Bank of New Zealand (BNZ) is extending a loan of $50 million 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 reductions 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, Southern Pastures’ dairy farms will be measured annually by a government-owned food safety and biosecurity company, AzureQuality company.
According to the Community Scoop article, Southern Pastures use their organic farm to learn how to minimise antibiotic use, allowing them to lower antibiotic use 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 that 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 getting more common, and the feel-good factor in it is just good business. Other banks not doing this type of lending is doing “high-risk lending” or loaning money to businesses that destroy the environment, and that banks need to look at the long term and how it will affect the environment, Tripe says.
He adds that there is no organisation measuring bank’s performance, but they knew that there are social demands that they could not ignore without looking bad in front of their shareholders.
New Zealand’s dairy industry emissions is 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 to 22.5% of the country’s total emissions (DairyNZ, 2021).
The Government’s Zero Carbon Bill sets up an emissions target for the dairy industry to reduce carbon dioxide and nitrous oxide to net-zero by 2050, reduce methane emissions by 10% by 2030, and between 24 to 47% by 2050 (DairyNZ, 2021).
Farmers in New Zealand will need to achieve these targets over time. Initially, they need to estimate their current emission and develop a plan to reduce their emission, 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 incentivize businesses to reduce their carbon emissions and drive climate-friendly practices.