Finance as a force for good
How financial institutions can help reshape our food and energy systems to benefit climate, nature and people
“The transition to a low-carbon, climate-resilient world will transform the global economy”
Remco Fischer
Everything.
Everywhere. All at once.
This is the level of action required to tackle the twin climate and nature crises while keeping global warming within safe levels (1.5C above the pre-industrial average) by the end of the century.
We can still do what the scientific consensus requires: meet net-zero targets and protect 30 per cent of the world’s land and seas to restore nature and safeguard our most powerful carbon sinks. While the transition to a more sustainable world carries a price tag – the International Energy Agency’s latest assessment suggests we need to mobilise at least $4.5tn a year by the early 2030s to meet net-zero CO2 emissions by 2050 – the economic, environmental and social benefits of climate action will far outweigh the costs.
Keeping 1.5C alive:
an economic imperative
benefits per year:
keeping global warming below 1.5C could generate cumulative expected economic benefits of $605tn through to 2300, which breaks down to about $6.8tn annually (about 2 per cent of global GDP during that period).
new jobs:
actions to achieve the objectives of the Paris Agreement and limit global warming as close as possible to 1.5C could create 24mn new jobs by 2030.
Financial institutions – especially banks – are in a unique position of influence to fund and facilitate climate and nature-inclusive solutions. “The transition to a low-carbon, climate-resilient world will transform the global economy,” explains Remco Fischer, Climate Change Lead at the United Nations Environment Programme Finance Initiative (UNEP FI). “Banks need to be a part of this.”
Banks can help in a number of ways to accelerate the transition and shift billions in investment towards practices that are positive for the climate and nature. Rabobank, for example, a large international financial service provider in food and agriculture, has committed to making finance flows consistent with a 1.5C trajectory as part of its Paris Agreement-aligned climate plan. The plan also suggests three key levers to drive action towards a 1.5C future: helping clients transition, optimising portfolios and advocating for systems-wide change.
Lever one Helping customers transition
“The majority of business for banks is financing clients,” says Dafina Nonkulovska, CFO Lead Sustainability at Rabobank. “And that's also the biggest portion of overall greenhouse gas emissions for banks.” Actively engaging with customers to encourage decarbonisation can have ripple effects across the entire value chain but, first of all, companies need to measure and track their own climate and nature impacts. This is a key stage during which banks can help nudge clients towards more sustainable methods.
“One of the most important things we do is work directly with clients to first understand and address their own emissions,” explains Nonkulovska.
“We help customers set a baseline – and that's quite a challenge. Everybody knows what $100 looks like. But what about one tonne of CO2 emissions – or one megatonne?”
Dafina Nonkulovska
Average global temperature rises (1850-2023) and average biodiversity loss (since 1970)
Sources: Met Office Hadley Centre (2023), World Wildlife Fund (WWF) and Zoological Society of London (2022)
Once a baseline is set, banks can then support clients in their own transitions by suggesting support and financing options such as sustainability-linked loans and working capital. Silver Fern Farms, a 16,000-strong farmer cooperative producing around 30 per cent of New Zealand’s lamb, beef and venison, benefits from this kind of finance.
Silver Fern Farms has been producing grass-fed, pasture-raised meat for more than 75 years. It has ambitious sustainability goals that include reducing scope 1 and scope 2 emissions by 42 per cent by 2030 (from a 2020 base year) and setting a full scope 3 emissions target inclusive of livestock emissions in 2023/24. To help it achieve these goals, the cooperative now has a working capital facility linked to progress.
“Having the opportunity to access sustainable finance at scale is a key component of our industry leadership,” says Kate Beddoe, Chief Sustainability & Risk Officer at Silver Fern Farms. “With support of the Joint Sustainability Coordinators (JSCs) including Rabobank, we have achieved a sustainability-linked financing facility that is customised for the sustainability challenges, and opportunities, in the red meat industry – and one that aligns with international best practice.”
Global outstanding sustainable debt as of 2022, by instrument
In billion US dollars
Source: IIF; Bloomberg
Lever two Growing a more sustainable portfolio
Beyond assisting clients in their own net-zero and nature-positive plans, banks can choose to invest directly in projects that are carbon-negative and benefit nature (regenerative agriculture, for example) while phasing out carbon-intensive assets. “Banks need to finance climate solutions,” says Nonkulovska. “That means we need to support and stimulate technologies, services and tools that can mitigate, remove and avoid GHG emissions.”
“We need to support and stimulate technologies, services and tools that can mitigate, remove and avoid GHG emissions”
Dafina Nonkulovska
Investments in clean energy solutions have surged since 2004…
Investment in billion US dollars
Source: BloombergNEF
…with renewable energy investments taking the lion’s share
Investment in billion US dollars
Tap segments to explore
Rollover segments to explore
Source: BloombergNEF, 2023
The optimisation of a bank’s portfolio can take many forms. Increasing finance to clients and sectors that are already ESG-aligned is one strategy, and developing a clear sustainability policy outlining what a bank will and won’t finance is another. Investing in sustainable early-stage ventures and new projects can also help bring decarbonisation innovations to the fore.
