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Implementing natural capital credit risk assessment in agricultural lending

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  • Francisco Ascui
  • Theodor F. Cojoianu

Abstract

Agriculture has critical impacts and dependencies on natural capital, and agricultural lenders are therefore exposed to natural capital credit risk through their loans to farmers. Currently, however, lenders lack any detailed guidance for assessing natural capital credit risk in agriculture and are challenged by the fact that the relevant material risks vary considerably by agricultural sector and geography. This paper develops a natural capital credit risk assessment framework based on a bottom‐up review of the material risks associated with natural capital impacts and dependencies for Australian beef production. It demonstrates that implementing natural capital credit risk assessment is feasible in agricultural lending, using a combination of quantitative and qualitative inputs. Implementation challenges include the complexity and interconnectedness of natural capital processes, data availability and cost, spatial data analytical capacity, and the need for transformational change, both within lending organisations and across the banking sector.

Suggested Citation

  • Francisco Ascui & Theodor F. Cojoianu, 2019. "Implementing natural capital credit risk assessment in agricultural lending," Business Strategy and the Environment, Wiley Blackwell, vol. 28(6), pages 1234-1249, September.
    • Handle: RePEc:bla:bstrat:v:28:y:2019:i:6:p:1234-1249
    DOI: 10.1002/bse.2313
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    2. Olena Serhiienko & Maryna Tatar & Lidiya Guryanova & Olena Shapran & Mykhailo Bril, 2023. "Improvement of Financial Instruments of the Agricultural Sector and Food Security Efficiency Increasing," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 5, pages 115-142.
    3. Feher, Andrea & Stanciu, Sorin & Iancu, Tiberiu & Adamov, Tabita Cornelia & Ciolac, Ramona Mariana & Pascalau, Raul & Banes, Adrian & Raicov, Miroslav & Gosa, Vasile, 2022. "Design of the macroeconomic evolution of Romania's agriculture 2020–2040," Land Use Policy, Elsevier, vol. 112(C).
    4. Ascui, Francisco & Ball, Alex & Kahn, Lewis & Rowe, James, 2021. "Is operationalising natural capital risk assessment practicable?," Ecosystem Services, Elsevier, vol. 52(C).
    5. Pratibha Wasan & Ashwani Kumar & Sunil Luthra, 2023. "How can banks and finance companies incorporate value chain factors in their risk management strategy? The case of agro‐food firms," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 858-877, January.
    6. Helena Redondo & Elisa Aracil, 2024. "Climate‐related credit risk: Rethinking the credit risk framework," Global Policy, London School of Economics and Political Science, vol. 15(S1), pages 21-33, March.
    7. Wu, Xin & Bai, Xiao & Qi, Hanying & Lu, Lanxin & Yang, Mingyuan & Taghizadeh-Hesary, Farhad, 2023. "The impact of climate change on banking systemic risk," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 419-437.

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