How the agricultural industry is benefitting from sustainability-linked financing
For global buyers of Australian grain, oilseeds and cotton, sustainability credentials are shifting from ‘nice to have’ to ‘must have’. Here’s how CBA is supporting growers in that process.
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CBA is supporting Australia’s low carbon transition with sustainable finance solutions that help clients reach their ESG and climate goals.
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A new financing deal co-ordinated by Commonwealth Bank of Australia will help growers accelerate the achievement of their sustainability objectives and satisfy the increasing demands of customers for robust reporting on issues like carbon emissions and biodiversity.
The $800 million trade financing deal struck with Viterra, one of the country’s largest buyers of grain, oilseeds and cotton, is linked to its achievement of sustainability targets.
Like a traditional trade finance facility, the inventory financing allows Viterra to use the Australian-grown grain, oilseeds and cotton it holds on hand as collateral to unlock capital the company can use to further support its activities. This deal also links to more attractive pricing if Viterra’s growers meet globally recognised environmental standards.
The deal is the second such facility struck by CBA with Viterra, and Charles Davis, managing director, head of sustainable finance and ESG at Commonwealth Bank says that such sustainability-linked financing commitments will be an increasingly common tool to accelerate much-needed change.
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“Viterra, by virtue of the size of the organisation, is in a unique position within the market to really help set the tone and drive change, and their scale means that they can really help make a difference in terms of defining the sustainability metrics that are required,” Davis explains.
“To the extent that Viterra achieves and outperforms the metrics, there‘s a pricing benefit which they can use for broader support of the industry. Conversely, if the targets are not achieved, the cost of funding on the facility can increase. This structure creates a platform to start the conversation with respect to sustainable supply chains that we expect will be of increasing focus moving forward. To that end, it has the benefit of effectively getting growers ahead of the game”.
The targets linked to the lending facility include grower engagement with International Sustainability and Carbon Certification (ISCC) and the subsequent purchase of ISCC certified grain and oilseeds and a new initiative promoting grower engagement with the Better Cotton Initiative (BCI) and purchasing BCI-certified cotton.
The certifications are increasingly important to end buyers of the products that Viterra supplies, says Ian Ritter, chief financial officer at Viterra.
“The major shift we are witnessing from our end-user customers is that sustainability credentials are becoming a required attribute of the commodity we are supplying, much like the moisture level, protein level or other quality specifications. You can feel that a sustainability measure or reference once seen as a ‘nice to have’, over time will almost certainly become a ‘must have’ of all businesses and trades.”
“Operating a network that connects growers and end use customers, Viterra is in a unique position to help drive change and is playing a key role in deepening the understanding of these rapidly evolving new requirements with its suppliers. Across the more than 10 thousand-strong grower network that the company buys from, Viterra is able to educate growers on ideal first steps, how to participate, who to work with and what tools and methodologies are currently available to improve their sustainability credentials.”
The process is not just about market access and the potential to attract a price premium. Ritter says it is also beneficial to growers beyond just the bottom line.
“Understanding and measuring business activities leads to better decision making, less errors, improved safety, greater adoption of best practice and overall efficiency and profitability.
“Most often these improvements are highly aligned and lead to better and more sustainable environmental gains. Certification schemes enable the growers to verify their sustainability credentials against internationally accepted frameworks, providing the opportunity to leverage natural capital for economic benefit.”
While agriculture is the focus of this sustainability-linked trade financing facility, CBA’s Davis says similar innovations to the deal struck with Viterra are likely to emerge as industries look deeper into their supply chains to ensure compliance with environmental, social and governance (ESG) commitments.
“Agriculture is an area that‘s incredibly interested in this space. But sustainability-linked supply chain financing is applicable to many different sectors, Davis says.
“Promoting sustainable improvements through the supply chain is going to be a key focus for many organisations, and we know there’s significant interest in developing this important area across the board.”
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At CBA, we’re focused on supporting our clients as they plan their transition to a sustainable economy and ensure their business and operations are fit for the future – more resilient, sustainable and inclusive. As a leader in sustainable finance, we’re supporting Australia’s transition to a brighter future for all. Learn more: www.commbank.com.au/sustainablefinance
This content was brought to you by Commonwealth Bank of Australia and Viterra. Read our policy on commercial content here.
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