NZ’s first farm sustainability linked loan to deliver water and biodiversity benefits

In a New Zealand first, ethical dairy investor Southern Pastures has entered into a three-year $50 million sustainability-linked farm loan with BNZ and its syndicate.

Southern Pastures, owner of Lewis Road Creamery, will receive financial incentives for meeting new water quality and biodiversity targets and for achieving further reductions in its already low on-farm carbon emissions. Achievement of the targets will be directly linked to lower loan costs.

“This deal recognizes that farming to mitigate climate change and environmental impacts is in our common interest,” says Southern Pastures Executive Chairman Prem Maan. “In my view, farming in New Zealand should be driven by the ambition to become carbon neutral.”

Southern Pastures owns 20 farms in Waikato and Canterbury. It produces milk under an independently certified 10 Star Certified Values Program which stipulates strict environmental, climatic, animal and human welfare requirements. Its Waikato farms which supply Fonterra include the largest organic farm in the country.

“We use our organic farm, for example, to learn how to minimize antibiotic use,” says Prem. “So we now use less antibiotics on all our farms than what is allowed under EU organic regulations.”

BNZ Head of Natural Capital, Dana Muir, says, “Southern Pastures is a leader in the NZ primary sector with ambitious environmental goals. It made sense to partner with them to show that capital incentives can deliver financial and environmental benefits.

“Like BNZ, Southern Pastures are driven to make a real difference improving New Zealand’s environment. The environmental targets linked to the loan are ambitious and go beyond compliance minimums – achieving them will require innovative on-farm planning, practices and reporting,” says Dana.

Angela Mentis, BNZ CEO, says BNZ has developed the innovative loan structure as part of its Sustainable Finance portfolio to help deliver carbon reductions and sustainable benefits in New Zealand. She says that BNZ will increasingly seek to use Environmental, Social and Governance (ESG)-linked lending with New Zealand farmers, agribusinesses and other sectors to help meet New Zealand’s climate change obligations. 

Angela says, “Bold ESG initiatives not only help protect the environment and build Natural Capital but also increase the value of our consumer products globally and strengthen brand New Zealand.

“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,” she says.

As part of the loan arrangement, AsureQuality is acting as an independent on-farm auditor, visiting the farms on an annual basis to collect data and verify progress against targets. Discounts to interest rates will be applied during the term of the loan provided interim and final targets are met and verified.

AsureQuality’s Environmental Assurance Lead, Simon Love, says “We have used our expertise to turn environmental targets into measurable and auditable proof points. It was a challenge and the right thing to do for future generations.”

Southern Pastures is a long-standing signatory to the United Nations Principles for Responsible Investment and BNZ is a member of the Climate Leaders Coalition, a signatory to the Principles of Responsible Investment and committed to the United Nations Principles of Responsible Banking and the Collective Commitment to Climate Action.