Sustainability linked loan

We are proud to have supported New Zealand’s first on-farm sustainability-linked loan with Southern Pastures and the Bank of New Zealand (BNZ), by using our extensive experience in Overseer modelling and reporting on environmental metrics.

The sustainability loan

In the trial period of three years, Southern Pastures will receive financial incentives based on their ability to reach bold pre-agreed environmental goals on-farm, as a discounted interest rate on their $50 million loan. These goals include quantitative targets on nitrogen leaching losses and carbon reductions, as well as increases in diverse pastures and native planting areas.

What this means for NZ farmers?

While this is a pilot loan, it is very progressive and will be the start of agribusinesses that are striving to go above minimum expectations in environmental management to be recognised for their positive work and receive direct financial benefits. It will allow farmers to demonstrate their sustainability commitments to stakeholders, the public and consumers. It’s a win-win situation; farmers making improvements in this area will be better prepared to deal with any future regulatory requirements and climate change obligations, and are seen as lower risk borrowers.

Rewarding farmers to incentivise change

It may not surprise you that the motivation behind farmer behaviour and adoption is the most heavily studied area in New Zealand agriculture research. Researchers are trying to understand the ‘over the fence’ mentality – what are the motivations for adoption and behaviour change?

An obvious driver to induce behaviour change for farm environmental practices is to remove the barrier of financial cost, considering the profitability of some of our traditional primary sector productions (e.g., meat and dairy) is flat, with the rapidly rising cost of compliance. This mentality supported by a common theme in the submissions of the ‘action on agriculture emissions’ document; that farmers who are already using sustainable and low emission targets should be rewarded. This view was held by most farmers and shared among councils, industry bodies and agriculture professionals. Fonterra has also supported this view with their recent announcement of the ‘Co Op Difference’, which provides farms with a 7c/kgMS premium if they meet environmental, animal, and social targets.

The sustainability loan by BNZ is perfectly aligned with my philosophy. I have always believed that it is far more effective for farmers to be rewarded through tangible benefits, rather than penalising poor performance. Well, this has just got real in New Zealand!

Our involvement

The success of the loan relies on each of the 20 farms having Overseer files which are robust and of high quality to satisfy the requirements of auditing. These files must have consistent modelling protocols to ensure they are comparable between years and farms. For the last three seasons, we have created Overseer files for Southern Pastures which they use regularly to inform farm management decisions.

Congratulations to Southern Pastures and BNZ! It was a very rewarding experience working alongside you with this ground-breaking transaction. It is a great example of businesses working together to drive better environmental and social outcomes.

Author: Charlotte Irving