Breakthrough agricultural loan rewards farmers for environmental stewardship

Quantifying the long-term financial benefits of conservation practices that build farm resilience and recognizing that value in the financing offered to farmers would be transformative for farms, lenders and the environment.

That idea received a major boost when Farmers Business Network, a global farmer-to-farmer network and ag tech company, launched a new farm operating loan that includes a lower interest rate incentive for farmers who achieve climate and water quality benchmarks.

Environmental Defense Fund and FBN have collaborated for multiple years to integrate strong science into FBN’s data platform, Gradable. Now, Gradable’s sustainability expertise is combined with FBN’s fast-growing agricultural lending business to offer low-interest operating loans to farmers who implement nitrogen management and soil conservation.

This is a win for farmers who will be rewarded for their stewardship, a breakthrough in connecting data about farms’ environmental and financial performance through their financing, and a new opportunity for investors and other financial institutions. Here’s why.

Data innovation leads to financial innovation

Lenders, farmers’ closest financial partners, typically do not collect financial information about the connection between conservation adoption, financial performance and risk in their loan underwriting practices. In fact, recent market research shows that only 35% of farmers have discussed soil health practices with their lenders — yet half of farmers would be interested in a loan product that supports them in adopting soil health practices.

Access to data to better understand the climate risks and emissions in their portfolios is a key first step toward helping farmer clients build climate resilience, one that agricultural lenders around the world have begun to tackle. FBN’s ability to connect environmental and financial data is a huge advantage and allows them to offer one of the first U.S. agricultural financing programs to reward farmers for environmental performance.

Farmers who meet the environmental standards will receive a 0.5% interest rate discount on their operating loan, as well as agronomic insights to optimize the on-farm benefits of regenerative practices and their long-term profitability — a critical benefit in a time when fertilizer prices have doubled from the past year. Any farmer who meets the environmental standards will qualify for the discount, enabling both new conservation adopters and farmers who have embraced conservation practices for decades to benefit.

Environmental standards grounded in strong science and flexible to farmers’ needs

EDF designed environmental standards that provide a flexible framework for farmers using a variety of management and conservation practices to prove their environmental stewardship, while also enabling FBN to measure climate and water quality benefits.

Excess nitrogen from fertilizer and manure emits nitrous oxide, a greenhouse gas that is 300 times more potent than carbon dioxide, and nitrate, a significant water pollutant. Nitrogen losses to the environment are invisible and have historically been difficult to measure and monitor. This loan uses groundbreaking science that now makes it possible to measure nitrogen losses affordably and accurately.

The nitrogen management standard is based on peer-reviewed research by EDF scientists and others who have validated nitrogen balance — the difference between nitrogen inputs to and nitrogen outputs from a field over the course of a year or crop rotation — as a user-friendly, scientifically robust way to quantify nitrogen losses to water and air at a farm level. Peer-reviewed environmental models developed by EDF scientists will enable FBN to use aggregated farm-level data to calculate greenhouse gas emissions and nitrate losses at scale.

The strength of the environmental standards is a vital component of the new loan, and EDF will continue to advise FBN on the science and quantification of climate and water quality benefits.

Expanding to more farmers, investors and lenders

FBN’s $25 million pilot fund is currently enrolling 30-40 farmers growing corn, soybeans or wheat. The pilot will allow FBN to connect farm environmental performance with the financial performance of the fund and create new insights into the relationship between regenerative practices and farm risk and creditworthiness. This innovation will provide investors and agricultural lenders with a new investment opportunity with the potential to scale across millions of acres.

FBN plans to scale the fund to $500 million over three years and access public markets to securitize and sell these loans to investors seeking liquid, environmentally friendly investments. The results of this pilot can also inform the development of innovative financial products by other agricultural lenders who want to better understand their exposure to agricultural climate risk and work with farmer clients to build long-term resilience and profitability for both farms and lending portfolios.

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