Rabobank’s Draijer: Finance is vital to food transition
Rabobank CEO Wiebe Draijer says that private finance must have a role in financing the transition to a more sustainable, equitable and healthy way of feeding the planet.
This year’s UN Food Systems Summit was a “massive occasion” that saw countries rally around food sustainability in a similar way to climate change for the first time, says Rabobank chief executive Wiebe Draijer.
Draijer was the financial community’s main representative at the talks, reflecting the Dutch cooperative lender’s global leadership in food and agriculture banking, itself a result of the Netherlands being such a large food exporter.
He was one of a handful of CEOs at the pre-summit in Rome at the end of July, helping set the conference agenda. He was the only bank chief executive, attending alongside the likes of PepsiCo’s Ramon Laguarta and Alibaba’s Daniel Zhang.
The summit, which took place concurrently with the UN General Assembly in New York, was designed as a first step in establishing a global programme to change the way humans eat, produce and distribute food.
The end game is to make global food systems more sustainable and equitable, and healthier.
Food equates to about 30% of the CO2 emissions that we have to tackle from a climate point of view
So far, nations haven’t made the sorts of commitments on food that they have on climate change, like the 2015 Paris Agreement and more recently after COP26. Partly as a result, food is a smaller part of what banks do in sustainable finance today.
“I think we are at an earlier stage of development in food,” Draijer admits. “Why? Because CO2 as a lever for climate change impact-reduction was a very clear and measurable lever around which you can create urgency and a programme.”
He adds: “Climate was the first priority and, dare I say, the easiest of the transition levers. Food equates to about 30% of the CO2 emissions that we have to tackle from a climate point of view. So, there’s a connection between food and climate.
"But food is not just a CO2-reduction challenge, it is also a challenge of getting healthier diets, enough food for a growing population, a fairer distribution of wealth, and an agenda to secure the biodiversity of the planet.”
Draijer’s contribution to the summit included topics such as how, as part of this transition, firms such as Rabobank can create financial infrastructure capable of serving even the smallest farmers.
Financing structures can have biodiversity embedded into them, and trading platforms can be developed that allow even small-scale farmers to sell carbon offsets from soil sequestration. This is what Rabobank is doing in its newly formed Carbon Bank.
Some are less enthusiastic about the involvement of firms like Rabobank, which counts many of the world’s biggest food traders and consumer goods companies among its wholesale clients.
A group of about 600 civil society groups and academics, including international organizations such as Friends of the Earth and La Via Campesina, boycotted the summit, because of what they say is its prioritization of corporate interests over small farmers and local communities, including indigenous peoples.
As a cooperative, Rabobank is distinct from other listed corporations to the extent that it is member-owned (even if, as chief executive, Draijer has curbed the independence of its local mutual banks in the Netherlands).
Draijer, nevertheless, speaks for private actors in general when he says that they recognize the urgency of these problems and want to help, even if conferences such as the Food Systems Summit are, at the end of the day, government-to-government.
“The private sector is invited, but it is not the core negotiating player,” he points out.
Draijer, who previously led McKinsey’s Benelux practice, hopes the Food Systems Summit, like COP, will become a regular and even annual event.
He argues, moreover, that finance will play a particularly important role in any transition to better food systems. He recalls his role as chair of the Social and Economic Council, a consensus-forming body of employers, employees, and government-appointed experts in the Netherlands. That job prepared him well for the more political elements of being chief executive of Rabobank, although it brought him no direct experience of banking.
While chair of the council, Draijer secured a landmark 2013 agreement between the Dutch government, the private sector, trade unions and civil society organizations to reduce energy consumption and switch to renewables. Banks were part of that agreement. However, when Draijer went into banking himself a year later, he found that – much as the bank wanted to play its part in working to these goals – finding the right borrowers, from a prudential perspective, wasn’t quite as easy as he’d imagined.
We need new types of finance and solutions to facilitate change in the food supply chain
“Finance needs to be part of the negotiation about how you create conditions under which finance can flow to the proper investments,” he says. “Earlier in the climate debate, there was a clear ambition and clear priorities were set, and then we all turned around and looked at finance to make sure that money gets put up. That’s not the best way of doing this.”
He insists: “There’s a lot of money available, whether it is in pension funds or monetary easing at central banks, or on the balance sheets of banks, to finance against credit or savings.
"When you do the calculations, particularly on climate, you can see it equates to a fair return, if you do it right," Draijer says. "But the dimensions of the money are not always right. The horizon on which a bank can finance, for example, is about three years, whereas the transition is typically of a much longer time frame, so it is complicated to use bank money to finance renewable energy.
