94% of Agricultural Finance Institutions See Climate Change as a Material Risk to Business

(Belém, Brazil) Agricultural finance institutions - and the farmers they support - are increasingly facing climate-related risks alongside rapidly shifting economic landscapes. More frequent or severe droughts and heat waves, and overall changing growing conditions, impact producers' ability to reliably grow the food that communities around the world depend on. These shifting weather patterns also expose lenders to financial risks that can limit their capacity to provide essential support to their farmer customers.

A new survey from Environmental Defense Fund gathered insights from 156 agricultural finance institutions across 17 countries and found that the majority are stepping up to manage these risks. The survey found that 94% of respondents see climate risk as a critical risk that they need to manage, and the vast majority currently offer sustainability-related products and services to farmers.

"Agricultural lenders are moving from awareness to action on climate change, and farmers need them to continue building on that momentum," said Angela Churie Kallhauge, executive vice president for impact at EDF. "We're seeing firsthand the impacts of extreme weather on our global food system - from drought reducing coffee harvests in Brazil and grain harvests in England, to extreme heat lowering cocoa harvests in Côte d'Ivoire. Climate-focused loans and financial services help farmers adapt to harsher growing conditions to protect food production and their livelihoods and reduce lenders' risk exposure."

This first-of-its-kind survey series, first conducted in 2022, provides valuable insight into how agricultural finance institutions are managing climate risk.

Key findings from the survey include:

• Climate risk is a financial risk that must be managed: Globally, 94% of institutions surveyed see climate change as a material risk to their business - up from 87% in 2022 - with near-unanimous agreement among respondents based outside of the U.S.
• Farmers are exposed to climate risk, which means banks are too: 88% of respondents expect their farmer customers to be negatively affected by climate impacts, particularly through higher insurance premiums and production costs.
• Sustainable finance is expanding: 85% of agricultural lenders surveyed currently offer sustainability-focused financial products or services, and 94% intend to add new offerings over the next three years.

"Canadian farmers, ranchers and agri-food businesses are striving to build resilience to increasingly unpredictable and severe weather while meeting global demand for sustainably produced goods," said Amr Addas, senior director of sustainable finance and insights at Farm Credit Canada.

"At FCC, we're helping producers invest in sustainable practices through ambitious financing targets, industry-leading frameworks and tailored solutions like our sustainability incentive program. Beyond that, we're continuing to explore innovative financial solutions that drive long-term sustainability and growth - alongside platforms like AgExpert and FCC Capital's investments in ag technology - to ensure producers have the tools and resources to thrive in a rapidly evolving sector."

While the survey results point to strong global momentum, they also reveal regional variations in how institutions are managing climate risks and opportunities:

• All respondents based in Africa, Australia, Europe, India, South America and North America (excluding the U.S.) see a clear business case for sustainability and climate resilience, compared to 57% in the U.S.
• Respondents based in Europe were notably more likely to consider climate risk a core factor in their decision-making.
• All institutions based outside of the U.S. have implemented tools that help to measure and manage climate risk - such as climate risk assessments and stress testing - compared to 63% of respondents based in the U.S.
• Every institution based outside of the U.S. offers sustainability-related financial products and services, versus 48% in the U.S.

Farmers are feeling the impacts of extreme weather on their crop yields and livelihoods, and agricultural finance institutions serve a vital role in helping them adapt to increasingly unpredictable growing conditions. Banks can better manage climate risks and support farmers' long-term resilience by:

1. Deepening their understanding of farmers' financing needs related to sustainability and adaptation.
2. Offering financial products and services that enable and reward the transition to sustainable practices.
3. Collaborating across the agricultural value chain to deliver holistic and flexible financing solutions to farmers.
4. Proactively assessing climate risk in their portfolios and identifying opportunities to build resilience.

These recommendations will support agricultural finance institutions as they advance their efforts to help farmers build resilience, meet rising public and market demand for sustainability, and ultimately invest in a more resilient agricultural system and future.

Read the full survey results and recommendations on EDF's farm finance hub .