A bit about me, Tim Dellit. I've been in banking for about 31 years.
Most of those years have been spent in either risk management roles
or in managing client relationships across a lot of different industries. I only really moved into ag
in the last seven years, but it's fair to say, throughout all of those 31 years,
a lot of what I've been focusing on is really trying to understand: what are the key drivers for businesses,
what are the things that make them tick? What are the right things to measure that help to support, you know, performance?
What are some of the risks and indeed, what are some of those opportunities? Well, what is it
that you're actually measuring? What are some observations from a banker, that you could be measuring that might be good indicators
of what's good for your business already? Yeah. And then think about: okay, well,
what is the carbon overlay? So you might actually be
undertaking various activities that actually have a positive or indeed a negative impact on the amount of carbon
that you're having on farm or indeed through your supply chain. And that's a bit about the ‘what’. And then around the ‘why’.
So, why would you bother measuring it? So, why would you bother measuring it? So, what are some of those change drivers? What are some of those structural changes
that are happening in your supply chain or regulation? Or indeed from pressure
from - whether it be from consumers, share holders for big companies, that might then
either directly or indirectly impact the things that are important to you on your farm and your business.
What I will do is I'll go through the Scope 1, 2 and 3 again. Every time I think about
“I should take this slide out”, I think it's always just important to reinforce it, because you have to think about
Scope 1, 2 and 3 as you’re standing in your shoes as producers. But also think about, well,
what does Scope 3 mean - if you're talking about those large off takers
at the other end of your supply chain? Because their Scope 3 is essentially your Scope 1.
So if they're going to be making decisions around reducing their Scope 3, then perhaps that might inform
their trading decisions in the future. And then, indeed, what are those
changes that the supply chain are actually making? Talking about the voluntary commitments,
talking about, well, what are they exposed to, which is now (more recently) emerging around mandatory reporting,
which means they've got to carry a risk on their balance sheet, that they didn’t use to (with regards to climate change or nature).
So, this is just a banker’s sort of grab bag of some metrics that you might already be thinking about.
And you can insert whatever metrics that are relevant to your particular commodity sector or how you farm.
But if you think about it, you know, production metrics, you know, hopefully there's nothing too controversial
here in terms - it could be live weight gain, it could be, you know, yield per hectare, financial metrics
(you know, something close to bankers’ hearts), resource use. Yeah. Things like water use efficiency is just,
you know, general things that you might think about. Okay. Well some of these things might be an indicator. Okay. Well, how well am I going?
How efficient am I, as an operator? And then obviously, you know, then what does that inform
in terms of your trade terms? Are you able to produce and get the price you want? For some, is there actually a premium?
Now if you think about those sort of four key themes, now let's just think about, well, what could be the carbon
overlay for that? So, in - and
if we're looking at production, for example, and we've heard about
emissions in terms of ‘total emissions’, but also think about emissions
on the basis of ‘emissions intensity’. Right. And so in -
take a beef producer and we've got to, you know, we'll have a really good example
of a talk just after this one, around things that producers can be doing around
getting their cattle to live weight gain quicker. And so what's the impact of that? Well, it means that their methane
(their emissions intensity) is actually coming down. They could be growing their herd. Their total emissions could be going up,
but if they're actually being more efficient and they're getting their cattle to market quicker (because they're eating
healthier pastures, or they're or whatever their strategy is), that's actually bringing down
their emissions intensity. And so for producers, they might be thinking: “well, my primary goal
here is to be more efficient, to be a more efficient operator”, but, actually, their actions
also have a really good emissions intensity story.
And you could use that same sort of narrative, whether you are a cropper or whatever it is.
But things that you're doing, just as, you know, farming best practice,
also can have really good sustainability stories and really good emissions stories.
In terms of the financial metrics, well then, what is that cost for undertaking that activity?
And part of the ways that those costs can be defrayed is, for some, they are looking at participating
in ACCU schemes. And so that's - could be either to drive down emissions or it could be actually to sequester
carbon from the atmosphere, across their property through an ACCU scheme, whether it's a
environmental plantings project or a soil carbon project. And we're going to hear from a
carbon project developer this afternoon. Then you've got, you know, the resource use again.
