Finance Institutions Consider Farming in a Changing Climate
Plus, an update on the EU-Mercosur trade agreement
Welcome to Plating Progress: Edition 3, a newsletter on the sustainability of our global food systems.
Now, let’s dive in!
Finance Institutions Consider Farming in a Changing Climate
Back in November, a survey from the Environmental Defense Fund (EDF) gathered insights from 156 agricultural finance institutions across 17 countries and found that the majority (94 percent) are considering shifting weather patterns a financial risk. Rapidly changing weather, a result of climate change, can affect farmers’ ability to reliably grow food and create economic hardships for those farmers, their communities, and the lenders who provide investments and credit necessary for most agricultural endeavors.
The EDF first conducted this survey series in 2022, when 87 percent of finance institutions cited extreme weather as a risk to their agriculture business. Now, that number is up to 94 percent, showing how the agriculture industry is confronting reality. Farmers face the risk of losing their crops, and banks face the risk of losing their investments. Meanwhile, higher production costs and insurance premiums are among the upfront financial consequences of extreme weather, making future investments even more expensive and riskier.
Context
While most of the world’s agricultural finance institutions live in reality and are concerned about climate change, U.S. banks apparently operate on a different planet. The 94 percent global average concern rate looks starker when broken down by country. The financial institutions outside the U.S. are 99 percent in agreement about the risk of changing weather patterns on farming, but in the U.S., only 80 percent are concerned. This could reflect politics seeping into corporate policy, but it should be noted that the turn away from climate financing is not limited to the Republican-dominated agriculture industry. In October, the Federal Reserve Board rescinded a requirement that the country’s largest financial institutions factor climate risks into their long-term planning. Meaning across the U.S., financial investments and credit lines are being extended without any consideration of future weather events.
For agriculture financial institutions that address climate risks, there are new business opportunities to look forward to. Banks around the world are increasingly adding sustainability-related financial products to their list of services. This means offering strategic planning, reporting, and stakeholder engagement services, allowing farmers to work more closely with their financial institutions. 88 percent of institutions plan to develop new sustainability-focused products or services within the next three years, as most executives outside the U.S. see this as a case to make more money and expand their offering portfolios.
The Bottom Line
In summary, extreme weather driven by climate change is impacting farmers and the financial institutions that back them. But by addressing the risk now, there is an opportunity for farmers to be better equipped to manage extreme weather and for banks to offer more value. The key is actually acknowledging the financial threats of climate change in the agricultural sector.
An Update
After 25 years, the EU-Mercosur trade deal passed! In the end, European farmers received 45 billion Euros in subsidies, and there will be strict quotas on food and agricultural imports from South American nations. The deal also requires all signatories to commit to the Paris Climate Agreement and follow safeguards to prevent illegal deforestation. Not everyone is a winner, but for farmers, food exporters, and consumers in both trading blocs, this seems to be an overall positive step.
Read the full breakdown on Politico.