For example, in 2023 Rabobank invested in 55 new projects with an exposure of €2.6bn, making it one of the top 15 lenders in clean energy globally. That same year, Rabobank also invested €50mn in food and agriculture businesses and funds that contribute to the food system transition. The bank also finances precision farm equipment, robotics and other climate technologies that help its portfolio – and its customers – decarbonise.
An important part of reducing portfolio emissions is phasing out carbon-intensive activities and letting go those clients who do not show a willingness to commit to climate and nature goals. “This is a last-resort option, as we always try to engage with our clients first and encourage them towards a 1.5C pathway and nature-inclusive direction,” says Nonkulovska. “Collaboration is key to success.”
Globally, climate-tech venture capital investments totalled
An important part of reducing portfolio emissions is phasing out carbon-intensive activities and letting go those clients who do not show a willingness to commit to climate and nature goals. “This is a last-resort option, as we always try to engage with our clients first and encourage them towards a 1.5C pathway and nature-inclusive direction,” says Nonkulovska. “Collaboration is key to success.”
“This is a last-resort option, as we always try to engage with our clients first and encourage them towards a 1.5C pathway and nature-inclusive direction”
Dafina Nonkulovska
Lever three Helping move the system in a sustainable direction
Changing everything, everywhere, all at once will require deep collaboration and transformations across sectors, industries and society. As policy evolves, it is increasingly on the side of reducing emissions and environmental harm while restoring nature. “Mandatory climate-related financial disclosure is spreading to more jurisdictions, global standards are emerging, and investor demands for quality climate-related information are growing,” says Remco Fischer of the UNEP FI. “At the same time, climate-related policies are expanding to more economic sectors. Then, of course, discussions around nature-related financial disclosures are advancing as understanding of the interrelations between climate and nature develops.”
With great power – which in this case is money and finance – comes great responsibility, and banks can work with a range of stakeholders from across multiple sectors to reshape carbon-embedded systems. “Partnerships between public and private sectors are necessary to tackle climate and nature challenges,” says Nonkulovska. “And a big part of this will be standardisation across the globe of policy and reporting to make sure that we are all on the same page and that we speak in one language when it comes to 1.5C pathways and nature-inclusive approaches.” While banks can be influential in bringing about systems-wide change, they may not be fully equipped to incentivise it. Enabling policy and private sector commitments are critical pieces of the puzzle.
Global guidance: the Task Force on Climate-related Financial Disclosures (TCFD)
the number of organisations who have become supporters of the TCFD recommendations
the number of financial institutions using TCFD recommendations
the amount of assets represented by these financial institutions
Note: TCFD – which has recently been retired with progress now being monitored by the International Sustainability Standards Board (ISSB) – and the recently formed Taskforce for Nature-related Financial Disclosures (TNFD) are just two of the many credible bodies creating internationally recognised reporting language to help financial institutions and their clients prepare to minimise climate and biodiversity risk and prepare for future policy shifts.
Ambition and collaboration within the financial sector is also needed to fully realise the opportunities that the net-zero transition presents. The Net-Zero Banking Alliance (NZBA), for example, a sector-specific coalition for banks under the Glasgow Financial Alliance for Net Zero (GFANZ), has more than tripled in size since its launch in 2021 with more than 130 banks in more than 40 countries. Rabobank has been a member of the NZBA since 2021 and embeds GFANZ recommendations across its Road to Paris climate strategy.
“Our members have shown commitment, setting targets and focusing first on the hardest-to-abate sectors,” says Fischer. “They have dedicated significant resources to this effort, and this has helped to make climate a key factor in decision-making across their businesses. With the experience accumulated, they are increasingly prepared to respond to the climate crisis.”
Enabling people to be part of the solution
Ultimately, every organisation, every institution and every individual has a part to play in the pathway to 1.5C and the nature-positive transition – and sometimes it is consumers who compel companies and investors to make the shift. “Our whole business has been designed so that our livestock farmers are able to get closer to the consumers,” says Kate Beddoe of Silver Fern Farms.
“Our sustainability journey, which started about 10 years ago, was really driven by consumer demand and expectations. We knew our consumers liked the core attributes of how we raised our grass-fed animals and produced our products, but they also had some increasing expectations around how we were reducing emissions and looking after the land.”
2/3 of consumers say they will pay more for sustainable products
Sources: First Insight, 2022
Sustainability-savvy consumers, progressive policy, voluntary frameworks, collaborative cross-sector alliances, direct investments and financial support must all align if we are to achieve climate and nature goals and realise a more sustainable world. “Everyone has a role, and in that sense everyone is an ambassador for the planet,” says Nonkulovska. “When we talk about climate change, we’re talking about system change. We all have to work together to grow a better world.”