So, you know, for a cropper, in you're thinking about things like, well, if I'm using less fert. (fertiliser) or I'm
transitioning from synthetic fert. to organic fert., these could be just decisions
you're making on farm for various reasons, for efficiency gains. But these also have emissions outcomes.
And what I'll do again, is then - thinking about the trade terms (and we'll dive into the Scope 1, 2 and 3),
is to think about, well what are those things that are important for off takers, for those large companies
in your supply chain? Where they’re, in the future, going to make decisions around: “how can we actually reduce our Scope 3”?
So what producers have got a, say, a lower carbon footprint - that might help them reduce their Scope 3?
And why is that important for those large emitters? Well, there's a number of reasons.
And I think this is sort of important to sort of say, well: “there's no one answer”. It's coming from a lot of different areas
as you could appreciate. Obviously, the government, the government set net zero targets.
Australia, in particular, has set 43% by 2030
(which you heard from Clare this morning), and has committed to net zero by 2050.
Now, most countries around the world have signed up to that, including China.
Obviously, their pathway will be determined over time, but what's happening over there?
Because - I do hear that question a lot. Well, we are a small player. Is everyone
playing by the same rules? So, I'm not here to advocate for other countries,
but if you're thinking about what they're doing there: absolutely, they are importing a lot of coal,
but they're also seeing, on the other side, they're also investing a lot in renewable energy. And now they’re the largest
producer of EVs in the planet. So, for them, they are also thinking about: “well, we are a global player”,
so over time, yeah, hopefully that will inform future actions for all countries,
to sort of meet these common goals. And we can all make our own value judgments on that,
but that's kind of what's driving that top government piece. Then, of course, you've got just: “well,
why are we doing this”? There could be a drought resilience story. There could be, you know, a focus
on improving nature and biodiversity. And that also could intersect with good production outcomes.
If you're planting mixed species pastures, you're going into drought later and coming out earlier.
These could be just good land management, best practice outcomes. The supply chain: and I'll sort of dive into that
a little bit more - around their voluntary targets, around what's now emerging,
mandatory reporting targets, which I think is going to be driving a lot more behavior in the future.
And then you've got the dear old bankers on the other side: we're also signed up to net zero.
So our role - our Scope 3 is essentially, you know, what you do on your farm.
So the more we can do to support transition, then that means that that will help reduce that.
Now for me, sustainable business doesn't mean stop business. We're all here to - because we want to feed the world.
We want to produce food and fibre for the world, and that's got to increase. So it's really around: “how can we support that transition
through using finance, through using, you know, knowledge, information, insights”?
Me, as a banker, I’m like LLS or
or DPI. We can't give specific advice. And I've got a couple of my colleagues
here, before, so you’re my witnesses: I didn't give anyone any advice today. It's being recorded: no advice.
But what we can do, is give as much information and insights and observations.
At Rabobank, you know, we obviously support producers, but we also lend to the other end of
the supply chain. So we also have, you know: Coles, Woollies,
Nutrien - all those big players that you would expect. We sort of - we bank the entire supply chain.
So then we do have a different kind of observations that we can make around
what we're seeing. So, the market and regulatory forces
are really sort of hitting those larger corporates first. But it's kind of,
either directly or indirectly, going to be bearing down across the entire supply chain.
So what are they? So: a whole heap of acronyms - and acronyms are very dear to bankers’ hearts,
but I think it's the same for a lot of industries, we love acronyms. SBTi FLAG:
Science Based Targets initiative, flag means Forestry, Land and Agriculture.
So what that is, is a bunch of - peer-reviewed science (the best available science at the moment),
which sort of, provides pathways for every industry sector
to get to net zero by 2050. And so, initially it says, for the ag sector
it means: reductions of 10% between 2020 and 2030.
What it doesn't mean is zero emissions by 2050. I think that's really important,
because you hear a lot of potentially interchangeable terms. ‘Net zero’, ‘carbon neutral’,
‘zero emissions’ - they’re all very different. As you can see there, it's 72%
emissions reductions (by 2050). So obviously, you're still going to have emissions from agriculture.
