Weighing up the Cost of Farming

New tools are helping farmers and investors to understand sustainability impacts more precisely; policy frameworks still lag.

A plethora of initiatives from governments, investor groups and financial institutions – ranging from policy statements through to reporting tools for farmers – are bringing the issue of agricultural carbon emissions to the fore. With agriculture accounting for one third of all global anthropogenic greenhouse gas emissions, calls for action are intensifying in the lead-up to COP 26.

Earlier this month, NatWest Group and the Sustainable Food Trust (SFT) announced plans to further develop a common framework of farm sustainability metrics and an accompanying assessment tool that will enable farmers to measure and report on their environmental and social impact. The Global Farm Metric,  will give farmers actionable insight to help them to reduce their emissions and transition to a low-carbon economy.

Commenting at the launch of the initiative, James Close, Head of Climate Change at NatWest Group, said the bank recognised the challenges faced by farmers in reducing their carbon footprints and keeping up with the pace of change in the sector. “Data and actionable insight will be key in helping the sector on its climate journey,” he said.

The Metric will act as a single platform through which farmers can meet multiple sustainability data queries, for example, for audits or requests from retailers, banks, investors or governments.

Patrick Holden, CEO and Founder of SFT, said the Metric “has the potential to radically change the way sustainability reporting works on food and farming worldwide”. The need for the global food production system to become more sustainable was “more pressing than ever”, he added.

Raising awareness among farmers

Richard Jacobs, Co-head of Private Markets at €85 billion AUM fiduciary and asset manager Kempen Asset Management, says initiatives such as the Global Farm Metric will help to raise awareness among farmers of what sustainable farming can contribute to broader efforts to protect nature and limit climate change.

“Most farmers are already farming in a sustainable, nature inclusive way, using less tillage, keeping soil covered, using less inputs etc. because it is in their interest to do so,” he says. “But actually measuring the impact in such a comprehensive way has been complex and time consuming.”

The issue of measuring, auditing and certifying the sustainability credentials of agriculture was discussed at a recent Kempen Asset Management/ ESG Investor roundtable. While it is a difficult undertaking, it is an important aspect of any sustainable farmland investment strategy, for investees and investors alike.

The emergence of tools and protocols such as the Metric will encourage more farmers to measure the impact of their actions, says Jacobs. “Adoption is a matter of convenience (remove the barriers), harmonisation (you can compare with your neighbour), having a baseline (do I actually see improvement?) and empowerment (is it going in the right direction?).”

A proliferation of measurement tools

One issue for farmers, however, is how to navigate the proliferation of tools beginning to come on to the market, adds Jacobs. Among these is the Cool Farm Tool, which provides metrics on greenhouse gases, water usage and biodiversity. It was developed by the Cool Farm Alliance of food retailers, manufacturers, input suppliers, NGOs, universities and consultancies. Another is the Open Soil Index, a scientifically underpinned, open-source soil assessment framework that provides a scoring tool for soil functions worldwide.

In addition to measurement tools, there are protocols such as the EU Eco-Management and Audit Scheme, which enables organisations to evaluate, report, and improve their environmental performance, and Leading Harvest, which provides standards, audit procedures, training and education, and reporting for agricultural stakeholders.

For now, the challenge of measuring the environmental impacts of farms has parallels with that of assessing other sectors covered by a range of sustainability reporting standards. “We haven’t yet found one tool that fits all farms, but we keep exploring and sharing new tools that come to market with our partners and our farmers,” says Jacobs.

To enable greater clarity, Jacobs believes the industry needs a “more compulsory, more harmonised assessment and measuring system involving inspection, diagnosis, monitoring, controlling, auditing and certification”. A clear set of KPIs – and rules and formulas on how these KPIs are measured – would help.

“Various KPI lists made available through open sources, such as the KPI in the Regulatory Technical Standards in the EU Sustainable Finance Disclosure Regulation are still very high-level and multi-interpretable. There is still a gap between language from policymakers and their sustainable goals, targets and KPIs on the one hand and the more practical on-the-field targets on the other. Tools like Global Farm Metric play an important role in bridging that gap.”

Investor pressure on policy makers

Policymakers are being called on to make more progress on the use of sustainable goals for agriculture. In June, a global investor coalition including Legal & General Investment Management, Canada Post Corporation Pension Plan, Newton Investment Management and SCOR, backed by former UN Secretary-General Ban Ki-moon, urged policy makers to disclose specific targets to reduce agricultural emissions.

In a statement, the coalition, which collectively manages US$4 trillion of assets, urged Group of 20 governments to be more transparent about how much of the emissions reductions planned in their updated Nationally Determined Contributions (NDCs) will come from the agriculture sector.

