Sustainability and the Future of Farm Financing

Bas Rüter, Rabobank’s Head of Food System Transition, talks to DSM about value chains, lab-grown meats and how sustainability scores could someday impact your interest rates.

Tell us a little about yourself, and about Rabobank.

I’m the Global Head of the Food System Transition at Rabobank. I took this role in January 2022, and before that I worked for 10 years as Rabobank’s Global Head of Sustainability and Climate. My passion for the industry comes from my background as a biologist.

Rabobank is a global bank based in the Netherlands. We actually started as a cooperative to help farmers become successful, and we still focus strategically on food and agriculture both inside and outside the Netherlands.

We’re a member of the Net Zero Banking Alliance, which was launched in the lead-up to COP26 in Glasgow. It represents well over half of all capital available in the developed markets for financing globally, and its members—including Rabobank—have committed to having our full balance sheet of clients at net zero by 2050, including their scope three emissions.

Bas Rüter, photo by Utrecht Foto: Beeldboot/Cath van Schaik

I imagine this is quite a challenge.

This is a challenge for any business operating in the food and agriculture space. We do not yet have the proper farm management tools in place to understand exactly the emissions from our clients. So, we definitely need to invest in better monitoring, better measurement, but at the same time we still need to agree upon how to actually apply this with the proper methodology to include it in the calculations for the Paris Agreement. Measurement is key. Methodologies are key, but we are not near a smoothly running monitoring system that helps us to see whether we are on track. We need these things to understand the business of our clients, to understand how we can help them improve their performance with investments in their farm practice, but also in the food companies, which are increasingly asked to clean up their supply chains.

Some people say, ‘Well, that’s nice, but that’s just a voluntary initiative by banks,’ but there’s more on the way. The Dutch banking sector collectively agreed to make sure that we will reach net zero by 2050, with a 2030 target of at least a 49% carbon reduction. This doesn’t just apply to our clients in the Netherlands, it looks at our balance sheet globally. It means that we need to enter into dialogue with our clients in Brazil, in New Zealand, in Australia, in the US to jointly lower their emissions, and often in markets that are not yet as aware of the problem as we are. This is a Dutch example, but we’re increasingly seeing this around the world.

I think supply chain integration is going to be a crucial element of sustainability solutions moving forward.

Having targets for 2050 is important, but many organizations are pressing for more rapid action. Are there interim targets for 2030 as well?

Absolutely. We’ve already set our 2030 targets – the Dutch climate agreement required it—but other organizations are demanding it as well. In 2020, the Shell oil company was sued by a climate organization called Friends of the Earth. The verdict was that Shell was legally forced to lower their carbon emissions by 45%, including scope one, two and three—which includes the emissions of their customers—by 2030. In 2022, we and 29 other companies in the Netherlands received similar demands from Friends of the Earth, and we expect this to be replicated around the world. We created 2030 targets in our annual report for the largest agricultural sectors globally, with a regional target for every sector coming up soon; it’s the only way we can avoid litigation. We think we otherwise we run the risk of being forced by lawyers to actually sell part of our business that is underperforming. That is a significant change in your business model.

Still, we do that knowing that we do not yet have the detailed on-farm measurements or an agreed upon methodology. How do we measure progress against that target? It’s a serious problem, but it is also a serious opportunity. We will not be the only ones looking at climate—markets are looking, too. Consumers are looking. If businesses can prove that they are reducing their emissions in line with major targets, they will be able to attract better contracts with their off-takers. So, we expect the winners if the next decade in this animal husbandry business to be the ones that are able to live up to the expectations of the Paris Agreement.

Alternative proteins have gotten a lot of attention in the past few years, from lab-grown meats to vegetable and even insect-derived proteins. How relevant are they in reshaping the global food market?

They are extremely relevant, even though they are small in size with the meat industry. We expect that to be a trend that will grow in the decades to come. At the same time, the animal protein sector won’t substantially shrink. And that is because of the growth of the population worldwide and the extent to which more affluent people are better equipped have more money. To also buy animal protein, so we see both trends moving up. This implies that if we want to reach the Paris Agreement targets and we want to be net zero by 2050, we have an even bigger challenge. We at Rabobank look at the plant-based protein developments very proactively. There's a lot of mergers and acquisitions going on, and many involve. the classic animal protein players that want to build a portfolio in plant-based protein as well. We also see it spurring on different ways of trying to produce animal protein with less emissions. So yes, it’s extremely important both on the level of increasing efficiency of the existing animal protein business, but also taking notice of different solutions, whether it's insects, whether it's plan- based. That's definitely going to play an important role in the transition over the next decade or the next 20 years towards reaching Paris Agreement targets.

If we don't have a proper answer on the challenges of nature and biodiversity loss, people will start turning their backs on us and we'll be facing solutions that we no longer control.

You mentioned nature as an upcoming challenge for the sector. What are you seeing and how can the industry prepare itself?