“Only if you can bring in money with a longer horizon, such as pension money – if you’re combining bank money for the construction phase and pension money for the operating phase of wind turbines, to give an example – only then does it start to flow.”
Now Draijer wants to build on Rabobank’s position as one of the world’s most prominent financiers of renewable energy. The aim is to grow new business in renewables by between 20% and 30% over the next three years.
“Since I joined Rabobank, we’ve seen the money flowing into renewable energy, first in dribs and drabs and then in streams and then in massive currents,” he says. “Renewable energy is now being financed and getting the returns that players in the chain need. The subsidy is off. You can see it working on a part of the climate agenda.”
During this time Rabobank has experimented in financing food sustainability, too. The task there, as Draijer understands it, is to build that innovation into bigger international markets, like the ones that now exist for CO2 emissions.
Carbon markets, of course, are far from perfect. For food, there’s an even longer distance to travel.
“You’re seeing, also on the financing side, the early exploration of how you influence the sustainability of the food supply chain," Draijer says. "Whereas in climate, there’s much more business language around making it possible – and it is already scalable”
Draijer points to Rabobank’s $1 billion Agri3 Fund, launched last year, in partnership with the UN Environmental Programme. The fund combines money from the bank and the Dutch government, among others, to offer the sort of long-term funding that Draijer says is vital for farmers taking what can be risky steps to change the way they’ve grown crops or reared animals for generations.
Typically, it takes about three years before production settles down into new, more sustainable processes, he says.
Agri3’s projects include extending $10 million of 10-year funding to help Grupo Carvalho Dias renovate pastureland and replant forestry in Brazil’s Mato Grosso state. It’s extended a similar amount of three-year money to Chongqing Agricultural Chain Corporation, helping small-scale farmers in southwest China switch to more lucrative and sustainable pepper farming.
“We need new types of finance and solutions to facilitate change in the food supply chain,” Draijer says. “If we don’t, then the money that’s available and sitting on the balance sheet of banks and pension funds isn’t used, and the farmers are frustrated as they don’t take the initial step of change.”
In the Netherlands and elsewhere, Rabobank has already set out conditions to its food and agriculture funding such that money is more easily available and cheaper for borrowers who take specific steps to make their activities more sustainable.
That is good business, according to Draijer, because more-sustainable borrowers in this area tend to be less risky.
“The circle is round; it makes sense to do it,” he says. “But it is at an early stage of the discovery process.”
Economies of scale
Volumes in food-sustainability finance have lagged those in other parts of sustainable finance – such as climate – because farms will typically be so much smaller and therefore harder to analyse and track than, for example, an electricity plant.
Especially in less developed countries, a typical smallholder might not even have a bank account or any formalized ownership of the land. Banks need those barriers removed – whether it is by mobile banking or by using satellite technology to demarcate that land – before they can help.
“Many of the richest ways to decarbonize the planet are with the smallest of small farmers in the poorest parts of the world,” says Rabobank chief executive Wiebe Draijer. “Part of the complexity is that you need to find ways of getting the money to work in that area, where there is hardly any financing taking place.”
Fundamentally, Draijer believes that farmers should be better rewarded when they grow food sustainably, not just through financing conditions, but also in terms of the price their produce fetches at market.
However, another problem is the relative difficulty of quantifying sustainability advances in farming, even when it is large scale. That makes it more complicated to ensure that the price of produce adequately rewards farmers when they use more sustainable methods. It also makes sustainability harder to embed in financial terms.
“CO2 reduction is relatively simple,” Draijer argues. “You can measure it, and you can make it part of the condition of the payment; you can tick it off the covenants, and you’re fine. When it comes to biodiversity loss, it is harder to measure. When it comes to CO2 capture in the soil, it is quite difficult to measure. When it comes to equitable incentives for social income for farmers, it is a little easier but still difficult to measure.”
As with other forms of sustainable finance, this is partly a problem of market maturity. Draijer complains that creating, for example, tradable CO2 reduction certificates for farmers entails complying with as many as six or seven standards. Establishing a global framework for sustainability practices in things such as soil and forest management would therefore help grow these markets.
Indeed, this sort of codification is part of what the UN Food Systems Summit is working towards, roping in the UN’s own Food and Agriculture Organization and World Food Programme (both based in Rome).
“Food needs to be priced at the environmental impact that it has, so that farmers and supply chains get money, benefit for their efforts – or penalised – depending on where they are on the sustainability level,” Draijer says. “You can easily certify that a certain way of producing energy is greener than the other – it is either on or off – but in food, there needs to be more standards for what is sustainable. These are things that governments need to endorse.”