Natural Capital & Renewables on Agricultural Land: What ESG decision-making tools are we missing?

Much like pulling apart an entire piece of farm machinery to figure out where the screech is coming from, the terms 'net zero', 'food security', 'ESG', and 'natural capital' need considerable unpacking for most of us in the agricultural sector.

In Australia we have traditionally only considered food and agricultural land in the context of our production and export capabilities. However, understanding what these terms mean and how they will fundamentally change government and business decision-making is crucial.

At the FutureAg Conference in Melbourne recently, VFF President Emma Germano touched on the long-standing tension between the interests of farmers and the interests of corporations when it comes to income generation. Primary producers and landholders are now directly in the firing line of what arguably could be described as an even greater conflict pertaining to income generation - namely, the unique investor interest in natural capital or nature-based solutions, carbon markets and renewable energy. That focus is falling squarely on agricultural land in Australia.

It's a movement that is only just beginning to be understood the ag sector. But this sector is filled with buzzwords and acronyms, and what is taking place at the policy and global investment level is not well communicated well to farmers themselves. At FutureAg, I attempted to explain the rights of farmers and the obligation of investors to recognise the importance of the work farmers do.

Here are the key issues farmers must be aware of.

Australia’s response to climate change is enshrined in law

Australia signed up to the legally binding Paris Agreement on climate change which came into force in 2016. That prompted a wave of legislation including the Climate Change Act 2022, the Nature Repair Act 2003, the proposed Net Zero Plan (including a decarbonisation plan for the Agriculture & Land Sector), and a draft law that will mandate climate related financial disclosure. These new policies are underpinned by one goal - to reduce greenhouse gas emissions – and have kickstarted unprecedented investment in carbon markets, renewable energy, and climate-smart farming practices over the past few years.

Primary producers have been told these unique opportunities are either;

• an income diversification opportunity,

• an opportunity to access premium markets for existing agricultural commodities; or

• an opportunity to sell agricultural land for a record price

That is the carrot. But the stick, in this case, carries far more weight.

Many producers remain unaware that the legally enshrined requirements for government and private enterprise to achieve net zero emissions is the underlying driver of these policy, and that voluntary sustainability reporting, targets, and disclosure obligations are not just on their way but;

• are due to become mandatory from January 2025 for Australia's largest companies and greenhouse gas emitters from 1 July 2026 and for smaller corporates and asset managers that exceed certain thresholds by 1 July 2027; and

• are already starting to impact producers' ability to access not just commodity markets, but crucially also finance and insurance.

Whilst many decision-makers are aware that the objective of the Paris Agreement is to halt the increase of global average temperature, many neglect to appreciate that in achieving the reduction of greenhouse gas emissions, it must not threaten food production, or impede human rights.

• Australia is also a signatory to the International Covenant on Economic, Social and Cultural Rights, which holds that government and private enterprise should 'avoid infringing on the human rights of others and should address adverse human rights impacts with which they are involved'.

I, along with many others, have been advocating that the human right to adequate food should be legally enshrined in this country considering our international obligations, and in circumstances where climate change and food insecurity are existential national security risks. This position that was considered - though not adopted - by the Federal Government's Standing Committee on Agriculture in the recent Inquiry into Food Security In Australia. The Committee's final report did, however, demonstrate overarching support for primary production by recommending that Federal Government should:

• develop a National Food Plan that provides national food security (Recommendation 1);

• develop a specific strategy for expanding innovation and value adding in food production, with a view to enhancing commercial opportunities for Australian industry and enhancing food security (Recommendation 7)

• develop a plan to protect agricultural land from urban sprawl and utilisation for non-agricultural purposes (Recommendation 13) and;

• work with industry and other stakeholders to develop a standard definition of natural capital (Recommendation 24)

Environmental outcomes go to court

Every decision-maker - including primary producers - now need carefully consider not only the highest and best use of their land, but also the climate, biodiversity, and food security impacts of their decisions. This is becoming increasingly apparent through emerging climate litigation, which involves cases brought against government, companies, or individuals on issues including:

• greenwashing or greenhushing

• challenges to a lack of ambition to climate policy or failure to implement policies or legislation, and

• litigation attributing personal responsibility, whether civil or criminal, by individual decision-makers including company directors, for failing to adequately manage climate risks in decision-making

Legal action is already taking place. In February this year, the NZ Supreme Court examined the boundaries of corporate climate change responsibility in a claim brought by a Maori elder alleging that climate change will have adverse health effects on him and his people. Seven respondent companies from the agriculture and fossil fuels industries, are said to have breached the law pertaining to public nuisance, negligence, and a proposed new climate system damage tort, and are therefore legally responsible for the harm caused to the environment by their respective GHG emissions. Among the companies called before the court, the two from ag include:

• Fonterra, for burning more than 520,000 tonnes of coal per annum to operate eight dairy factories in NZ; and

• Dairy Holdings, in its operation of 59 dairy farms in NZ which release:

  • methane emitted by its circa 50,000 milking cows; and

  • nitrogen dioxide from nitrogen-based fertiliser.

The case remains ongoing and is currently identified as being the first of its kind in the world to test laws in connection with climate change. How the court rules may influence legal precedent for similar arguments in Australia.

What this means for Ag

Sustainable food production systems, which include livestock such as cattle, are recognised by the UN as having an essential role to play in the solution to existing challenges associated with climate change.

As a result, stakeholders investing in opportunities to reduce greenhouse gas emissions through natural capital or nature-based solutions, carbon markets and renewable energy on agricultural land should make decisions that:

• treat climate, ecosystems, and human society as parts of an integrated system

• weigh up the legal benefits and risks of multi-land-use systems, and;

• do not impede human rights by threatening food production

Such consideration, particularly if projects adopt multi-land-use-systems, will assist decision-makers to fully satisfy Australia's obligations under the Paris Agreement, and potentially mitigate the risks of climate-litigation or regulatory compliance associated with sustainability reporting, whilst also increasing feasibility.

It will also ensure that in the race to reduce greenhouse gas emissions, we do not lose sight of the fact that food remains the most important economic product. Because without farmers, and the continued use of agricultural land for sustainable primary production, the climate crisis will become a human rights and national security crisis, driven wholly by food insecurity.

Caitlin McConnel is a Senior Associate in the Agriculture & Food and Natural Capital Markets Teams at Clayton Utz. 

She will be moderating the Cattle Australia seminar at Beef 2024 on Navigating Greenwashing and focusing on what we must do now on Thursday, 9 May.