Last week in Canberra, at the Natural Capital Summit hosted by the National Farmers’ Federation and Farming for the Future, the latter organization presented findings from the second phase of its research program into natural capital and its effects on farm profitability.
The preliminary results presented by the research body were clear: farms with “high natural capital” are more profitable in financial terms than those with more intensive farming operations with “low natural capital.”
Farming for the Future found that pursuing farming practices that increased natural capital could support farm businesses through improved productivity and/or by reducing input costs, and that most of the relationships between natural capital and farm business performance were “positive and linear.”
In simple terms, this means that, should this research prove applicable at wider scale during the next phase of Farming for the Future’s work, most farms should be able to improve business outcomes if they improve the natural capital of their assets.
Of course, many large operators of farming assets who pursue responsible business practices will know this already. It is generally accepted among large-scale operators that improving the soil health of an asset, for example, will improve yields, regardless of whether you produce a certain amount of carbon credits that can be traded or held for insetting.
But where this research is noteworthy is that it is now beginning to definitively quantify the benefits that these practices can have from a financial perspective, helping to make the case that regenerative farm management (improving soil health, increasing biodiversity, increasing water efficiency etc) should not just be the domain of impact investors and carbon farmers.
As Tony Mahar, CEO of the National Farmers’ Federation said at the conference: “One of the key premises for practice change with respect to natural capital is that you can’t manage what you can’t measure, and you won’t invest in what you don’t value. There is already an extensive knowledge base and capability amongst farmers but there is not currently a comprehensive and consistent set of natural capital measures to support widespread adoption of natural capital measurement across Australia.”
This is a positive development that could help to drive further investor interest in the asset class. After all, one of the recurring claims to explain why Australian superannuation funds, in particular, are not interested in farmland investments is that they don’t see enough data to back up the theory. Initiatives like these will go some way to dispelling those concerns.
And with the Taskforce on Nature-Related Financial Disclosures publishing its long-awaited final recommendations Monday, the day is fast approaching where investors are likely to have to make public declarations about the impact their portfolios have on nature.
If a robust measurement framework for natural capital accounting can be developed by Farming for the Future – or anyone else for that matter – it should prove another tailwind behind interest in the asset class.