Insights October 2023

Welcome to the first carbon and climate monthly update. Our object is to provide guidance and insight to help your business address the impacts of climate change.

The drivers for this initiative are two factors in the commercial environment:

1. Increasing risk and opportunity driven by climate change for our agribusiness customers and the communities we serve, and
2. the role of the financial sector in addressing the risks of climate change and how it impacts you.

The Bureau of Meteorology recently made these climate predictions for October to December:

• rainfall is likely to be below median for much of Australia.
• temperatures are at least three times as likely to be much warmer than average for most of Australia.
• low temperatures are very likely to be above median almost nationwide.

Factors affecting this long-range forecast include El Niño, a positive Indian Ocean Dipole and record ocean temperatures.

Climate change driving risk and opportunity

Annual variation in weather is a perennial challenge in agriculture. Since 1980, average annual temperatures have steadily risen. This signals a new era in Australia and globally. The weather assumptions that prevailed in the 1980s are no longer reliable.

The impacts on your business may be significant. Sometimes they aren’t positive. In a trade journal recently, analysts commented on the impact of recent very hot weather in Peru. This resulted from ocean currents that are up to 5°C higher than average. Records show a 50% reduction of exports of blueberries compared to this point last year.

We are setting out to provide our clients with insights about changing risks. This is to support your adaptation to a rapidly changing physical and business environment.

We can expect more hot temperature extremes. They will stress crops, livestock and labour. They will, at times, combine with compounding acute weather events like fires and floods. The continued upward trend of average temperatures, or the continued slow drying of a region may prompt farm managers to review their business strategies, sometimes resulting in significant changes.

We are seeing more of these big disruptive weather impacts. Normal management options don’t seem to fit the new conditions. Critical events like flowering can occur too early as it did in some overseas locations.

Making sense of increased interest in agricultural climate resilience

It is this evolving concern that has prompted the second factor now touching businesses. International financial institutions concluded that climate change is having a significant impact on the global economy. The Bank for International Settlements promotes international cooperation for financial stability. In 2012, it created a Task Force for Climate-related Financial Disclosures (TCFD). 

The TCFD asks organisations throughout the global financial sector to collect information about:

• the impact of climate events on them,
• their plans for adaptation, and
• the greenhouse gas (GHG) footprint of their investments, projects and the customers they finance.

That request reaches through to suppliers and product users. It is making its way through the supply chain. Major retailers have started asking farms to report on certain aspects of climate impact and adaptation such as GHG intensity of their product per unit.

This is being done so that at every level, decision makers can better test and assign risk to projects, optimise capital allocation, and plan strategic responses to minimise climate change.

Rural Bank wants to assist our clients to understand the nature of these developments and assist our customers to respond to them.

Carbon credits are one tool for adapting your farming business to the evolving environment. In the next report, we will untangle the complexity around carbon credits.