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

(SHARM EL-SHEIKH, EGYPT — Nov. 9, 2022) 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 executives at 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 UN 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.

About EDF
One of the world’s leading international nonprofit organizations, Environmental Defense Fund (edf.org) creates transformational solutions to the most serious environmental problems. To do so, EDF links science, economics, law, and innovative private-sector partnerships. With more than 3 million members and offices in the United States, China, Mexico, Indonesia and the European Union, EDF’s scientists, economists, attorneys and policy experts are working in 28 countries to turn our solutions into action. Connect with us on Twitter @EnvDefenseFund, and our Growing Returns Blog.

About Deloitte
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world’s most admired brands, including nearly 90% of the Fortune 500® and more than 7,000 private companies. Our people come together for the greater good and work across the industry sectors that drive and shape today’s marketplace — delivering measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to see challenges as opportunities to transform and thrive, and help lead the way toward a stronger economy and a healthier society. Deloitte is proud to be part of the largest global professional services network serving our clients in the markets that are most important to them. Building on more than 175 years of service, our network of member firms spans more than 150 countries and territories. Learn how Deloitte’s more than 415,000 people worldwide connect for impact at www.deloitte.com.