Globally, agriculture, forestry, and other land use (AFOLU) contribute to nearly a quarter of global greenhouse gas (GHG) emissions. This includes emissions related to deforestation, 90% of which is driven by agriculture. The agriculture and food (A&F) system as a whole contributes as much as a third of total global GHG emissions. Hence transforming food systems, particularly agricultural practices, can play a significant role in helping to solve the climate crisis.
As the climate crisis escalates, policymakers and the business community have become aware of the critical role the A&F sector must play in maintaining a livable planet. This was demonstrated at COP28, which saw an unprecedented number of discussions and participants from the A&F sector, both public and private. Indeed, this is only the beginning of conversations around the imperative to transition our current A&F systems to be more sustainable.
Banks are key players in the A&F ecosystem. At a time when both civil society and policymakers increasingly require that net-zero pledges be tied to science-based targets and credible transition plans, this increasing attention to the A&F sector is likely to have unprecedented consequences on the industry and, in turn, on its financiers. The momentum for banks to reduce financed emissions and report on climate impacts from A&F-related financing activities has grown in the last few years, due in part to emerging regulatory disclosure requirements, fast-approaching target-setting deadlines for members of the Net-Zero Banking Alliance (NZBA), and new standards for A&F companies from the Greenhouse Gas Protocol (GHGP) and the Science Based Targets initiative (SBTi). From a regulatory perspective, major financial hubs such as the European Union, Hong Kong, the UK, Japan, Singapore, and Switzerland, have adopted climate disclosure requirements, signaling an important shift in the way they see the role of financial institutions in enabling the transition toward a net-zero economy.
Despite this momentum, no existing climate guidance addresses the whole A&F value chain from a bank’s perspective – reflecting how banks operate and engage with A&F clients.
To help fill this gap, Banking for Impact on Climate and Agriculture (B4ICA) launched its new report “Foundational practices for banks: Baselining, net-zero target-setting and reporting financed emissions across the agrifood sector,” developed by the World Business Council for Sustainable Development (WBCSD), based on inputs from the Environmental Defense Fund (EDF), the Partnership for Carbon Accounting Financials (PCAF) and B4ICA members AIB, Barclays, Lloyds, Rabobank, and Santander, with technical support from McKinsey Sustainability.
Building on B4ICA’s preceding preliminary guidance (published in 2022), which focuses more specifically on farmer clients and farm-level impacts, the “Foundational practices for banks” report considers the whole food value chain and provides practical and actionable step-by-step recommendations that empower banks to make informed decisions in procuring key data, calculating their financed emissions in the A&F sector, setting net-zero targets, measuring progress, and disclosing information. This new report aims to support banks in fulfilling their NZBA commitments. It also includes leading practices that encourage banks to move toward greater transparency and to maximize the chances of aligning with evolving bank and corporate A&F net-zero initiatives and guidance.
The report is structured around the first three critical steps in a bank’s journey toward net-zero:
- Baselining: Estimating a baseline of A&F financed emissions against which banks can consider targets, including defining the baseline scope and calculating the baseline using appropriate data and methods.
- Target-setting: Setting credible, science-aligned net-zero emissions targets.
- Reporting on financed emissions: Reporting consistently and transparently while considering A&F-specific complexities such as removals, land-use change, and double counting of emissions.
What comes after these foundational steps? To progress towards a net-zero A&F portfolio, banks can adopt and implement a transition plan that details the specific actions to meet their targets – including tailored lending and investments, facilitating net-zero aligned business models and practices, creating financial incentives for the farmers that drive the transition, participating in partnerships to invest in high-impact landscapes, building client capacity, and collaborating across the value chain and with innovative data providers.
With this report, we invite more banks to join B4ICA in 2024 to learn from each other in implementing the recommended practices, and to work collectively on transition plans and solutions to finance the transition toward net-zero and nature-positive A&F systems.
Banks should pursue progress over perfection – acting today, even with imperfect data or target-setting approaches, is crucial to help support the agriculture & food sector on its path toward net-zero.
