BNZ launches interest rate incentives for environmentally ambitious farmers

Bank of New Zealand (BNZ) has today launched New Zealand’s first Agribusiness Sustainability Linked Loan product (SLL) available to all New Zealand farmers.

The term loan, a SLL available to all farmers no matter the size of their farm or industry, offers interest cost savings for achieving environmental and social targets including: Greenhouse gas reductions; eco-system protection; improved care for staff; protecting waterways; improving biodiversity; and animal welfare.

It is the first time a SLL has been available as a loan product to all New Zealand farmers. Environmental and Social targets are set and agreed with BNZ and progress independently verified annually.

Dana Muir, BNZ’s Head of Natural Capital, says, “New Zealand’s farmers are working hard to achieve environmental and social goals and we want to support and incentivise their efforts.

“This is the first-time lending that rewards environmental and social ambition has been available to all New Zealand farmers.

“Reduced loan costs incentivise farmers to go harder and faster on environmental and social improvements while independent audits ensure the work is meaningful and contributes to a better future for New Zealand,” she says.

BNZ’s Agri SLL Product has been developed off the back of successful individual SLLs with large primary sector customers. It is designed to be complementary to work underway across leading assurance programmes in the primary sector that also incentivise improved environmental and social outcomes on-farm.

Unlike previous versions of sustainability-focused lending which have supported farmers with one off environmental projects, an SLL can be used for any purpose on a farm. It is designed to work like regular term debt with cost savings only realised when environmental and social targets are achieved.

Muir says, “Farmers can choose from a range of environmental and social measures which they want to tackle, but emissions reduction is a non-negotiable. It is crucial we reduce greenhouse gas emissions and the structure of our SLL reflects that.”

In line with the Sustainable Agriculture Finance (SAFI) guidance released under the umbrella of The Aotearoa Circle, in July 2021, farmers are able to choose a minimum of three and up to five areas they want to improve including:

1. Climate Change Mitigation (mandatory): Mitigating total onfarm Greenhouse gas (GHG) emissions
2. Pollution Prevention and Control: Improving onfarm waterway quality
3. Sustainable Use and Protection of Water: Increasing efficiency of water use onfarm
4. Protection of Healthy Eco-Systems: Improving onfarm native terrestrial and aquatic biodiversity and / or improvements in soil health
5. Waste Prevention, and Recycling Waste: Reduction in the level of onfarm waste generated/improvement in recycling of waste
6. Social: Improvements in areas such as animal welfare, labour practices (including health and safety and labour rights), and governance

How it works

 An SLL is a term loan of more than three years. An independent audit establishes environmental and social baselines, initially through AsureQuality.

The initial audit and annual audits thereafter are at the borrower’s expense, but Muir says, “The pricing benefits consider the expense and effort required by a customer to enter into an SLL. If you achieve the targets, it works in your favour.”

Muir highlights that this is the first example of Sustainable Agriculture Finance Initiative (SAFI) guidance being used to underpin a Sustainable Finance product for the Primary Sector. As standards and science evolves, so too will the criteria within BNZ’s SLL to ensure it reflects market best practice.

EY provided limited assurance of this product framework against the requirements of the Loan Market Association’s Sustainability-Linked Loan Principles (March 2022) and SAFI Guidance. BNZ’s partners in establishing this product were AsureQuality, who also provide on-farm assurance for the BNZ SLL, AgFirst and Buddle Findlay.