It’s just impossible to have zero emissions. The cows are still going to burp,
regardless, but the science says there will be pathways (as technology and science improves)
to drive down emissions, over time. But no one; if anyone tells you they know exactly how we're going to get there,
they're probably trying to sell you something. But there, absolutely, are strategies that can be implemented.
And you're going to hear some really good stories of how those strategies are playing out, today. Net-zero Banking Alliance:
144 banks around the globe, all the Australian domestic banks,
us included. We're also signed up to net zero, because we understand: for transition to happen,
then we have to make sure that there is that capital flow to support that transition.
We want to still keep our jobs. Right. So, at Rabo, all we do is food and ag - and so, if we're not
supporting the transition, we’re kind of not supporting ourselves, either. Right. So, we're all in this together.
Science-Based Targets for Nature (SBTN): that's a different body, which is really focusing on nature
(not seeing that adopted very much at the moment). And then you will have heard, or you might have heard
of ESG: Environment, Social and Governance - and they’re sort of voluntary targets
that a lot of companies are setting, to be able to articulate and tell their story around - what are they doing that
focuses on environment, social impacts and what's the governance around
how they're actually carrying all this out? The regulation, as I mentioned, the the ‘Paris aligned Net Zero targets’
- and that's to try and support the limit global warming to 1.5 degrees by 2050.
Methane Pledge: what that doesn't mean is a reduction in herd size or a tax on livestock emissions.
It's a pledge. So, I've not really heard much about how that's actually playing out.
It's more - just a pledge. Montreal that's the Global Biodiversity Framework and that's kind of like:
Net Zero (the Paris), but for nature. What I'd be interested to really see is:
where the demand is going to come from a nature repair market. The focus, clearly, is on emissions,
but the reality is, as well - there’s, you know, there's no net zero, without nature. So there might be opportunities
in the future. Obviously, you have your state-based offset schemes, which is driving some activity,
but how the national scheme works - it will be interesting to watch.
Now where I see, you know, there might be, actually, some more activity that drives some more direct and -
but hopefully - some more collaboration across the supply chain: the drivers that are coming out of these acronyms on
on the right side, TCFD and TNFD (Task Force for Climate-related Financial Disclosures,
and Nature-related Financial Disclosures). So, from the 1st of January next year,
large corporates (I think their turnover of - is maybe AUD$500 million,
and then it goes down to 200, and then 50 the year after) have to actually report on their balance sheets:
what is their exposure (through their activities that actually impact
climate change), based on a 1.5 degree scenario, and then on a different scenario,
of four degrees. So, what is the risk that they can then put on their balance sheet?
And the same goes for nature. So, initially, it's only going to be their Scope 1 and Scope 2
(so it's really just what they're directly doing, that has an impact on climate change), but in 2027 they will then
also have to think about their Scope 3, as well. So, what is their risk -
what's their climate change risk. And there's a a new international sustainability
standards boards (and so, a whole bunch of accountants are making a lot of money around how to actually put that into practice).
That will have to go onto their financial statements and they'll have to report that every year.
So over time, potentially, then that might then inform different trading decisions.
The reality is when I - when we talk to our customers, no one's feeling that pressure
from suppliers, for emissions data, yet. I guess I'd be interested
- maybe a show of hands - has many of you been asked for emissions data yet?
Just Macka. So, yeah and that's, I think, consistent. Right. And I think the reality is,
that these large corporates they’re still trying to work out 1. how to get their data,
and whether to just do a top-down assessment or actually engage with producers around
getting more accurate and meaningful data from the bottom-up. But you can imagine over time
how that could play, if they're just doing very, sort of, very clunky top-down approaches to say: “okay,
my risk to this sector or these suppliers is X” (based on their theoretical top-down
approach), versus what is actually happening on farm, what is happening through my supply chain
and where can I acquire my goods, to reduce that exposure
(to reduce those emissions that are inherent in what we're actually purchasing from our -
through the supply chain). Now when I say Scope 1, 2 and 3, I think I just - really important
to, sort of, reinforce that again: off takers’ emissions go beyond their business -
and so, as I was saying, for their mandatory reporting, they've just got to think about their Scope 1
and their Scope 2. So, what is it that those corporates are doing?
