High-Emissions Lending

Banks in Canada and around the world are entering a new era in agriculture lending, and they do not appear ready.

Glorifying yields – rather than profits and long-term resiliency – is the great mistake of industrial agriculture. Ultimately, it’ll be lenders left holding the bag when the money runs out on commodity farms.

Agriculture is a source of high-emissions lending by banks, mainly due to the manufacturing and application of fertilizer on cropland. As the Globe & Mail reports this week, big global and domestic investors are pushing Canadian banks to disclose their energy finance ratio, a key metric for measuring how well lending portfolios can manage climate risks.

Typically, commercial ag lenders rely on backward-looking reports like tax returns and balance sheets, the current ratio, equity and cash flow, to decide if and how much financing to extend. Facing volume-based targets just like everyone else in commodity agriculture, they’re also professionally motivated to lend out large amounts of money.

This all leaves the banks oblivious to future farm financial challenges and new marketing risks. Unless a farm has already diversified beyond grain production into a side business (custom application, seed sales, equipment and product distribution are common examples), it’s going to need regenerative agriculture to survive financially in the years ahead.