Eye-opening insights into financing sustainable agriculture


Eye-opening insights into financing sustainable agriculture

Value and risk – what banks can learn from students

The world of finance is rapidly waking up to the fact that the tried-and-tested methods for calculating value have significant shortcomings. The models we have, work well when determining financial value, but are not great at incorporating environmental and social factors – which we need in order to calculate ”integrated value”. This is a story of how a group of ten students from the RSM Honours Programme studied one of society’s most pressing problems – the sustainability of our agricultural sector – and what banks can learn from the insights they generated.

Integrated value

“Integrated value” is the value of a product, business case or company, including all its positive and negative externalities. Financial values are attributed to environmental and social capital. On the downside, our products and portfolios contain significant, yet-to-be-quantified climate risks and biodiversity risks. On the upside, sustainability can positively impact our brand, talent, and customer willingness to pay. Unfortunately, we usually don’t know by how much.

Flying blind

As we try to paint a better picture, we often run into the same problem: the data isn’t there. And as we are all busy people who have other urgent problems to deal with, we tend to give up. As a result, we are flying blind: our strategies and investment decisions are not based on a full picture of value and risk. Ten students from the Rotterdam School of Management (RSM) Honours Programme therefore studied one of society’s most pressing problems: the sustainability of our agricultural sector. What did they do and what can banks learn from the insights they generated?

Financing the transition to sustainable farming

The Dutch economy has been dealing with multiple environmental crises ranging from nitrogen to carbon dioxide . Our farmers can be part of the solution. Many farmers want to farm more sustainably, for instance, by switching to organic farming. However, financing is often a challenge. There are indeed transition costs. It takes two years before a product can be labelled ”organic”. During this period output quantities are lower but the farmer does not yet benefit from higher prices. Even afterwards, demand for organic produce is uncertain and there is a continuous pressure from supermarkets to lower the prices. So what should banks do? How to quantify the environmental benefit of the organic business case? By farm, by bank? As a country, how much value are we leaving on the table if we don’t finance more sustainable agriculture?

About the study

That is exactly what we wanted our students to analyse. They were given nine real credit applications of farmers who were aspiring to make the transition from conventional to organic farming. Three banks (Rabobank, ABN AMRO and Triodos Bank) provided five dairy cases and four crops cases. Most of these cases were financed by the banks, three did not get financed. The students used these cases to calculate the integrated value of each of these cases by means of the True PriceTM methodology (link), guided by the Impact Institute.

Measuring impact

With help from the banks, the students chose to focus on the most important externalities. The top four impacts for both the crops and dairy cases were all environmental:

  • Dairy: CO2, Nitrogen, Methane and land use opportunity cost.
  • Crops: CO2, Nitrogen, Phosphorous and pesticides.

The students conducted original research and built a model. Where data was unavailable, assumptions were made. The banks supported them with agri-sector knowledge and insight into the credit files. Although this particular study focused on the transition to organic farming, a similar approach can be used for an investment in non-organic sustainability enhancing investments, e.g. digital and precision agriculture technology, and additives that reduce emissions.

Eye-opening insights: the true price of crops and dairy

Six weeks later the students achieved the following insights.

Crops: the switch from conventional farming to organic farming results in a decrease of 41% of environmental costs - primarily in pesticides and GHG emissions. The monetisation of these costs is estimated at nearly €5,000 per hectare. At a national level, this number implies that the Netherlands could avoid €2.65 billion of environmental costs by producing crops organically rather than conventionally.

Dairy: across the five dairy cases the financial cost of producing 100 kg of milk was €38.53. The additional environmental cost of conventional dairy production is estimated at €25.91 per 100 kg. The implied environmental cost to the Dutch economy of dairy production is huge: €3.7 billion on an annual basis. The environmental cost of organic production is 12.5% lower but still significant (€22.83 per 100 kg of milk). Nevertheless this represents savings in environmental costs on a national level of €440 million annually.

Eye-opening insights: destruction of integrated value

An equally profound insight is that the dairy industry destroys integrated value. The financial margins are so small that the addition of environmental costs, of both conventional as well as organic farming, turns the integrated business case negative. The implication is that the price of milk is too low. Market power by the dairy industry and the supermarkets is so substantial that it forces an entire sector to destroy more natural capital than it creates in financial capital.

Estimates by the Netherlands Central Bank

Of course, these estimates contain a few big assumptions, and the calculations show some serious shortcomings. But still, these estimates are better than no estimates at all. Eye-opening as they may seem, these conclusions should actually not come as a surprise. A 2020 study by the Netherlands Central Bank has already provided estimates of nature-related risks and exposures of Dutch financial institutions: €510 billion of finance provided to companies that depend highly or very highly on one or more ecosystem services. The transition risk of nitrogen-intensive business models alone is estimated at €81 billion. This farm-level analysis merely confirms what policy makers already know at the macro-level.

Please note that environmental gains can be achieved both by a switch to organic farming as well as by making conventional farming more sustainable. It may well be the case that the biggest impact per invested euro can be achieved by selectively targeting the worst environmental impacts of conventional farming. However, this matter was not in scope for the students.

Time to start

The lessons for the financial sector are profound. Many agricultural portfolios are made up of assets that destroy value. Every day, new loans are provided on the basis of risk models that paint an incomplete picture of the situation. As a society, it is time to switch the default around. It is better to start with a fuller picture, even with shortcomings, than to not attempt to understand integrated value at all. Financial sector regulators echo this sentiment. Laura van Geest, Director of the AFM, recently spoke at a financial services sustainability round table. Van Geest: ’We do not expect an ”A” or a Dutch ”10” the first time you report on ESG issues. We know this is hard, but we do expect you to try.’ (link)

Recommendations for banks, government, policy makers and industry

Our students recommend the following steps to a possible path forward.


  • Review credit application procedures and risk policies to account properly for environmental costs.
  • Set targets for integrated value. Do not finance loans that fail to meet the target.
  • Reward farmers who reduce their environmental impact – by giving them more favourable credit terms.

Government & policy makers:

  • Ensure a level playing field between banks by setting standards for integrated value to abide by.
  • Provide incentives to banks through capital charges and add-ons based on the environmental risks carried in their portfolios.
  • Correct for market distortions caused by environmental externalities.


  • Support farmers with decision support tools and advice that help them to balance their financial, production and environmental performance.

Costs and benefits

If we want to start a constructive discussion about the challenges we are facing, we need a better fact base about the costs and benefits we ultimately accrue as a society. This study only scratches the surface of how the True PriceTM methodology might be applied to the environmental costs in the agricultural sector. More work needs to be done. What would help, is a bit of the fearlessness that the students demonstrated in the six weeks that we worked together.


We would like to thank everybody involved in this study:
Rabobank: Gea Bakker (Sector Manager Food & Agri Rabobank)

ABN AMRO: Daphne Nutma-van der Zee (Relationship Manager & Financial Advisor Sustainable Desk), Jan de Ruyter (Sector Banker Agriculture)

Triodos Bank: Paul Kortekaas (Manager Team Agriculture)

Rotterdam School of Management
Dirk Schoenmaker (Professor of Banking and Finance / Academic Supervisor)
Boyke Wieberdink, Guy Corsten, Ines Ludwig, Leon Koerwer, Maarten in de Braekt, Maxim Friege, Mees Borghouts, Onno Koch, Robin Lake, Tom Billekens (Sustainable Finance Honours Students)

Impact Institute : Anne Mesguish (Fellow / methodology & quality assurance)

Deloitte: Hesse McKechnie (Director Sustainable Finance, Project Sponsor), Nadia de Vriend (Consultant, Project Manager)

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