As part of our series on Transition Finance, my co-host Benedikt Bösel and myself interviewed Jurriën Appers of Triodos Bank/Investment Management on the role of banks in this transition.
Links to the interview:
Why are we asking a bank about transition finance?
Many farmers are ready to speed up the regenerative transition. They’ve looked for learning, done the courses, read the key books, hosted the gurus on their farms, explored farm sized regenerative designs and,most importantly, started their pilots and feedback loops. This is where transition finance is key. A local bank loan often isn’t feasible because of the short duration, lack of flexibility and the farmers lack of collateral. Furthermore, there’s a limit of how much equity a farmer is able or willing to give away.
That is why my co-host, aspiring to be Regenerative Farmer Benedikt Bösel, and I are embarking on a journey to find out what are the key principles of transition finance for regenerative farmers. We are interviewing leading practitioners into regenerative agriculture and food finance space. They share the insights on how they would finance the speed up of the regenerative transition on Benedikt’s 1000 hectares (almost two and a half thousand acres) farm in Germany, close to Berlin.
In our conversation with Jurriën we learned how one of the world’s leading sustainable bank, Triodos Bank, approaches financing transitions in energy and food and what the role of banks can be now and we’ll be in the future when it comes to financing farmers who want to go beyond sustainable towards regeneration. Jurriën is a fund manager at Triodos Investment Management, which manages a number of funds focused on the energy transition, food transition and the transition towards an inclusive society.
First a bit of background: Triodos Bank is a European bank with offices in the Netherlands, Belgium, United Kingdom, Spain and Germany and together with Triodos Investment Management, hasabout €17billion total assets under management.
Triodos Bank was founded almost 40 years ago by a group of bankers who really wantedto do it differently and who wanted to create a strong connection between the money that people entrust and the loans that are provided to entrepreneurs.
As Jurriën shares, the goal was to “really make a strong connection, make it also transparent. So we also report on where your money goes to and where we invest. And we strongly believe in the power of money. The loan decisions or the investment decisions that you take within the next 10 years will have an effect for the next hundred years.
Triodos Bank was founded to guide money into a certain direction, into a positive directionwhich most other banks now also have or thatarestartingto have.They have criteria that they exclude, for instance, the weapon industry or tobacco. But,we at Triodos,really are focused on transition finance and want to finance that change”.
If banks are waking up on the topic,why isit so difficult for farmers like Benedikt, who are ready scale their regenerative practices on their whole farm,to get financing from banks in general?
Jurriën explained that as a bank they have supported farmers in transition towards organic and biodynamic from the start of the bank. They are quite comfortable with that transition as they know the premiums, the market, the technical details etc. In short,the risk for an investor (lender) is relatively low because there is data going back 30 years to make investors feel comfortable.
“So my heart would like to sayifyou have a good plan,work together with partners and then come to a bank and make sure that they understand. And then it should be bankable. But indeed, I think you need to think about a timeframe for a three to five years. But that’s a bit pessimistic. So hopefully we can meetsomewhere in the middle”.
This data on the transition and the market simply doesn’t exists for the regenerative space. We are clearly in the pioneering phase where risks and returns aren’t well defined (yet):
This is the first step for now in this pioneering phase we need to getto: clear what the risks are- which are obviously higher-, what the returns are- which is definitely challenging. And what the impact is, make it also clear. Andif you have that clarity, you can find funds or people or organizations where this impact risk return profile actually matches with what they’re looking for, but also have a clear strategy on,indeed, how do you make this scalable? But I think if you talk about scale, it needs to be something that,indeed, is proven. And then indeed, you’re talking to say. I would say three to five years.
We also touched upon the interesting parallels between the regenerative agriculture space and the renewable energy industry. What we can learn from how they managed to go from being only attractive for pioneering investors to something which all mainstream investors have now in their portfolio:
If you look at the renewable energy markets as it took several years to really become mature and then all of a sudden and now you see less capital flowing in already for several years. And so I think with it for the upcoming two to three years, you are still.It’s astuckin the pioneering face and you need pioneers in it and then, yeah. So pioneering capital in my more risk capital.And then I would say like three to five years. What you need before is really on a bigger scale. It’s bankable and it also then becomes anattractive for other banks well beyond the impact investment space.
The question really is how can you make it like an asset class that is sort of understood by everyone and accepted, with a certain risk profile. And the question is, how do we get there?
According to Jurriën, it is crucial tofocus on the pioneers (like Benedikt and many others) and create well documented pilot cases, probably with the help of pioneering investors. Then the more risk averse investors will follow.
This is a huge job for all of us, we need to take everyone, including the investors who are not ready yet, on this journey with us. Show them the farms, let them taste the nutrient dense food, explain the amazing story of soil and potential, what thinking holistically means, the lower input costs, the lower risks and interesting returns (both financial and non financial).
In order for the financial sector to be ready when many more farmers will come knocking on their doors for appropriate transition finance.
Many thanks to Benedikt and Jurriën for unpacking the role of banks in this transition with me!