And so, a lot of their Scope 1 is - would be pretty, relatively, small
in terms of their entire carbon footprint.
Purchased electricity: so yeah, for sure they’ll think about - to what extent can they convert to renewable energy
through what they purchase? But where the big exposure
is, is really their Scope 3 and it's really their upstream Scope 3.
So if you think about, say, a Coles and a Woollies:
their Scope 1 and Scope 2 would be roughly 10%
and about 90% is a Scope 3. So you can sort of see - if they're going
to have to start to have these exposures on their balance sheets,
then this might inform different trading decisions in the future. But let's be real.
It's not there yet. All of these off takers are still trying to work this out.
And my expectation is that they will actually just start with a top-down approach
and get, sort of, data - portfolio data - but over time,
you know, and this is just, you know, a guess. More meaningful bottom-up data
will, at some stage, be the way to go.
So then that kind of, then, you know, hopes to address some of that question: “is measuring carbon
good for your business”? Well, the more you have - more information you have at your disposal,
means you can think about strategies in the future. But initially, it's just about getting that information -
in terms of measuring what matters for your business and potentially
what might inform trading decisions in the future (not now, but in the future).
And then, as you saw before, from Clare, this is just with different icons
and, I reckon, a bit fancier than Clare's slide. Yeah.
Scope 1, 2 and 3. Scope 1: your direct - what is it that you emit
from your actual production. And then your purchased electricity (Scope 2). And then, as I said, the Scope 3
is all that upstream and downstream stuff. So, if you flip the scenario,
then 90% is going to be your Scope 1 and Scope 2 and 10%,
potentially, could be Scope 3 (if you were to use that sort of Coles, Woollies sort of scenario).
Scope 2, for a beef producer, is probably (just using beef
because that was just on the top of my head), is probably only 1% or 2%. So yeah, most of the emissions
is going to come from what it is that you're doing on farm, and the decisions you make. So, I don't say these numbers to say:
“well, you’re going to go and have to reduce those numbers significantly today”,
but it's around having that information, so when you do start to develop your strategies, you just kind of know
which levers you have to pull. Right. Understand where your - what are your sources? What are your sinks?
What happens if I change this? So you're armed with that information and it's - and just like all those other metrics
(financial metrics, or whatever it is), it's always good to have a number of periods,
so you can understand trends. You can understand: well, what's changed in my business? Yeah, when we look at,
you know, as bankers, when we look at financials, we don't just say: “okay, well show us your PNL and balance sheet last year”.
Ideally, we'd like to see what's happening in the last three years. And what's your forecast?
What are you going to be doing? And it’s no different, over time, to think about that
in the context of a sustainability strategy and in terms of emissions.
So, you know, okay, well what's happening? That's - and it's not - there's no “oh, this is a good number
and this is bad number”, but it just gives you information. And so, what are those off takers actually committing to?
What are they actually - have announced to the market
(which is informed by, you know, shareholder pressure, potentially consumer pressure,
and also, upcoming mandatory reporting, which means they need to focus on
reducing emissions right across their supply chain)?
So, yeah, JBS net zero by 2040. Fonterra,
no net increase in pre- farm gate emissions and net
zero from their manufacturing by 2050. Coles and Woollies on this side.
I put that up there because Coles have more recently come out and said that they want 75% of their supply chain, by volume,
to have a science-based target, you know, I’ve mentioned before, which basically says
they want to see 75% of their supply chain, by volume, to have committed
to some kind of a pathway for net zero by 2050.
That doesn't necessarily mean you all need to rush out and sign up to SBTi.
A lot of their direct supply chain would be some of these other names on the board,
like Bega, like, you know, Nestlé, those guys - who have committed to
to science-based targets and have made net zero pledges. But then just follow - follow
the grain from, or ‘follow the breadcrumbs’, through Nestlé, through Bega, through all those -
then for them to meet their targets, then they're going to have to start to think about: “well, where are they sourcing
their product”? But the only way that can happen, I see, is not just pushing everything down on the farmer.
