Imagine a world where producers with enhanced natural capital have higher levels of sustained profitability, benefit from improved valuations and enjoy better lending and insurance terms.
As an inaugural signatory and the only Australian bank to sign the Natural Capital Declaration, a global agreement to try and develop a way to incorporate natural capital factors across their businesses, NAB has placed a bet on this future world becoming a reality.
For farmers, high energy costs, degraded soils, poor water quality and crop disease all increase costs and reduce productivity, neither of which are good for business. As Australia’s largest agribusiness bank, NAB faces commercial risks and opportunities from natural capital degradation.
“NAB has been in agricultural lending for the last 150 years and wants to be in the business for another 150. Natural capital is key to the long-term viability of Australian agriculture.”
- Stephanie Russo, Associate Director, Natural Capital, NAB
Natural Capital is more than a buzzword. It’s another way to describe the stock of renewable and non-renewable resources (e.g. plants, animals, air, water, soils, minerals) that combine to yield a flow of benefits to people such as clean air, food, water, energy, shelter, medicine, and the raw materials we use in the creation of products, as well as flood defence, climate regulation, pollination and recreation.
According to the Natural Capital Coalition, “Natural capital is one of several other commonly recognized forms of capital. Others include financial, manufactured, social and relationship, human, and intellectual capital. Natural capital supports all of the other capitals by providing essential resources, that support a healthy planet and underpins thriving societies and prosperous economies.”
Food Agility strategic partners NAB and IAG recently came together with diverse research and industry partners in a Design Central workshop structured to reveal the linkages between natural capital levels and agricultural financial performance.
NAB is banker to 32% of Australian farmers and IAG has a 55% share of agricultural sector insurance, so together these institutions can turn the dial on natural capital valuation.
Food Agility embraces co-design to deepen industry/research collaboration and boost commercialisation potential.
We call this “deliberate innovation” because by investing in early challenge definition and solution validation, we de-risk the likelihood of market failure.
Testing hunches to measure what matters
The NAB Natural Capital workshop brought together experts in soil, water, biodiversity and farming system research, alongside technology adoption and innovation thinkers to test hunches about what Natural Capital outcomes are most critical to measure.
NAB offered examples of hunches that could tested and scaled for research impact:
- More water efficient farms perform better financially during periods of drought
- Farms with adequate shelter provided by native vegetation perform better, as vegetation protects lambs from thermal stress and improves weight gain
- Up to a point (e.g. 20%) property values will increase with more high-quality native vegetation
- Native vegetation enhances biodiversity and improves horticulture/viticulture system yields through beneficial predators and pollinator abundance which reduces pesticide/insecticide requirements and reduces losses from pests
- As soil quality declines, farming costs rise, yields become more variable and financial performance decreases
- Farmers with properties in good-to-excellent land condition are more financially resilient than those with land in poorer condition particularly in times of drought
Food Agility CTO Tim Parsons who facilitated the workshop encourages translational engagement because, “experts in core natural asset areas like soil and vegetation don’t speak the language of balance sheet valuation or sustained profitability.” Given the prevalent mental model where green on farms is carved out of property valuation, Food Agility is investing in building a different kind of natural capital research platform. Our task is to translate between the physical and biological sciences and economic and social science perspectives in order to develop a common language of taxonomy that reveals productive metrics to underpin a new economic model.
Workshop participant Garry Gale, former Agribusiness Development leader of NAB and current member of the Food Agility Strategic Investment Council reflects, “Cross sectoral collaboration to is key to proving the impact of events such as water scarcity, soil degradation, climate change and biodiversity loss on business resilience and financial performance. Once we understand these connections, new financial products and services can be developed to support and reward farmers investing in their natural assets.”
To drive thinking across disciplines, participants explored innovation themes of sustained profitability, risk and resilience, creation of long-term value and the role of digital transformation.
Participants asked themselves:
- What hunches would we test to validate high water, soil and biodiversity values?
- What questions/insights should research projects explore to reshape how producers access capital relative to natural asset valuation?
Workshop findings revealed nuanced metrics, practices, technologies, and adoption challenges that agile research projects can now explore to support, including the hunch that carbon accounting could become a proxy across natural assets by measuring the ability of a farm system to biosynthesize energy.
Participants noted ‘digital underpins everything’, so social and trust architectures need to be put in place for necessary data sharing to flow at scale. Understanding this is at the heart of Food Agility’s new deliberate innovation model.
Tim Parsons reflects, “The architecture of digital technology and platforms almost always mirrors the social architecture of its users and operators. So, the first step toward developing digital solutions is to understand how they will be received by beneficiaries. If we are talking about a whole of industry measurement system that underpins a new capital model we need to design for a social architecture that aligns to real world value chains.”
Through Food Agility, NAB and IAG aim to shift Australia’s entire financial services sector, not just their own business models. The Food Agility natural capital research program can change everything when it comes to valuing nature.
This early Design Central event is the first step in a long journey towards valuing natural capital. Following this and other workshops, Food Agility projects will be co-created to deliver minimum viable research prototypes with commercial pathways through our industry partners NAB and IAG.
Producers and other agrifood value chain stakeholders can learn more about the Natural Capital movement and its promise for positive future-making here.
By Mara Bún, Food Agility Strategy Lead