New Survey: 87% of Agricultural Finance Institutions See Climate Change as a Material Risk to Business

(SHARM EL-SHEIKH, EGYPT) As climate change threatens food production and crop yields around the world, agricultural finance institutions also face material threats to their businesses — yet most have not incorporated climate change into decision-making or taken action to support their farmer clients in navigating climate threats. That’s the topline finding of a new survey of 167 agricultural financial institutions in North America, Europe and India, released today at COP27 by Environmental Defense Fund and Deloitte.

“One billion farmers around the world are already facing climate change damages to their farms and livelihoods. They’re managing as best they can, but can only do so much without the support of the lenders, insurers and co-ops that they partner with every season,” said Angela Churie Kallhauge, executive vice president for impact at EDF. “Transition finance is the missing catalyst for agricultural adaptation at scale. Unleashing it will help protect food supplies, rural economies and the stability of a major financial sector.”

The survey is the first of its kind to gauge agricultural financial institutions’ perceptions about the challenges and opportunities presented by climate change, and actions they have already taken in response or plan to take in the future.  

Globally, 87% of respondents expect climate change to pose a material risk to their businesses in the future, for example by making it more likely that farmer clients experience crop losses and default on their loans. At the same time, 45% of agricultural finance institutions think that climate change will present opportunities for their businesses, such as new financial products or markets for climate-smart agriculture.

Despite this, 75% of respondents do not yet significantly consider climate change in their decision-making processes, and 59% have not set climate change goals for their agricultural portfolios. 

“Addressing climate change in agriculture will require development of new tools and approaches for financial institutions to support their farmer borrowers,” said Luke Disney, senior vice president of sustainability and climate at Rabobank. “This report demonstrates the best practices some financial institutions are implementing and where more work needs to be done.”

Regional differences between agricultural financial institutions also emerged.

• Impacts on farmers: In the U.S., more than one-third of financial institutions surveyed don’t think climate change will affect their farmer clients’ financial situations, compared to 0% in India, 2% in Europe and 9% in Canada.
• Expected losses: More than 50% of survey respondents in India expect to experience a higher rate of losses due to farmer defaults caused by extreme and variable weather conditions. Globally, the expectation of higher default losses is 32%.
• Anticipated opportunities: 78% of respondents in India anticipated increased demand for extreme weather-specific financial products, compared to 60% of respondents in Europe and 57% in North America.

“Banks are aware of the risks and opportunities presented by climate change, but need greater information, resources and collaboration to equip them to act,” said Kyle Tanger, managing director, Deloitte Consulting LLP, and Deloitte U.S. sustainability consulting leader. “Data plays a key role. Organizations that can effectively collect and analyze climate data — or form strategic partnerships that enable greater data access — will be better positioned to make smarter climate-related decisions and capitalize on emerging opportunities.”

Banks can better manage climate risks, seize climate opportunities and help farmers adapt with the following four strategies:

1. Strengthen climate risk governance by educating leadership on climate risk management and building climate risk teams.
2. Improve data collection about climate change, weather and farm production, and use this data to compare future climate change scenarios. This is the foundation for better measurement and management.
3. Anticipate farmers’ changing financial needs and develop products and services that help them adapt to climate change.
4. Build partnerships with external organizations to expand educational support and incentives that will help farmers navigate climate risks.

“The financial sector has taken steps to measure and manage climate risks in the oil and gas, real estate, and other at-risk sectors, but more work needs to be done in agriculture,” said David Carlin, program lead for climate risk and the Task Force on Climate-Related Disclosures at the U.N. Environment Programme’s Finance Initiative. “This survey demonstrates that agricultural finance institutions must take greater action to support their borrowers in adapting to climate change.”

Download the full report on EDF's farm finance hub.