In the past two months, the six biggest banks in the U.S. left the Net Zero Banking Alliance, a voluntary, bank-led initiative committing members to align their lending, investment, and capital markets activities with net zero greenhouse gas emissions by 2050.
These high-level departures, driven in part by political and litigation pressures, have raised concerns in the agriculture sector about future efforts to expand farmers’ access to financing for practices and technologies that contribute to clean air and water, improve soil health, and enhance resilience to extreme weather.
The vast majority of farmers are not served by the largest U.S. banks – rather, they receive loans for land, equipment and annual expenses like buying seeds from a network of financial cooperatives and regional banks commonly referred to as ag lenders. This financing is essential to farms’ ability to grow crops and livestock each year.
Ag lenders must stay committed to their mission of supporting agriculture and rural America by doubling down on efforts to provide farmers with the financing needed to invest in the long-term health of their businesses and land. These efforts are inextricably linked with natural resources and the extreme weather concerns challenging farmers across the country.
Farmers depend on healthy soil, sufficient water, and stable weather to grow their crops and raise livestock. However, increasingly variable and extreme weather fueled by climate change puts farms at risk.
Farmers who face multiple years of weather damage to their crops, livestock, and buildings will experience a slow decline in the financial health of their businesses and the value of their land. Ultimately, more farms will be vulnerable to economic or weather shocks that could force them out of business, with cascading impacts on farm families and rural communities.
These risks are shared by ag lenders, who tend to have loan portfolios that are concentrated in specific regions, increasing their exposure to the financial risks of extreme weather.
In a 2022 survey, 40% of U.S. ag lenders stated that the physical impacts of climate change present a material risk to their business – a figure that is likely to grow as farmers increasingly feel the impacts of variable and extreme weather.
Finding ways to understand and reduce climate risks will be essential to the continued financial viability of farms and their lenders.
U.S. agriculture also operates in a global environment, where the broad momentum around sustainability remains strong and unchanged by current U.S. politics. Food and agriculture companies and industry associations have commitments to sustainable production and sourcing in the U.S. and beyond. This global sustainability momentum creates a new market opportunity for U.S. farmers.
Fortunately, there are many well-known farming practices and technologies that can build resilience to variable weather, conserve natural resources, and contribute to clean water and air.
Many of these practices and technologies can pay off over the long term, but short-term costs and risks can deter farmers from taking action. To navigate this transition, farmers need financial solutions. Farmers’ closest financial partners – their lenders – must be part of these solutions.
In recent years, U.S. ag lenders have collaborated with farmer-borrowers, food companies, and agricultural organizations to develop the financing solutions farmers need. For example, major ag lenders launched new financial products that offer lower interest rates for farmers and agricultural cooperatives that meet environmental targets.
These products have been enthusiastically received by farmers, spurring rapid enrollment and demand for more. U.S. ag lenders must continue and expand efforts to develop financing solutions that help farmers reduce risk and access new market opportunities for sustainably grown crops and livestock.
Despite this progress, the withdrawals from the Net Zero Banking Alliance are not the only sign of new headwinds. The past several years saw increased availability of federal funding for farming practices with climate benefits, funding that now faces an uncertain future. Any attempts to claw back funds from farmers should be opposed, especially in light of the dire economic situation for many.
In addition, others are promoting false claims that ag lenders plan to divest from farms as a penalty for lack of sustainability performance. The truth is that ag lenders understand that their business is inextricably linked with the future of their farmer borrowers and that safeguarding that future requires investing in producers to meet changing growing conditions and market demands – not pulling their support.
The bumpy ground now traveled does not erase the distance that U.S. ag lenders, farmers, and their partners have already come together. Just as economic and environmental risks are intertwined on farms, so are the business and stewardship motivations that drive lenders’ progress and innovation.
It is time for ag lenders to stay true to their mission and stay the course in supporting farmers to secure their future.
Maggie Monast is the senior director of climate-smart agriculture at the Environmental Defense Fund.