WA Cropper: Woodside has been a good neighbour

WA grains farmer Bob Nixon has dispelled the idea that corporations buying up farmland and planting "fence to fence" for carbon credits will necessarily be a drag on the farming industry.Speaking on the "Natural Capital: An opportunity ripe for the picking" panel at evokeAG. in Perth recently, Mr Nixon said that Woodside’s purchase of, and investment in, a neighbouring farm in the north-eastern wheatbelt of Western Australia had resulted in clear co-benefits.
 
He told the audience that the farm in question was seriously degraded with sandy soil that resulted in downstream salinity to his property.
 
Replanted with trees, the property was no longer causing discharge, and had improved biodiversity in the area. Mr Nixon was also able to negotiate with Woodside to purchase 500 hectares of good cropping land, as well as a house.
 
“They've been really good to deal with,” Mr Nixon said. 
 
Woodside has a target of cutting direct emissions by 15% by 2025 and has been using carbon offsets, like the WA revegetation program, to help get its net emissions down by 12.5% in the past year.
 
Companies hunting for climate solutions
 
Companies like Woodside are desperately trying to convince global investors they have a convincing plan to reduce emissions. The stakes are high.
 
In 2022, nearly half of Woodside’s investors voted against the company’s climate plan and activist shareholders are already threatening to vote against director pay in 2024 if the company doesn’t move faster on reducing emissions.
 
“50% of global GDP is dependent on nature,” said Catherine Bell, Partner, ESG and Climate Services at RSM Australia. “Alarm bells are going off based on the fact that the depletion of our natural assets globally is a business risk and it's a risk to our global financial markets.
 
“Money and the markets have woken up. And now essentially they're turning this into an accounting practice.”
 
That practice underpins new accounting standards, to be adopted in Europe and Australia, that require mandatory reporting of climate-related financial impacts. Key US states like California will have similar regulations. It will be become a benchmark for how investors evaluate where to put their money.
 
Agriculture in focus
 
Companies with revenue above $500 million will be the first to have to report, which is why companies in the food supply chain are scrambling for solutions. Coles has already announced it expects 75% of suppliers to start reporting their emissions.
 
The Government is also adding to the pressure on the sector, and has singled out agriculture as one of six sectors, representing 90% of the country’s carbon emissions, at the centre of the its decarbonisation plan. 
 
Panellist Nicole Yazbek-Martin, head of Taxonomy and Natural Capital at the Australian Sustainable Finance Institute, is developing the policy for the sector and said it would be presented to stakeholders by the end of the year.
 
That would provide “much needed” guidance for major corporations and investors who were worried about regulators like APRA and ASIC “coming down on them with a big stick sign saying ‘don’t greenwash’”.
 
Stick and carrot 
 
Ms Yazbek-Martin said investor attention was focused on disclosing the “physical risks, the transition risks coming down the pipeline in the context of different temperature scenarios” and the policy document would help them to work out where to put their money to meet their commitments.
 
“When you're aiming to achieve (those targets), what does that mean? You need to say, ‘how am I going to shift and what am I going to shift to? Where am I going to allocate that capital?’,” she explained.
 
From carbon reporting to ‘natural capital’
 
Companies will be closely examining their carbon activities, and looking to reduce emissions, but they will also be increasingly focused on what investments they can make that combine a financial return with a positive environmental outcome.
 
That is where natural capital comes in. It attempts to value assets that provide a nature-positive service, such as food, fibre, water and biodiversity.

Heechung Sung (in blue), Head of Natural Capital Investments at the Government’s $30bn Clean Energy Finance Corporation. 

“From an investment lens we look at assets where you can price that value,” said Heechung Sung, Head of Natural Capital Investments at the Government’s $30bn Clean Energy Finance Corporation (CEFC).
 
“For Australia, it's agriculture, it's forestry. Those two key assets in nature are critical to our economy. (And) from a de-carbonisation perspective and our low carbon future (they are) also really critical in the transition pathway.”

Ms Sung led the CEFC’s $50m co-investment into a $200m sustainable agriculture platform in June last year. That bought a minority stake in Gunn Agri Partners, as well as properties in NSW. Now they are looking to invest further, targeting assets in NSW, Western Australia and potentially South Australia.
 
The investment thesis is to continue to maximise the agricultural returns, while finding new sources of value by converting less-productive land to forests, for example.
 
The CEFC’s partner in the project is Canadian pension fund CPDQ, and Ms Sung believes this deal will set a precedent for other fund managers to also invest in Australia.
 
“The rewards are fantastic if you can get your head around those things. A Canadian pension fund as co-investor alongside of us, putting three times our capital into a farmland investment portfolio, that’s success,” Ms Sung explained. 
 
“That's indicating to the world that Australia's natural capital assets are investible. They make money. And we're incredibly efficient (at agriculture). That's what I see as our greatest value added in this asset class.” 

 
'Big licks of capital'
 
Foreign appetite for Australian "natural capital" assets like farmland will only grow. 
 
According to BloombergNEF, Australia is second only to North America for the number of top farmland investors that are invested into natural capital. 
 
With well-established carbon offset methodologies, high and regulated carbon prices, and the competitive advantage of Australian agriculture, BloombergNEF said 11 of the world’s top farmland investors have been drawn to Australia and New Zealand.

Ms Sung said that while Australian super funds are "laggards" in this space, offshore pension funds are investing "big licks of capital. Hundreds and hundreds of million dollars." 
 
Mr Nixon compared the scale of money likely to flow to the farming sector to the “$2.5 billion of Landcare money” for “caring for country” that hit WA in the 1990s.
 
“There is this absolute massive pool of money, the biggest it's ever been that wants to invest in a really similar space,” he said.
 
“How we work together is going to be key to get good outcomes for both sectors, not to the detriment of ag. If there's not policy to manage it, agriculture potentially won't be able to compete,” he said.