That pressure grew significantly following the signing of a global agreement in Montreal last December aimed at halting biodiversity loss.
The landmark deal, agreed at the UN summit, called for greater transparency by countries and businesses, urging them to widen their focus on environmental protection. There is a specific focus on industries with the largest climate and nature footprint including the energy sector, and food and agriculture (F&A) businesses.
And there is a heightened level of scrutiny on institutions financing those sectors.
April saw campaigners, Mighty Earth, Feedback, and BankTrack, zone in on Barclays, claiming, in a report, that the bank was the single biggest financier of meat giant, JBS, that it provided $6.7bn to the Brazilian player despite it consistently ranking at the top of deforestation and climate footprint rankings of all agricultural firms.
The activists, who maintain that the banking sector has lagged institutional investors in requiring action from their clients on nature and climate, insisted Barclays take immediate and urgent action to align its portfolio with the Paris Agreement and the Global Biodiversity Framework, including by introducing a policy that explicitly covers industrial livestock companies.
In May, Barclays updated its website to reveal new supply chain sustainability requirements for clients in forest-risk commodity sectors including beef, soy and palm oil, which it said would be effective from July 1.
The statement said the bank has ‘no appetite’ for providing financial services to soy, beef, palm oil, forestry and timber companies that are directly involved in illegal logging or related trading activities, the use of fire in forestry or plantation operations, including for land clearance and preparation, and/or acts of violence against or exploitation of people and local communities, including through forced or child labor, modern slavery, and human trafficking.
Risks and opportunities
We asked two industry experts about how banks' lending strategy can address today’s sustainability challenges, particularly those related to the F&A space.
“Regulations for lenders – and for the industry alike – are currently extending and branching out, both in volume and in detail. And this against a background of still developing and diversifying methods to identify and assess green risks, opportunities, and impacts,” Brenda de Swart, global head sustainable business development, wholesale and rural, Rabobank, told us.
She presented on this topic at dsm-firmenich’s World Nutrition Forum (WNF) in Cancun, Mexico in early May.
Rabobank is a global lender based in the Netherlands. It started as a cooperative to help farmers become successful, and it still has a core focus on the food and agriculture arena, both inside and outside the Netherlands.
Different regulatory priorities across regions
Further complexity is added by a number of regions setting specific rules or being at different stages of development, said de Swart. “For global trade, both industry and lenders need to maneuver in spaces with multiple reference points for regulations.”
"Today’s sustainability challenges can be addressed – as any other challenges impacting business - through embedding [accountability within] business strategy, target setting, and the management of products and services," according to the Rabobank expert.
Furthermore, banks and business clients can work together at the level of the client relationship and in context of their full value chains on shared sustainability challenges, in the form of innovation and collaborative initiatives with concrete benefits, she believes.
In terms of how lenders can incentivize their customers in the F&A space to improve as regards transparency, emissions reporting, and data provision, de Swart said banks can “engage their clients – and vice versa – on financeable sustainability investments, sustainability strategies, management approach, transparency and impacts, innovations for low-carbon supply chains, and making low carbon or advanced payments technologies to (cooperatives of) smallholders in farming.”
Aligning lending and investment portfolios with net-zero emissions
Heinz Flatnitzer, global director, emissions value management, dsm-firmenich, also weighed in on the topic of green finance: “Sustainability is shaping business. Lenders today face increasing regulatory, media, governmental and, indeed, consumer pressures aimed at bringing increased environmental responsibility into the financial system.”
More than 130 banks have joined the UN convened Net-Zero Banking Alliance (NZBA), which was launched in the run-up to COP 26 in Glasgow, he said.
Those banks are committed to aligning their lending and investment portfolios with net-zero emissions by 2050. “Banks need to report emissions of their customers and ESG will be reflected in the Capital Requirement Directive (CRD),” explained Flatnitzer.
Banks will be seen in an unfavorable light if they lend money to non-sustainable companies and sectors, and, as such, many lenders are adapting their business models to incorporate sustainability measures, he said. Those who do not run the risk of negative media attention and loss of market share.
With sustainability, or lack thereof, now a risk factor for financial institutions, they are tightening the loan requirements and granting favorable conditions for their customers to incentivize them to increase sustainability efforts. “Sustainability is more and more a pre-requirement to get access to capital and other services at all,” noted the dsm-firmenich representative.
Banks must determine their vision and desired role in a societal shift towards sustainability, according to Flatnitzer. New business models could see lenders shifting from transactional business to a strategic partner role.
“Sustainability should not be treated as an add-on, but as integral part and decision driver of the business strategy. Of course, we should not kid ourselves, the finance sector is there to generate profit for investors. Sustainability should be seen as, and indeed is, a business opportunity and should be considered a tangible driver of business success, going beyond mere marketing rhetoric.”
Multiple kinds of technical possibilities exist, said de Swart, for F&A players to deliver on their net-zero promises.
They can include actions from switching to renewable energy sources and new materials, to increasing energy and emission efficiency, supporting carbon capture and stocking, purchasing farm or factory inputs with better greenhouse gas or nature profiles, dietary change, food product innovation, reduction of waste and losses in the value chain, better soil, effluents and farming practices, as well as nature restauration activities. “Options are manyfold, and probably a rich combination of several of those can be pursued.”
But effective public policies, shared interests and shared value across international supply chains are also required to accelerate net zero goals, she added.
Credible measurement systems
A challenge for financial institutions, however, is how to measure sustainability efforts in a credible way, obtaining reliable data on which to base sustainability evaluation and deciding how they want to actively engage in supporting sustainable practices, said Flatnitzer.
And banks need to be clear about what they expect from their customers in relation to methodology, data quality, company-specific emissions information, the so-called primary data, rather than just industry averages, along with emissions reduction targets and KPIs, he argued.
“An important driver is the use of primary data: It creates a clear ‘race to the top’ since it is a differentiator for the producer and opens doors to investment and rewards. Credible measurement is key to deliver on the net zero promise.”
dsm-firmenich's tool, Sustell, is designed to allow users in F&A sectors to assess the baseline environmental footprint of their animal production using their actual farm and feed data rather than industry averages and proxy data sets, and then developing case-specific intervention scenarios known as ‘what-if’ models to make measurable sustainability improvements.