ASB, ANZ, BNZ, Rabobank, Westpac and the Ministry for Primary Industries joined forces in early 2020 to develop the guidance along with The Aotearoa Circle – a partnership of public and private sector leaders committed to restoring natural capital – and the newly established Toitū Tahua and the Centre for Sustainable Finance.
The different groups drew on domestic and international frameworks, alongside local good farming practice to develop the SAFI guidance.
“The SAFI guidance is ultimately a tool to guide sustainable finance decision-making in relation to agriculture,” Toitū Tahua co-chair Bridget Coates said.
“It will support the finance sector to take into account environmental and social factors when making decisions on financial solutions, so environmental and social factors are integrated into funding decisions, products and processes.
“This will support better on-farm sustainability outcomes and reduce negative impacts both now and over the long-term.”
Coates says banks and other financial institutions would use the guidance to create their own guidelines with input from Toitū Tahua and the Centre for Sustainable Finance.
It will also complement existing schemes some banks already have in place, such as ANZ’s rural sustainability loan.
That guidance includes recommendations around what is the best data used by banks to help with financing decisions for environmental projects that farmers might apply for, such as wetland development or effluent system upgrades.
That data could include Overseer readings or farm environment plans (FEPs).
“When you’re talking to the banks and they ask what’s your water quality, there’s an expectation of a measurement system that everybody would be happy with,” she said.
The guidance is a living document that is open-sourced and voluntary. It can be used to assess sustainable agriculture risks and opportunities and improve understanding of domestic and international best practice and different types of sustainable agriculture funding solutions.
She says this includes practices to reduce emissions, improve long-term resilience and deliver more sustainable outcomes in terms of water, waste, pollution and ecosystems.
“Ultimately, SAFI provides guidance for the finance sector to use in their funding decisions for the primary sector. It also supports the New Zealand finance sector’s alignment with international definitions of sustainable finance for agriculture,” she said.
The guidance is voluntary, but banks may choose to make it compulsory for its lending purposes.
It could also result in higher-quality lending because the farmer has invested in environmental improvements to the farm.
Coates says it could be a while before banks adopt any guidelines around lending for environmental mitigation policies on their farm.
“This is a real attempt to try and draw together a whole lot of different threads that are out there that are complicating life quite significantly. We are recognising the future, this is a future trend, we have to respond to it and try to be thoughtful about how this might come together,” she said.
The banks had willingly participated in the process of creating the guidance and had shown a lot of goodwill in taking it on.
Coates also saw SAFI as a potential model for other sectors to adopt, such as urban housing.
“Instead of ‘does this loan meet the lending criteria?’, the discussion is more likely to be ‘does it meet the financial criteria?’. But (also) what other criteria are relevant and how does this loan fit climate and environmental and other objectives you might have,” she said.
She says the guidance reflected a general change in finance and the Centre for Sustainable Finance is all about rethinking some of the tools and structures the industry uses and thinking about how they fit in a more holistic world.
The SAFI guidance is phase one and will be reviewed at the end of this year. Phase two of SAFI will provide a final guidance standard that can be used voluntarily.
