How Agriculture is making the transition to a low carbon environment
From renewable heat, to solar power, to lowering CO2 output - HSBC is supporting farmers and their business partners as they reduce their carbon footprints
While climate change has been a focus of the scientific community and activists around the world for several years, the conversation is shifting as the outlook becomes more urgent. According to NASA and NOAA1, 2018 was one of the warmest on record – the fourth in a row2. The latest estimates say that no action to reduce emissions could cause global temperatures to rise by as much as 6ºC (10.8ºF)3 above the pre-industrial world. Indeed, the latest report from the Intergovernmental Panel on Climate Change (IPCC)4 has said that even the impact of a 2.0ºC world compared to 1.5ºC would have a devastating effect: a stark warning for immediate action.
It’s clear that all businesses, irrespective of size, sector or geography are also paying attention. In HSBC’s 2019 Navigator research5, 96% of businesses responding told us they are feeling pressure to become more sustainable – and nearly a quarter believe it is essential to their long-term survival. This pressure is perhaps felt even more keenly by historically carbon intensive sectors like Agriculture. Within this sector we have found that primary drivers of sustainable behaviour are business-focused, with 29% of respondents saying that the aim is to grow sales, whilst 23% say that being more sustainable improves operational efficiency. This demonstrates that being sustainable is not mutually exclusive to good business, it can enable more sustainable economic growth.
To make these aims a reality, respondents say their top investment priorities over the next five years are centred on improving sustainable production, reducing waste generation and expanding sustainable sourcing. Still, many told us they lack the knowledge or don’t have access to the financing to make it happen. That’s why HSBC has been working with businesses in the Agriculture sector who are carving out a path toward more sustainable practices. By partnering with a credible and knowledgeable bank, businesses are not only delivering a positive impact on the environment, but also on their bottom lines by leveraging government subsidies, tax incentives, grants and other green finance programmes as well as creating new revenue streams.
Robert Gammie & Son – United Kingdom
Robert Gammie & Son, a farming partnership based in Aberdeenshire, Scotland, found that sustainable practices have a dual benefit. Renewables can not only reduce their carbon footprint – but they also help diversify revenue streams and cut operational costs.
Many Scottish farmers began by using wind turbines to generate their own energy and because they produce a surplus, they were able to sell the excess back to the grid. Since then, farmers have continued to branch out with other sustainable projects – installing biomass boilers and solar panels, for example. When Robert Gammie & Son decided to start down their own sustainability path by installing a ground source heat pump, they turned to the bank for funding – with HSBC providing a USD710,000 term loan to support the project.
The ground source heat pump delivers on a number of fronts. It lowers environmental impact by taking natural heat from the soil and using it to warm sheds and grain dryers. It also provides a source for hot water through a plate exchanger – a by-product of which is cold air which will chill the potato cold stores and dehumidify grain stores. At the same time, the installation will also bring in extra income because the equipment qualifies for the Renewable Heat Incentive (RHI), a financial subsidy offered by the government to promote the use of renewable heat in the United Kingdom.
Farmers like Robert Gammie & Son have always been interested in doing their part for the environment. To be able to do that with sustainable heat generation while still making money is a win-win. That’s why we have been working in the Agriculture sector for many years financing and refinancing wind turbines and biomass boilers – and now helping with anaerobic digestion plants, ground source heat pumps and combined heat and power systems.
Agroindustrias AG – Mexico
Agroindustrias AG (AGROAG) is a highly successful chicken and dairy farm in Mexico. They sell 100% of their chicken product to Bachoco, and sell milk to Mondelez, Santa Clara and Leche San Marcos, a member of the LALA group – all of them leading brands in Mexico in their their segments and target markets.
Having been a partner of the farm for nearly 20 years, HSBC has been actively involved in helping AGROAG work toward their sustainability goals. This includes financing bio-digesters that turn waste from animal manure into energy. More recently, with the cost of solar technology decreasing, they decided to install solar panels to further support their energy needs and came to HSBC for funding.
The farm expects to see a return-on-investment for the solar panels within about four years. The average life span of each panel is between 25 and 30 years, with efficiency not going lower than 80%. As a result, the project will help AGROAG meet much of the farm’s energy needs using clean, renewable energy while also lowering the cost of their day-to-day activities.
HSBC delivered USD1 million equipment financing through a Crédito Verde or Green Loan – one of the first HSBC Mexico has executed. To qualify for a Green Loan, AGROAG had to prove that their project meets the four pillars of the Loan Market Association’s Green Loan Principles6, which HSBC worked closely with them to verify.
Being able to share HSBC’s Sustainable Finance strategy with our clients strengthens the relationship, creating a deeper sense of purpose and action towards a common objective: being more sustainable. We are changing the way we do business in Mexico, the collaboration is close with our Sustainability team, who are an important support and enabler to our commercial conversations with customers.
LEMKEN – Germany
While efficiencies and sustainability in Agriculture often start by making changes to a farm’s capital expenditures – impacts can be found throughout the entire supply chain. Such is the case with LEMKEN, a leading international supplier for professional arable farming who provides equipment for soil cultivation, sowing and crop protection.
The company purchased a new furnace, which HSBC financed through a USD2 million term loan that will reduce their CO2 output by about 70%. They were also able to realise process cost savings of 10% by leveraging Germany’s Public Programme Loans (PPL), which gives businesses an interest subsidy on environmental and energy-efficient projects plus an additional repayment subsidy if appropriate. Companies are only able to get government subsidies based on credit and lending through the PPL schemes via their bank, if they complete all the necessary verifications and confirm the Green Use of Proceeds. Banks support companies in these subjects.
By financing the project in this way, LEMKEN not only gets a financial incentive – they are able to support their own sustainability objectives by taking steps to reduce their carbon footprint.
Clients looking for Sustainable Finance in Germany can benefit from HSBC’s ability to execute even the most complex PPL facilities. We were able to structure the loan in such a way that on the one hand they qualified for the interest and repayment subsidy and on the other hand they received a financing structure customised to their individual needs.
The good news is that there is still a lot we can do to transition to a low carbon world and Agriculture isn’t the only industry facing challenges. In our Navigator research, 35% of businesses noted that financing remained their biggest barrier to operating more sustainably while 34% said they did not have the people or time.
Choosing knowledgeable partners is an important first step in developing a more sustainable approach to business. Named the World’s Best Bank for Sustainable Finance in 2019 by Euromoney, HSBC is a leader in green bonds and green loans. We are a member of several industry groups, such as the Institute of International Finance’s Sustainable Finance Working Group, focused on accelerating climate finance for both corporates and SMEs in developed and emerging markets.
HSBC aspires to offer our clients a holistic sustainable financing offering, providing thought leadership, guidance, assistance and access to financing. Further content can be accessed via HSBC’s Global Research portal or by visiting the Centre of Sustainable Finance. Please reach out to your Relationship Manager for more information and support.
1National Aeronautics and Space Administration and the National Oceanic Atmospheric Administration, respectively