Jeremy Coller, Chief Investment Officer of Coller Capital and Chair of investor network FAIRR, which coordinated the group, says emissions from agriculture and related land use are on a level with the greenhouse gases emitted by the EU, US and Japan combined. “If the COP26 process can transparently set out each country’s plans to address agriculture’s climate footprint, it would boost the confidence of investors to mobilise capital towards more sustainable food and farming,” he said.

“Governments have the opportunity to show leadership and be transparent about how much of their climate pledges will be ring-fenced as coming from agriculture. Capital markets need that data.”

At present, none of the G20’s currently released NDCs includes clear national targets for emissions reductions in the agriculture sector, according to the statement. The investor coalition points out that other high-emitting sectors such as energy and transport have updated NDC targets.

“Reaching net-zero emissions will be impossible without a radical overhaul of the agricultural sector, so investors are asking for clarity from world leaders about what role this often-overlooked sector would play in their decarbonisation plans if the trillions required for the low-carbon transition are to be successfully unlocked,” said the coalition.

If the goals of the Paris Agreement are to be met, said Ban Ki-moon, countries must explain how they will tackle the high level of emissions from the agricultural sector as part of their national climate commitments.

“Transparent emission reduction targets will help investors and wider stakeholders measure progress towards net zero and chart the transition to more sustainable agriculture,” he said. “Governments must work with farmers to build a sustainable and climate-smart agricultural sector that safeguards the livelihoods and communities that rely on farming around the world.”

Europe’s Green New Deal and agriculture

The European Commission’s recently updated ‘Fit for 55’ package of proposals on emissions reductions and climate action aims to strengthen the contribution of the land use, land-use change, and forestry (LULUCF) sector to the increased overall climate ambition for 2030. The proposal sets the overall EU target of net greenhouse gas removals in the sector at 310 million tonnes of CO2 equivalent in 2030. It also reinforces the obligation for Member States to submit integrated mitigation plans for the land sector and enhances monitoring requirements using digital technologies.

This aligns with related policy initiatives on biodiversity and bioenergy and determines the EU target of climate neutrality for 2035 in the land sector (which combines the LULUCF sector and the non-CO2 agricultural sector). Finally, it commits the Commission to make proposals for national contributions to the 2035 target by 2025.

The proposals were criticised by WWF, which pointed out that under the current LULUCF Regulation the EU’s net carbon sink can decline to as little as 225 million tonnes in 2030, due partly to the “weak accounting rules that allow Member States to harvest more forest and that bake-in past bad practices”. The WWF described the new  310 million tonne target as a far cry from the 600 million tonnes that many NGOs are now calling for in light of the climate emergency.

“Worryingly, the Commission is also proposing to facilitate the use of offsetting in the land use sector to compensate for emissions elsewhere. This is not only scientifically unsound – net removals in the land use sector cannot be considered directly equivalent to fossil fuel emissions – but it directly undermines climate action. We need to increase carbon dioxide removal in addition to cutting emissions, not instead of it.”

WWF, along with Greenpeace, the European Environmental Bureau (EEB), BirdLife and Friends of the Earth Europe, have also criticised the EC’s revised Common Agricultural Policy for failing to oblige Member States to put into place practices to decrease greenhouse gas emissions.

Food for thought

In the UK, a coalition of investors representing £2.8 trillion in AUM, led by Rathbone Greenbank Investments, has called on the government to make reporting standards mandatory for businesses in the food sector in response to the recommendations contained in the independent review, the National Food Strategy.

Kate Elliot, Head of Ethical, Sustainable and Impact Research at Rathbone Greenbank Investments, cited multiple challenges facing the global food system beyond climate change and biodiversity loss, notably high levels of obesity – a key risk factor in cases of severe Covid-19 – and growing labour rights concerns. “These sustainability challenges present severe risks to the way in which the world produces, processes and consumes food. It’s clear that the food system in its current state is unsustainable and ambitious action is needed to realign it to work for people and planet,” she said.

Investors still struggle to access consistent, high quality and meaningful information on the nutrition and environmental performance of companies within the food sector, Elliot added. “While there are examples of good practice in individual disclosures, a lack of common metrics means investors are often comparing apples and pears and we are limited in our ability to direct capital toward the companies which are taking a proactive and leading approach to sustainability issues. We therefore welcome the recommendation of clear and consistent mandatory reporting requirements for companies in the food sector.”

The group of investors is urging the UK Government to implement “clear and consistent mandatory reporting requirements” for companies in the food sector; consider the full range of regulatory tools at its disposal to promote sustainability in the food system; and be “bold and ambitious in its response to this major social and environmental challenge”.

The interests of farmers have played a key role in the development of standardised weights and measures in the past. Recent events suggest harmonisation of sustainability metrics will be similarly critical to its future.

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