Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Speaker: Welcome to the Business Plan for the Planet podcast, a series centered around ESG insights.
Speaker: In these episodes, you'll hear from experts whose work is at the heart of sustainability-linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
Speaker: Join us as we shine a spotlight on their commitment to a sustainable future.
Speaker: Hello, and thank you for tuning in to another episode of Business Plan for the Planet.
Speaker: My name is Kelly Fisher and I'm from HSBC.
Speaker: Today we're talking to one of my favorite colleagues, John Church.
Speaker: He's my colleague from HSBC and he's the co-ed of US Food and Beverage.
Speaker: He's going to outline to us today how the companies he works with have a plan, a business plan for regenerative agriculture.
Speaker: Hi, John.
Speaker: Thank you for joining me.
Speaker: Kelly, good to see you.
Speaker: Good to speak with you.
Speaker: Thanks for having me.
Speaker: Sure.
Speaker: Well, you recently took part in the FT's Climate Capital Summit, where you were part of a panel discussion around regenerative agriculture and nature-based solutions.
Speaker: We're so fortunate to have a chance to talk a little bit more on this topic today with you and in our after hours conversation, during which we'll dive a little bit deeper into some of the subject matters that were covered, which includes the growing interest in this form of farming, how it protects biodiversity,
Speaker: how it mitigates climate change.
Speaker: But for me, the most exciting part is knowing you for as long as I have, you have this incredible ability to represent everyone's perspective in this from the farmer all the way up to the corporate clients that you work with.
Speaker: So really excited to get into the topic with you.
Speaker: But first of all, let's listen to a little clip from that event where the host Clive Cookson, the science editor at the Financial Times, is asking you about sustainable finance and the pressing need for new farming solutions.
Speaker: John, let's take your sustainability-linked loans.
Speaker: How do you decide which farmers or companies are doing well enough to deserve some financial incentive in their loans?
Speaker: Well, I think, Clive, it really starts with their own initiatives, frankly.
Speaker: They set forth a platform and an initiative that is focused on reducing emissions.
Speaker: And so we don't actually set that for them.
Speaker: They, their advisors or auditors do so.
Speaker: And based on the platform and the intent, we can structure facilities such that once they hit those mile markers, if you will, their cost of capital then reduces.
Speaker: But it's really based on their own energies and their own efforts and their own missions.
Speaker: And we as a firm are very focused on supporting those that are taking the initiative to do their part as one of the multiple stakeholders in the effort to reduce the emissions of carbon.
Speaker: Yes.
Speaker: In fact, someone just before I move on from you, John, we're already getting some good questions.
Speaker: Someone in the audience has asked, I'd love some more info.
Speaker: about sustainability-based loans if there's time.
Speaker: Just give us another minute on that, because it's such an intriguing idea.
Speaker: Well, it's not something that's overly engineered.
Speaker: I think it's a very smart proposition.
Speaker: We do embrace those that are fully committed to taking part in the efforts of being a smarter, stronger corporate citizen.
Speaker: And we structure it, again, based on
Speaker: credit quality, credit risk, and their efforts to achieve these goals.
Speaker: We don't set the goals, they set the goals, they are measured by a third party and after which there's a period of time that they set to meet, we evaluate and adjust the pricing accordingly.
Speaker: And then on the capital markets front, there are green bonds that are being issued and we're one of the
Speaker: front runners and four leaders in those efforts to issue bonds on behalf of corporates such as the ones that are on this panel.
Speaker: So we have three key objectives, grow enough food, reduce its carbon impact, go to net zero hopefully, and at the same time, increase biodiversity.
Speaker: Do you think all those are reconcilable?
Speaker: John, how do you reconcile those three objectives?
Speaker: Well, yeah, I kind of have to think of it in this fashion.
Speaker: I don't know that we have a choice.
Speaker: I think we as a global community need to embrace the need to enhance, improve climates, soil conditions and climates so that we can raise a better crop to feed the growing population.
Speaker: There's a lot of malnourished individuals in this world that we need to reach through farm production and nutrition.
Speaker: And without the efforts of all,
Speaker: We're not going to get there.
Speaker: And what I mean by all is, I mean, corporates, I mean the consumer, I mean the financial institutions and governments.
Speaker: We all need to back this in unison.
Speaker: Otherwise, we're going to fail in our attempts.
