To better understand how climate is factored into investment and lending decisions in agriculture, Deloitte and the Environmental Defense Fund conducted a survey. These results (chart to the right) suggest that financial institutions focused on agriculture are concerned about climate change's impacts, yet only some are currently factoring climate change risks and opportunities into their decision-making. A key barrier to factoring climate change indicators into investment and lending decisions is a lack of agricultural practice, production, and environmental data. This data is needed to inform measurements and estimates of greenhouse gas emissions from agricultural production. Recently established and pending regulations that provide standards for companies to report on greenhouse gas emissions may be a key driver for addressing this barrier. These regulations include the U.S. Securities and Exchange Commission's proposed rules to enhance and standardize climate-related disclosures for investors. The rise in standardization of corporate sustainability reporting is in response to investor demand for greater transparency and consistency. For example, there are approximately 5,300 investors who manage more than USD $121.3 trillion that are signatories to the United Nation's Principles for Responsible Investment, which outline actions for incorporating ESG issues into investments. The increasing interest in sustainable finance can interact with the agriculture sector in several ways. One potential implication is the expanding interest in data from agri-food value chains. As organizations work to understand and improve ESG performance in their value chains, they may seek out data from suppliers. For example, a food company may want to understand better the carbon intensity of the production of raw ingredients they use in their products. This data could contribute to establishing a baseline to track progress and help the company identify opportunities to support practice adoption, such as nutrient stewardship to reduce the carbon intensity of production over time. According to a 2022 report by Ernst & Young, digital tools, central data platforms, and value chain collaboration are promising approaches to meet sustainability data demands. Another way sustainable finance can impact the agriculture sector is by increasing the availability and options of financial products and services that support or reward farmers and agri-food businesses in their efforts to improve sustainability in agriculture continuously. Many of these financial mechanisms provide incentives such as discounts on premium rates to farms and other agricultural businesses on their investments and loans for maintaining or adopting sustainable practices and technologies. EXAMPLES OF SUSTAINABLE FINANCE Sustainable financing programs, products, and services in agriculture may look different depending on many factors, including the sustainability goals of the organization, its partners, stakeholders, and clients, as well as their level of interest and expertise in sustainable financing. A financial institution's engagement in sustainable finance in agriculture can stem from its broader investments in sustainability that the agriculture-specific initiatives fall under. For example, in 2021, BMO committed tomobilizing $300 billion by 2025 in sustainable finance. In Spring 2023, BMO announced Greener Futures Financing, which includes a sustainable finance program for new and current agriculture business banking clients. These clients are potentially eligible for a discount of up to one per cent on new loans for investments in reducing emissions or implementing climate resilience measures, such as improving on-farm energy efficiency. Sustainable finance products and programs can also be driven through partnerships, as observed through Farm Credit Canada's Sustainability Incentive Program, which provides payments to farmers that meet their partners' sustainability requirements. Finally, Rabobank, a global financial institution with expertise in agriculture and sustainable finance products, offers green and sustainability-linked loans, which they note are growing in demand. Sustainable finance is fast evolving, and its impact on the agriculture sector is becoming more tangible. At this stage, it is difficult to determine all the implications for farmers, as many standards and regulations are pending, and companies and value chains are developing approaches to improve their ability to track ESG performance. Lisa Ashton is the sustainability and environment lead at Grain Farmers of Ontario. l ONTARIO GRAIN FARMER 15 OCTOBER 2023 Sustainable finance refers to financial activities that consider environmental, social, and governance (ESG) indicators to promote sustainable economic growth and the long-term stability of the financial system. FINANCIAL INSTITUTIONS SURVEYED 167 87% see climate change as a material risk to their business. OF AGRICULTURAL LENDERS 24% significantly factor climate change into their decision making processes. OF SURVEYED FINANCIAL INSTITUTIONS 66% have or plan to have climate change goals for agriculture. OF RESPONDENTS 31% somewhat factor climate change into their decisions. OF SURVEYED FINANCIAL INSTITUTIONS
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