Environmental Standards as a Dairy Farm Loan Requirement

The Bank of New Zealand (BNZ) is extending a $50 million loan to Southern Pastures based on environmental standards.

The Radio New Zealand (RNZ) article says that the loan is “linked to high water quality, biodiversity, and carbon reduction standards. Southern Pastures owns 20 dairy farms in Waikato and Canterbury, the largest organic farm in New Zealand, and a creamery business.”

To ensure that the bank’s environmental targets are met, Azure Quality, a government-owned food safety and biosecurity company, will measure Southern Pastures’ dairy farms annually.

According to the Community Scoop article, Southern Pastures uses their organic farm to learn how to minimise antibiotic use, allowing them to use less than what the EU organic regulations allow.

As mentioned in the article, Southern Pastures Executive Chairman Prem Maan welcomes the bank strategy and says that this deal recognises that farming to mitigate climate change and environmental impacts is in our common interest.

A stuff article says that the sustainability-linked loan is the first in NZ, but BNZ will roll it more widely if it proves successful.

BNZ chief executive Angela Mentis says the bank will link lending to environmental conditions to meet the country’s climate change obligations. She says, “There is great work underway on New Zealand farms throughout the primary sector and other sectors. We want to partner with businesses who are striving to go above and beyond compliance minimums and show what best practice in environmental management, labour, and governance looks like” (Flaws, 2021)

Massey University professor of banking David Tripe says that sustainability-linked banking is becoming more common, and the feel-good factor is just good business. Other banks not doing this type of lending are doing “high-risk lending” or loaning money to businesses that destroy the environment. Tripe says that banks need to look at the long term and how it will affect the environment.

He adds that no organisation measures a bank’s performance, but they know there are social demands they cannot ignore without looking bad in front of their shareholders.

New Zealand’s dairy industry emissions are among the lowest globally, with an on-farm carbon footprint of almost half less than the other 18 milk-producing countries. However, New Zealand’s dairy industry contributes 22.5% of the country’s total emissions (DairyNZ, 2021).

The Government’s Zero Carbon Bill sets an emissions target for the dairy industry: reduce carbon dioxide and nitrous oxide to net zero by 2050, reduce methane emissions by 10% by 2030, and between 24 and 47% by 2050 (DairyNZ, 2021).

Farmers in New Zealand will need to achieve these targets over time. Initially, they need to estimate their current emissions and develop a plan to reduce them, which they will do alongside wider environmental concerns like water quality, erosion control, and biodiversity (DairyNZ, 2021).

Introducing new lending products like sustainability-linked loans will incentivise businesses to reduce carbon emissions and drive climate-friendly practices.