It has to happen by collaboration. And, you know, I'd like to say: “I'm
seeing that happen at scale”. I'm not, but I think the reality is that the only way
some of these targets are going to be met is if the both ends of the supply chain
come closer together. As more of those actual interventions and strategies emerge
and they become more commercial, then hopefully that's where we’re going to see a bit more activity.
But the reality is: if you talk to Coles and Woollies, I think they'll tell you
that there's not a premium price for a carbon neutral product,
widely, at the moment. I think Clare mentioned before, you've got - that they've got that ‘certified
climate active carbon neutral beef’. They've done that with it - through a combination of working
with about 17 producers, and then also through offsets. But can they get a premium for that? They’ve attached it
to their most premium steak you can buy. But I think the feedback is: it's not really -
hasn't been at scale, a premium product that they want to expand massively.
But what they do want to do is - and I'm not speaking for them - but also, think about: they're looking at how
they can drive down their emissions across everything that sits on their shelves.
It doesn't necessarily mean ‘carbon neutral’, it just means ‘lower emissions over time’.
And yeah, you can see the other names on there. Does it mean that they're actually putting
that pressure on producers today? I've not seen much evidence of that, but hopefully this sort of helps
to inform what might be coming down the pipe, in the coming years. So that's why I think: being armed
with as much information (for what you're doing on farm, what levers you have to pull),
will help you to make decisions that are best for your business in the future.
Thank you.
Just a quick point of clarification with Scope 3 and downstream: at what point is there a cut off, like,
I’m assuming that it's up until sale for the consumer or up until sale for
a reseller - or does it go beyond that? Are you talking
if you're in the shoes of a producer? Yes. Yeah. So, I mean,
the challenge is really around boundary settings. And I think that is something
that is really important to acknowledge that: “where is the boundary for downstream emissions”?
And I think the reality is, in what I've seen in terms of Scope 1, 2 and 3 assessments:
because we're just playing at the margins from a producer (and if you think about 90% is
really your on farm Scope 1 and Scope 2), what we -
when we talk to our customers, it's just focus on your own Scope 1 and Scope 2 - the things
that are in your sphere of influence. In terms of trying to make an assessment
for downstream Scope 3, that is a bit of a futile exercise in terms of, well,
how far - where do you set the boundary? Because all you're going to do is really play a, you know, one of those
a few percent, of accuracy. So yeah, I would - my - not advice -
my information and insight that I would give to producers is: just focus on your Scope 1 and Scope 2.
They’re the things that you can make a more meaningful assessment at the moment. Over time,
you know, there might be some more meaningful Scope 3 downstream data that emerges. But, you know, I wouldn't
expect a producer to go and find out: well, okay, well, how can I make it a life, you know, a
lifetime assessment in terms of that downstream assessment? I feel like
there's a growth industry here for auditing and compliance reporting. That seems like it's a hidden cost in the there.
We talk about all the things you’ve got to do on the farm. Somebody's got to validate that right? Any observations (not advice) on that one?
Yeah absolutely. And we see that a lot in terms of in sustainable finance
and the types of products that we can offer, to make claims
“well, this is a green loan or this is a sustainability-linked loan”. Without, to try
and avoid things like greenwashing, both from the financier but also from the producer point of view to say, well,
the only way around that is, yeah, through some sort of assurance or audit.
And that's why, for what's called a sustainability-linked loan, I think that that's quite -
I wouldn't be advocating that for most primary producers, because it's really costly.
There's a lot of audit expenditure. There's a lot of legal costs, to maybe chase a few basis points here
and there for targets. But, absolutely, for the reason that there is
a whole lot of audit and assurance is for that very reason - to say, well, if you're going to make a claim
that I'm doing something that has this intended outcome, that is focused on reducing emissions,
that helps with your credentials and then has the veracity, then it can only really -
it can't really happen by just saying: “yeah, I'm doing it”. There's got to be - and again, that data and the quality of the data.
And that's why you're right, that there is an emerging sort of assurance avenue, and that that is
absolutely going to be having to be embedded into the cost.
