Alexandra Tracy, 香港地球之友綠色金融顧問 / Green Finance Advisor of Friends of the Earth (HK)
“Climate Change and Land”, published by the Intergovernmental Panel on Climate Change (IPCC) this month, puts the focus clearly on how we use – and often misuse – natural resources.
The climate change impact of agriculture, deforestation and land conversion around the world accounts for nearly 25 percent of total greenhouse gas emissions, according to the IPCC. Land masses are natural carbon sinks, but deforestation, agriculture and observable weather factors mean that their carbon dioxide absorption capacity may be significantly reduced.
While the world needs to maintain its natural environment, the growing global population needs ever more land to feed itself. Managing the policy trade offs between feeding the people, on the one hand, and addressing the urgency of climate change, on the other, is becoming one of the greatest challenges for governments in the twenty first century.
But there are actions that could help to meet that imperative. Reducing deforestation, together with action to regenerate degraded ecosystems, is perhaps the most important – the current situation in the Amazon is a cause for dismay. Almost as pressing, however, is the need to reduce food waste along the entire supply chain, from the farm gate to the supermarket: over a quarter of food produced is not consumed. And the production of food itself needs to become more sustainable.
A recent report from the World Resources Institute, “Creating a Sustainable Food Future”, highlights opportunities for technological innovation and changes in farming practice that could feed nearly 10 billion people by the year 2050 – while also meeting climate goals. This would involve raising agricultural productivity, managing demand and reducing waste (not just giving up meat) and reducing greenhouse gas emissions generated in the production chain. At the same time, natural ecosystems protection and reforestation will be essential.
What role can finance play in greening agriculture ?
The new stars of the green finance world are green and sustainability loans, which link the interest rate payable to meeting sustainability performance targets. Unlike green bonds, the money raised can be used for general corporate purposes, not just specific green projects, but the borrower must quantify and report its environmental or sustainability benefits each year.
Agricultural producers and commodity traders have been some of the first movers in signing up to green loan structures. Global players such as Danone, Louis Dreyfus and Gunvor Group in Europe have latterly been joined by major players in Asia, looking to leverage their efforts to produce more sustainably into a cheaper cost of capital.
In 2017, Wilmar International in Singapore agreed a US$150 million green loan with Dutch bank ING, which was the first deal of its kind in the palm oil industry. Olam International, a substantial regional commodities trader, soon followed with Asia’s first sustainability linked club loan (in which fifteen banks jointly extended funds to the company).
Most recently, in July this year, Cofco International, the trading division of China’s biggest food company, has agreed a US$2.1 billion facility, which is the first sustainability loan in China and the largest to a commodity trader. Interest rates will be linked to targets which include transparency in the supply chain to ensure that it is not contributing to deforestation.
Speaking about impact of the loan on the company’s business, Jing Wu, chief financial officer at Cofco International, argued that “future demand of agri commodities can only be met by sustainable sourcing”. Green finance, coupled with clear performance on sustainability, will help to transform the agricultural sector and ensure it plays its part in our long term future.