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Jeen Nijboer: Sustainability must pay off

Interview by Dr Birthe Lassen, Thünen Institute for Business Administration, Braunschweig

In the Netherlands, sustainability criteria can have an impact on financing. Rabobank has been gaining experience with this for several years. Jeen Nijboer explains in an interview how this works, which criteria are effective and how it pays off for farmers.

Mr Nijboer, can you explain when and why Rabobank started to take sustainability criteria into account when granting loans?

We started with the so-called "impact loans" in 2015, based on existing certification programmes such as "on the way to planet proof" or "eco agriculture". The goal was and is to encourage farmers who want to invest in sustainability. Because we believe that these farmers have a better perspective in the long run.

Close partners from the value chain are the dairies. They are united with us in the "Sustainable Dairy Chain". We started with the dairy industry because it is the largest land user in the Netherlands and therefore has a major impact on biodiversity. We are currently also working on a similar project for arable farming. The advantage for the dairy farmers is that in addition to the credit benefits, they receive a premium on their milk price from the dairy based on their sustainability performance.

Are other supply chain partners joining you on the road to more sustainable dairy farming?

Besides the dairies, there are other actors involved. Together with WWF and the Sustainable Dairy Chain, for example, we have developed a biodiversity monitor. This is scientifically based and integrated into the certification system "on the way to planet proof". As a bank, we use these evaluations as part of the loan application.

Milk producers with good biodiversity scores can get an interest rate advantage?

Yes, exactly. We have granted an interest rate reduction of 0.3 % (up to € 1 million) within five years. In future, however, the biodiversity of the farms will no longer be the only decisive factor for the "impact" loans. Other criteria will be added.

What are these?

In the area of energy and climate, these include the carbon footprint or, in animal welfare, the average age of the cow. In the case of biodiversity, the percentage of permanent grassland and herb-rich grassland, self-produced protein and landscape elements come into play. Also ammonia emissions and the nitrogen soil surplus. In addition, cooperation with partners in the region and social commitment are evaluated positively. These criteria were selected with the partners in the value chain.

That sounds comprehensive. What documents will you use to evaluate the farmers?

We use existing data that is collected in a common database. This is already an obligation for all milk producers. The dairies use this data as a basis for the milk price to the individual farmer. No separate documents are needed - the information is available digitally. Each year we can see the progress in the score of each indicator.

Farmers will be divided into three groups in the future. What is this all about?

We define three categories: A, B and C. Sustainability category A are the best farms, B is the second level and category C are the farms that only comply with laws and regulations.

Is this new "Impact" loan again only available for dairy farmers?

In the near future, the loan will also be available for farmers in other farm sectors. But we have started again with dairy farmers because, as already mentioned, the number of dairy farmers is larger compared to other sectors in the Netherlands and therefore has a greater impact.

Are the new loans open to all dairy farmers? Can customers in other countries also apply?

We are working on making the new financing offer available to all dairy farmers in the Netherlands this year. Plans are still being developed for the regions outside the Netherlands where Rabobank is located.

But you can still apply for a "normal" loan?

Yes, certainly. Not every farmer has to join the "impact" loan. You can still apply for a classic loan. We want to stimulate and incentivise farmers, but not force them to do something they don't want to do.

Do you think the offer will motivate farmers to work towards more sustainability?

Financial incentives are always a good motivation. The Biodiversity Monitor, for example, opens up a new business model, not only for cheaper interest rates. Based on the results, landowners, other processors or local governments could also give farmers further incentives.

Do farmers with a higher sustainability score need less collateral?

No, they don't. After all, a loan with additional sustainability criteria does not simultaneously have a lower probability of default. Therefore, the sustainability scoring has no influence on our requirements for the loan collateral to be deposited.

Would you have started to look more closely at the issue of sustainability even without the "Green Taxonomy" introduced by the EU?

Yes, because from a market perspective we see pressure from society and consumers to make food production more sustainable. If producers do not respond to this need, their perspective will be different in the future. The idea behind this is that sustainability must also be profitable for farmers.

Not many banks have programmes like yours. How long will it be before more banks in the EU ask for environmental and social indicators and animal welfare aspects?

The European Central Bank is focusing more and more on sustainability and specifically on biodiversity. The banks play a crucial role in the system and will therefore also set up a sustainability assessment. I think this will be common in the very near future. In the Netherlands, every bank already has a sustainability chapter in their loan application.

What would you like to say to farmers in terms of sustainability?

If I may make a wish at this point: the topic of sustainability enjoys a lot of attention, not only in the media. Farmers should realize this and use the resulting opportunities with new business models.