talk.
Alasdair MacLeod, executive chairman of private investment group Macdoch Australia, told a recent Rural Press Club of Queensland audience that while "every bank is now talking about good on-farm data to ensure they can populate their loan books with green lending" there hasn't actually been a lot of action.
A fierce advocate of sustainable farming practices, Mr MacLeod said tangible moves by the finance sector in this space could prove a big incentive for producers to develop their natural capital.
Macdoch's Wilmot Cattle Company, based near Armidale in NSW, made global headlines in 2021 when it was involved in the first significant sale of soil carbon credits via the voluntary market to Microsoft.
Specialist in agricultural advisory Robert Herrmann, managing director at Mecardo, said there was no doubt banks were active in urging agriculture businesses into this space in order to assist with their own ESG goals.
"But it will only be price incentive or price disincentive, or tangible access to markets, that are the levers if the farmgate is to act on this," he said.
Green loans for ag
Both the Commonwealth Bank of Australia and the National Australia Bank now have an agriculture-specific green loan. These products provide discounted finance for the adoption of environmentally sustainable farming practices.
NAB's agribusiness boss Khan Horne said since launching the Agri Green Loan and green equipment finance products at the end of 2022, the bank had funded more than $56 million worth of loans for customers investing in practices and technologies to reduce emissions and build climate resilience.
"We expect this to continue to ramp up significantly as consumers and businesses increasingly prioritise sustainability and environmental responsibility," he said.
The AgriFutures report makes the point that there is still no sustainable financing solution available to primary producers across all commodity groups and geographies, or targeting the entire breadth of ESG issues facing Australian agriculture.
Outside of Australia, though, there are examples.
For example, in May 2022 the Bank of New Zealand launched a loan built on the Sustainable Finance Agriculture Initiative framework which provides interest rate discounts to farmers who meet or exceed performance targets, and conversely penalises farmers who fail to meet their targets.
The report concludes that while the sustainable financing landscape is at an exploratory stage now, as the risk and regulatory landscape continues to evolve, banks and insurance companies will move quickly in this space, likely opening new opportunities for primary producers to access sustainable financing solutions.
Not the primary motivator
However, KPMG make the point that financing should not be the primary motivator behind adopting sustainable farming practices.
"Like any decision, producers should weigh up the costs and benefits, assess the risks, and seek advice from other producers or trusted advisors," the report recommends.
"Ultimately, there are bigger risks for producers who fail to address environmental conservation or who do not practise sustainable farming. This needs to be clearly communicated in the benefits-versus-costs conversation."
It lists the primary benefits from sustainable farm management practices as increased yields and productivity, increased resilience to drought and broader market risks, reduced input costs, market access and reputation gains.