Emissions a step to capital accounting

Savoir Consulting's Larissa Taylor said this could be viewed as yet another cost burden on farm businesses that were already feeling multiple inflationary pressures.

"Ideally this would have become standard agricultural risk management practice before the development of carbon farming - but better late than never," Ms Taylor said.

"The Australian farm sector is already globally competitive and has the opportunity to remain so as global food systems transform to lower carbon production methods.

"Over time, measuring your GHG, or carbon emissions baseline, will become part of 'natural capital best practice' - a standard part of your operational plan and completed annually just like your tax return."

Ms Taylor said increasingly there was a lot of help around to do this.

"Your bank, farm business adviser, agronomist or grower group should be able to help you," she said.

"Or, you can do it yourself by using the research and development corporation (RDC)-supported AgInnovation Australia platform or the free excel University of Melbourne PICCC Greenhouse Accounting Frameworks GAFs tools."

Ms Taylor said measuring a farm's GHG emissions baseline would produce new productivity and climate risk management insights, especially around methane emissions from ruminant livestock management and nitrogen emissions from fertiliser, liming and agricultural chemical use.

"I think of natural capital management and accounting as an opportunity, not a threat, for agri-food supply chains and primary industries communities," she said.

"It is not necessarily new thinking, but the way we value it is new."

Natural capital accounting is described as the methods used to measure and value natural resources and their ecosystem services.

It is about quantifying stocks and flows of natural resources, such as soil, vegetation, water catchment health, minerals and biodiversity.

RSM accountant based at Moora, Catherine Bell, said the aim of natural capital accounting was to assign economic values to natural assets.

"By doing this, the finance sector, policy makers, businesses and other stakeholders can better understand the importance of natural resources and the impacts of their use and depletion," Ms Bell said.

"More informed decisions can then be made that consider the long-term sustainability of both economic and environmental systems, and how to finance them."

As a response to unprecedented global warming, to limit global warming as close as possible to 1.5 degree Celsius, to maintain financial stability, to support Australia's renewable energy transition and Australia's nationally-determined contribution NDC commitment to the UNFCCC 2015 Paris Agreement to reduce GHG emissions by 43 per cent from 2005 levels by 2030 and net zero by 2050, mandatory climate risk reporting is being introduced to the Australian economy starting from January 1, 2025.

This will have a three-year phase-in process.

CSIRO reports Australia has already warmed by about 1.47 degrees Celsius since records began in 1910.

Australia is far from alone here - similar financial reforms are rapidly being introduced into nearly all of the G20 member country financial systems, including China, the US, Japan, Singapore, Canada and the EU.

Ms Taylor said this was arguably a bigger change to the Australian financial system and economy than the introduction of the GST in 2000.

"Over time, it will improve financial risk management and will facilitate capital flows away from heavy GHG emitting economic activities towards low carbon, renewable economic activities," she said.

There are three groups of public and private entities scheduled for mandatory GHG emissions reporting, which will be phased-in from largest to small/medium enterprises, over a three-year period.

Australian Stock Exchange 100 and 200 listed companies, large private registered schemes, registrable superannuation entities and private companies will have to prepare annual sustainability reports, publish forward facing transition plans and data.

Family farm businesses are unlikely to be required to mandatorily report on GHG emissions, because the lowest SME threshold (Group C for introduction in 2027) is any two of the three criteria of $50 million consolidated revenue, $25m consolidated assets or 100 FTEs.

Ms Taylor said there were two reasons why farms may still have to measure their GHG emissions voluntarily, then elect to share this data into their supply chains:

Banks will be asking for this farm GHG data as "financed upstream Scope 3 GHG emissions"; and

Downstream larger multi-national or domestic supply chain customers, such as millers, meat and food processors or supermarkets, will be asking for this 'supplier upstream Scope 3 GHG emissions' data.

Ms Bell said this meant farms would need to voluntarily report on their GHG emissions to larger downstream scope one and two reporters.

"For example, Coles will be one of the first required to report on its emissions from 2025 and will then need to include its supplier's emissions - in this case farmers - who will need to provide this information to Coles from 2026," she said.

"It is a supply chain effect in the national, whole-of-economy quest to limit global warming to 1.5 degrees Celsius and reach a net zero emissions economy by 2050.

"GHG emissions will become a liability on the farm balance sheet.

"We can expect also in future years that organisations, including farmers, are increasingly going to be asked to disclose not just against their climate risk (measured by GHG emissions), but also what their risks and opportunities, dependencies and impacts on nature are."

Ms Bell said farmers could not manage their impacts and dependencies on natural resources if they couldn't measure these.

"Knowing your business' baseline is an important first step," she said.

"And recording GHG emissions is a good place to start."

Ms Bell acknowledged there was no silver bullet for reducing GHG emissions in primary industries, but she said the Department of Primary Industries and Regional Development (DPIRD) had made substantial inroads in creating an industry baseline measurement for Western Australia.

Referencing feedback from the Federal Department of Agriculture, Fisheries and Forestry (DAFF) from the recent Net Zero Australia sectoral consultations to set Australia's new 2035 GHG emissions reduction target, Ms Bell acknowledged it would be highly unlikely that farmers would be expected to reach net zero in their businesses.

She said they would benefit by demonstrating actions and activities to reduce emissions, such as the adoption of renewable energy or exploring the opportunities around carbon farming.

"There will be increased focus on sustainable farming practices and where and how products are sourced," Ms Bell said.

"We recommend to start measuring your carbon footprint which will help you understand where in your operation your emissions lie.

"The information will also be needed as financiers, banks and insurance companies soon start asking for this information."

Ms Taylor said Australia was taking a 'climate first' approach to the introduction of mandatory climate-risk disclosure from next year.

"Nearly all farm businesses will be someone else's upstream scope three GHG emissions and they will eventually ask you to voluntarily share your data," she said.

"So it just makes sense to start measuring your GHG emissions now, with the help of your farm adviser or agronomist."

Ms Taylor said there was a long way to go in terms of getting a standardised approach to measuring and managing natural capital assets and eco-system services in farming systems.

"There is already opportunity here for farmers to boost productivity or water catchment health or monetise natural capital through nature-based solutions, such as carbon farming or biodiversity projects," she said.

"We already measure more aspects of natural capital than you might think - in terms of soil type, soil organic matter and carbon, soil salinity and acidity, soil compaction, catchment health, water and nitrogen use efficiency, remnant vegetation, NPK nutrient cycling, pasture feed on offer and stock shelter.

"Now we need to add GHG emissions measurement to that list."

Ms Taylor said in WA's South West there was a drying, warming climate with declining biodiversity.

"We need every tool in our toolkit for healthy soils, healthy water catchments and healthy remnant biodiversity," she said.

"The natural capital accounting movement facilitates this.

"I'm looking forward to supporting more natural capital collaboration between the finance sector, agri-food supply chains, farming systems and natural resource management (NRM) groups."