Nature or biodiversity feels less urgent to many people. Yes, it may be less urgent, but it is equally important. The nature discussion has sped up much faster than the climate discussion did five or 10 years ago. People are more sensitive to the fact that things need to change and, of course, in food and agriculture, climate and nature are directly interrelated. I am involved in the Taskforce on Nature-related Financial Disclosures and I even went to the COP15 on biodiversity in Montreal to ask for an ambitious global level playing field with mandatory transparency for companies. I do this because I think these societal expectations need to be met the right way, measuring impact and measuring dependencies in order to start managing them. It’s important to maintain our license to operate as a sector because if we don't have a proper answer on the challenges of nature and biodiversity loss, people will start turning their backs on us and we'll be facing solutions that we no longer control.

As I said, measurement is lacking, and nature is far more complex than climate. Climate is four molecules that have the same impact in the same way across the planet, at every time of the year. Nature is fragmented, it's millions of species. It's different in every part of the world, and it's even different in every season, so it'll be tough. But it's going to come, and it's going to come with a lot of impact in the ag sector.

What kind of impacts should we be looking out for?

Supply chain responsibility is definitely on the horizon. As a result of land use change causing a lot of biodiversity loss, this will impact any player in the animal protein business where feed comes from areas where people see that biodiversity is being lost. Certification of feed is going to come up so that people know that, despite the fact that there's an animal protein business that uses feeds globally, you are not involved in land use change. Fertilizer is also related to both climate change and to nature, so we need to optimize the use of fertilizers as part of the solution. Similarly for pesticides and crop protection, as well as the need for more regional production. This is more pressing as a result of COVID, where people really saw that long supply chains create intrinsic imbalances and dangerous vulnerabilities in the food system. So, a lot is changing, and governments are already taking action. The UK has already made inroads to forbid the purchase of goods from deforested regions, and the European Parliament recently adopted similar legislation. We’ve been working on traceability tools for our clients for a number of years, hoping that we would be able to use them with our clients in, say, sustainability, as part of voluntary schemes to show that we're trying to do the right thing. This has now turned into a compliance tool. You will not be able to deliver your products, your goods, your food on the UK and European market in a few years from now if you can't prove that you didn't use feed or cattle from a region that is currently involved in deforestation, so it has become a necessity to comply.

I also expect in the Food and Agriculture business regional solutions based on sound scientific evidence that is global to become more and more important.

You will not be able to deliver your products, your goods, your food on the UK and European market in a few years from now if you can't prove that you didn't use feed or cattle from a region that is currently involved in deforestation.

How do you see alliances shaping up throughout the value chain, among consumer, retail, food, farm and big data organizations? What's interesting that's happening now or coming up soon?

Let me give you one small-scale but very practical example. It’s a Dutch example, but we are working to replicate it in different regions worldwide. We have been in a partnership with the World Wide Fund for Nature for more than 10 years, and seven years ago we set up a cooperation with Royal FrieslandCampina and WWF to start a biodiversity monitor for dairy. It measures the biodiversity impact of dairy production and the interesting thing is our farmers are involved. The measurement is crucial and is integrated into how farmers regularly report to their dairy company. So, you cannot bring your milk to the factory anymore if you are not able to deliver those data with it. We already have voluntary certification in the supermarket with a higher price for farmers producing in a nature-inclusive manner, and we are trying to scale this up nationally. The interesting thing is that the last partner I thought would be enthusiastic about it was the consumer organization, because you always assume they want the best product for the lowest price. But they actually asked their members, and more than two-thirds of their members were in favor of joining this dialogue because they feel sustainability needs to be part of their lobbying as a consumer organization, too. Everyone from farm to fork is involved. I think the most important game to play is to have trust in the chain for the long run so everyone gets a realistic part of the upsideand has the opportunity to invest in sustainable production practices. The farmers don't want to produce nature-inclusive without being paid for it. The dairy company is concerned about the margin. Same for retail, but together they feel they need to act. I think supply chain integration is going to be a crucial element of sustainability solutions moving forward.

Will Rabobank propose different financing terms and conditions based on the sustainability of the customer?

We already measure our sustainability, and the sustainability performance of our clients on an annual basis. We apply a sustainability policy framework with more than 100 pages of minimum standards to all those clients, and those standards are being tightened year by year. In the Netherlands, we have already variable rates of interest depending on sustainability performance for all farmers in place, and plan to roll it out internationally as well. People will benefit if they outperform their peers. So, we’re actually creating a race to the top.

We’re creating a race to the top.

Is there anything else you’d like to add?

There’s a lot of legislation coming in, and there are a lot of societal expectations that will be very tough to comply with. At the same time, there is a tremendous opportunity for a business to actually make a difference.

We live in extremely exciting times with a lot of things changing much faster than before, both from a compliance perspective, a consumer awareness perspective, but also a purpose perspective. I think we're doing good things for our clients, we’re doing good things for our colleagues, and we're also doing good things for society and the planet as well. So, it’s really exciting, and I hope that it helps everyone think even more creatively to find solutions to help us grow a better world together.

Published on

07 February 2023

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  • Sustainability

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