Carbon Reporting and Agribusiness Lending

Posted on by debpurvis

Understand how the new rules could affect you

As we head towards the end of another challenging year, there is a significant change facing the agriculture sector. From 1 January 2025, many large Australian businesses and financial institutions will need to prepare annual sustainability reports. These reports will include mandatory climate-related financial disclosures, including carbon reporting.

Announcing this decision, ASIC Commissioner Kate O’Rourke said,

‘As more people consider environmental sustainability when making financial decisions, climate disclosure will continue to grow in importance. Enhanced climate disclosure will also benefit reporting entities themselves, enabling them to better understand their climate-related risks and opportunities over the short, medium and long term.’

Even if you don’t agree with this approach, these requirements are likely to affect banks and their lending decisions.

So in this blog, I want to share some background on what carbon reporting is and how it might affect your financial institution.

What is carbon reporting?

Carbon reporting involves the measurement, monitoring and reporting of greenhouse gas emissions from agricultural activities.

This includes:

  • emissions from livestock
  • soil management
  • fertiliser use
  • machinery operation

The goal of carbon reporting is to create a transparent system to help reduce the agricultural sector’s carbon footprint.

Australian banks and financial institutions are considering the risks, regulations and opportunities that will come from the new carbon reporting rules. Because banks can choose which customers to fund, based on favouring certain industries or those using specific technology, they will have an enormous impact on Australia’s transition to a low-carbon economy.

Potential benefits of carbon reporting

At first glance, carbon reporting might look like another administrative burden. But we also expect there will be some benefits.

  • Environmental impact: by accurately reporting emissions, you can see areas where there is potential to reduce your carbon footprint, leading to more sustainable practices.
  • Market access: meeting carbon reporting standards may open up new markets, especially in places that are prioritising environmentally friendly products.
  • Financial incentives: adopting carbon-friendly practices may mean you can access carbon credits, which you can sell on the carbon market to provide an additional source of revenue (there are things to be cautious of when considering carbon credits as a source of income – read them below in challenges and concerns).

For financial institutions, moving towards decarbonisation and emissions reporting may remove the risk of missing out on market opportunities, protect their reputation and safeguard investments.

Challenges and concerns

As with any new requirement, there are challenges and concerns, both for those in the industry and for customers.

ERF and Carbon Credit Verification: Farmers in Australia participating in carbon credit schemes need to follow strict guidelines for verification and certification, including third-party audits, which can be costly. The process of measuring, reporting, and verifying emissions reductions is regulated by the Clean Energy Regulator.

Market Fluctuations: Like the global carbon credit market, the price of Australian carbon credits can be volatile. The demand for carbon credits can change with shifts in government policy or the introduction of new climate commitments. Prices were affected by both domestic policy and international agreements, making it important for farmers to carefully assess the stability of the market.

Regulatory Changes: Australian farmers must be aware of policy changes at both the federal and state levels. For example, the government periodically updates its climate policies, including the Nationally Determined Contributions (NDCs) under the Paris Agreement, which can affect carbon credit prices and regulations.

Long-Term Commitment: Under the Carbon Farming Initiative, participating farmers must commit to maintaining carbon-reducing practices for a period of up to 100 years, ensuring that the carbon savings are ongoing. This long-term commitment can be challenging for farmers if they need to change practices or face unforeseen circumstances.

Additionality Requirement: For a carbon credit to be valid under Australian programs, the carbon reduction must be additional—meaning the reductions would not have occurred without the adoption of new practices. This concept is rigorously enforced in Australia to ensure the credibility of carbon credits.

Offsetting lending to high carbon users

Australian banks are increasingly aware of their role in financing carbon intensive industries like mining and airlines. Many have committed to reducing the scope of the emissions they finance, especially as they will need to provide reports that the public can access.

We can expect banks to tighten their lending criteria for high-carbon emissions. They’ll also need to offset any emissions they still fund, by supporting low-carbon activities. This may include increased funding for renewable energy projects and green technologies.

To encourage agribusinesses and other sectors to adopt low carbon practices, some banks are offering green loans with lower interest rates. These loans will support projects with environmental benefits like renewal energy installation, energy-efficient equipment and sustainable farming practices.

Current initiatives in the Australian banking sector

According to its website, the Commonwealth Bank is committed to supporting Australia’s transition to a net zero economy by 2050. In its 2024 Climate Report, CBA outlined its progress against its climate strategy and transition roadmap, including the ways it’s supporting customers with products, services and engagement.

CBA notes customers are at different stages of adopting decarbonisation activities so it aims to provide different products. These include Agri Green loans and Green Asset Finance solutions. These reward them to adopt emissions-reducing technologies and practices that can also support nature restoration. They have also run projects to help farmers understand their emissions and adopt technology to plan reductions.

ANZ Agri Uplift Finance will reward customers that have a clear environmental vision and are improving farming practices and increasing business resilience. Eligible floating ANZ Business Term loans receive an interest rate discount for up to 3 years.

Customers are eligible through:

  1. Certification under an eligible industry assurance program, or
  2. Meeting the criteria under the product’s general pathway of climate change mitigation and adaptation, biodiversity, water quality and soil health.

NAB Green Finance for Agribusiness assists Australian farmers through financing of eligible on-farm projects and practices.

These might include:

  • on-farm solar projects
  • establishing trees to generate on-farm benefits
  • projects to reduce emissions from fertiliser use
  • land management changes to increase ground cover and crop or pasture diversity
  • controlled traffic cropping systems to improve soil and water conservation.

Navigating the future

The proposed carbon reporting measures have the potential to drive significant change in the Australian agriculture sector. By adopting low-carbon practices, you’re not just helping the environment. You may also access better deals for capital.

But there will be challenges and it will be crucial for policy makers, industry stakeholders and farmers to work together, to ensure a smooth transition and get the most from these measures and incentives.

Over to you

Need some advice or support to talk to your bank about the potential impact of carbon reporting on your business and lending? Get in touch. Let’s work together to ensure you keep getting the best deal on your finance.

If you know someone who would benefit from this blog, please share it with them. 

Additional resources

In addition to the links in the blog, you might like to read the follow reports and articles:

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