The 90’s bought a period of relative stability and as the decade went on farmers saw opportunities to intensify, utilise abundant water resource, change land use and embark on a period of unprecedented wealth creation.
We know negative thinking isn't great, but 100% positive thinking doesn't always work either. Welcome to neutral thinking.
I’m an avid podcast listener.
Early morning runs and a fair amount of time in the car provides plenty of downtime to be entertained, educated or just zoned out!
One theme I have found really interesting in a few different forums recently has been around the power of “neutral” thinking.
It’s not hard to find literature and information on the power of positive thinking.
Books like "The Secret" espouse the value of positivity, visualising an outcome and then having it almost magically turn to reality.
By contrast, we all probably appreciate the dangers of negative thinking.
One study I read suggested that a negative thought is 70 times more powerful than a positive one!
Neutral thinking by contrast is far more constructive.
My daughter turns six later in the month, so to celebrate we had a big gathering of friends and family over the weekend. Thankfully no injuries on the bouncy castle (this time!).
Naturally the conversation turned to the recent election, but also the potential impact on farming from the National Environmental Standards released earlier in the year, especially given the election result and a continued swing to the Left.
I won’t begin to go into the detail of the standards, nor the potential options to manage and mitigate the potential impacts (nor our respective political views!).
What I would like to do is talk more broadly about what we at NZAB are seeing as the key themes in this space, and the potential impact on farming businesses and their ability to access capital going forward.
What is ESG? (Environmental, Social, Governance)
You will have no doubt seen or heard this acronym in the last while. Environmental, Social and Corporate Governance refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. For investors, bankers, regulators and governors of businesses across all sectors, it is an increasingly important aspect in how they assess the future performance of companies (return and risk).
We’re seeing the impact of this already in loan pricing
In September 2019, Synlait Milk accessed a $50m loan from ANZ Bank that has its pricing linked to the ESG policies and performance of the company. This is a clear demonstration of how Bank’s are looking to incentivise good performance in this space, on the basis that it knows that key risks are being managed, but also that the business may reap economic benefits.
Similarly, the Auckland City Council has gone to the market recently, raising $500m via the issue of a “Green Bond” – essentially accessing funding on a long-term basis that is allocated to council projects with an environmental or sustainability focus.
The world is awash with so called “green money”. This pool of relatively cheap and long-term funding looks set to continue to grow.
Consumers are already valuing products that have great ESG fundamentals
You don’t have to go too far in the media at the moment to find examples of companies looking to leverage what they are doing environmentally to help appeal to consumers.
Recent examples include Fonterra’s Carbon Zero Milk; Anchor with plant based milk bottles; Southern Pastures purchasing Lewis Road Creamery outright as it looks to leverage its 10 Star Values Program; Bostock Chicken and its Bio-degradable Meat Packaging - the examples are endless and show the value consumers are starting to place on good practice in this space.
These are positive innovations and reflect a focus from NZ producers on meeting consumer needs, whilst hopefully driving higher returns within the farm gate. We are well placed as a sector to take advantage of these changes in consumer preference, the rewards represent the carrot rather than the stick.
So what about ESG in the Banking Sector?
As illustrated via the Synlait example, Bank’s are starting to put a much greater focus on both their clients, and their own, environmental and social policies.
If you are anything like most businesses – farming or otherwise – you will be hearing the word “strategy” a lot at the moment. Your Bank is probably looking for one, you might need one for your fertiliser company or to meet regulatory requirements, or you might just be wrestling with how to develop a strategy for your own family and business.
Whatever the circumstances, you may well be asking “where do I start?” What exactly is a strategy, what is the process to develop one and what should it look like once I’m done? And most importantly, why will a strategy benefit my business? Why should I get excited about the process?
From the biggest corporate on down, businesses through the generations have attempted to develop strategies that clearly capture the needs and aspirations of all key stakeholders – from the biggest shareholder to the family who own and operate the business.
Some become clearly defined. I have recently finished a book by Bob Iger, the current CEO of Disney. For context, Disney had revenue of nearly USD70 billion in 2019! His strategy for the business however was simple and was captured in only three key focuses – to increase the amount of branded content the company created, embrace and advance technology, and be a truly global player. Under his leadership Disney has doubled it’s revenue, and cemented a dominant position in the media landscape.
“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
Even in this ever evolving environment, there is still great opportunity to achieve growth in your agricultural businesses. You just need the right game plan.