Implementing natural capital credit risk assessment in agricultural lending
- Authors: Ascui, Francisco , Cojoianu, Theodor
- Date: 2019
- Type: Text , Journal article
- Relation: Business Strategy and the Environment Vol. 28, no. 6 (2019), p. 1234-1249
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- Description: Agriculture has critical impacts and dependencies on natural capital, and agricultural lenders are therefore exposed to natural capital credit risk through their loans to farmers. Currently, however, lenders lack any detailed guidance for assessing natural capital credit risk in agriculture and are challenged by the fact that the relevant material risks vary considerably by agricultural sector and geography. This paper develops a natural capital credit risk assessment framework based on a bottom-up review of the material risks associated with natural capital impacts and dependencies for Australian beef production. It demonstrates that implementing natural capital credit risk assessment is feasible in agricultural lending, using a combination of quantitative and qualitative inputs. Implementation challenges include the complexity and interconnectedness of natural capital processes, data availability and cost, spatial data analytical capacity, and the need for transformational change, both within lending organisations and across the banking sector. © 2019 John Wiley & Sons, Ltd and ERP Environment
Developing an evidence base for assessing natural capital risks and dependencies in lending to Australian wheat farms
- Authors: Cojoianu, Theodor , Ascui, Francisco
- Date: 2018
- Type: Text , Journal article
- Relation: Journal of Sustainable Finance and Investment Vol. 8, no. 2 (2018), p. 95-113
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- Description: Farmers are highly dependent on stocks of natural capital, and lenders are in turn exposed to natural capital through their loans to farmers. However, the traditional process for assessing a farmer’s credit risk relies primarily on historical financial data. Banks’ consideration of environmental factors tends to be limited to major risks such as contaminated land liabilities, and to large project and corporate finance, as opposed to the smaller loans typical of the Australian agricultural sector. The relevant risks and dependencies for agriculture vary by sub-sector and geography, and there is a lack of standardised methodologies and evidence to support risk assessment. We provide an evidence base to support natural capital risk assessment for a single sub-sector of Australian agriculture–wheat farming. We show that such an assessment is possible, with a combination of quantitative and qualitative inputs, but the complexity and interconnectedness of natural capital processes is a challenge, particularly for soil health. © 2017, © 2017 Informa UK Limited, trading as Taylor & Francis Group.