Speaker: It's going to take much longer than we anticipate.
Speaker: So we're in this thing together.
Speaker: Well, clearly,
Speaker: That was a great conversation and this is a topic that has a lot of detail and a lot of depth.
Speaker: I'm so excited to talk to you more about this, John.
Speaker: But I think let's start out on a simplified note.
Speaker: And can you just explain to you what does regenerative agriculture mean?
Speaker: What does it entail?
Speaker: I suppose, Kelly, it means
Speaker: certain things to certain people, but to me and my clients, it means the employment of soil and water conservation practices that lead to a healthier soil and atmospheric condition and supply chain.
Speaker: The practices that generally complement the regenerative ag include crop rotation, cover crops, of course, and things of that nature that, you know, and I should also include minimum to no tillage practices for grains and oilseed
Speaker: producers, and then perhaps on the dairy side of things, the use of anaerobic digesters that convert manure into carbon negative, renewable, natural gas.
Speaker: And, you know, I think all of that, the list sounds long and comprehensive.
Speaker: What to you are the real values behind it?
Speaker: I look at it in this fashion, Kelly.
Speaker: Food is a life necessity.
Speaker: Without proper land and soil stewardship,
Speaker: there would be less production.
Speaker: And with less production, there would be less food worldwide.
Speaker: And thus, regenerative agriculture is valuable to all stakeholders.
Speaker: And we're certainly coming out of a year where we saw what disruption to a food supply chain can mean to people everywhere in the world from all backgrounds.
Speaker: So I really appreciate that.
Speaker: Well, I mean, it sounds great.
Speaker: So I guess the question is,
Speaker: Why isn't everyone doing this?
Speaker: What are the barriers, particularly what are the barriers that are keeping the financing from happening that need to expand these practices more widely?
Speaker: I suppose if you look on a macro basis, the barriers probably are many, but there are probably two or three
Speaker: that really stand out most to me and one of which would be cost associated with the practices and then the global commitment to the practices.
Speaker: On the cost front, growers need to have some level of assurance that with the employment of certain practices, profits will be, I should say, will not be impaired.
Speaker: Crop input companies and off takers, which would include grains and oil seeds and food merchants,
Speaker: CPGs, wholesalers, retailers play a major role as does education and advancement in ag equipment and technology.
Speaker: And, you know, without a global commitment and enforcement of such, we'll just be pushing the sled in a circle, I'm afraid.
Speaker: Yeah, I think that's a great way to put it.
Speaker: And we certainly saw in the past year with the pandemic that, um,
Speaker: any kind of disruption really does keep us from feeding our families and putting products on the shelves for people.
Speaker: And so what is the landscape right now for your big industry clients?
Speaker: I think you represent the farmer perspective very, very well, but you know, I meet some of the sustainability people at your big clients.
Speaker: I know they want to do the right thing.
Speaker: They all have incredible goals.
Speaker: What are the challenges around agriculture that you think are keeping them up at night that really worry them that they're not going to meet without greater support?
Speaker: Rising operating costs, labor shortages, health of its or their employees, transportation and logistic challenges, consumer trends, meeting shareholder expectations, and ESG initiatives would be at the top of the list, I'm afraid.
Speaker: There's a lot to those topics, to those subsets, if you will.
Speaker: But I think those are the things that are mostly thought about within the C-suite.
Speaker: You know, it's going to take a lot of effort and it's going to lead to a lot of expense associated with those efforts to get us to where we need to be.
Speaker: But food companies are very dialed in to what is being asked of them, not only by perhaps governmental officials, scientists,
Speaker: but also, and importantly, the consumer.
Speaker: Yes.
Speaker: And we just saw an incredible report that came out of NYU about the rise in consumer packaged goods products during the pandemic that had sustainability messages on the packaging or credible transparency.
Speaker: So I think there are a lot of pressures, right?
Speaker: There are pressures from consumers, from industry, but what really I think is still at the forefront of all of our minds is what happened for the past year.
Speaker: I mean,
Speaker: the food supply chain here in the US certainly was completely disrupted by this.
Speaker: What did you see from your perspective that happened to it?
Speaker: Where were the failures?
Speaker: Should we have predicted it?
Speaker: And what are the things that you think that you're doing or that HSBC is doing that could help us prepare better for the future?
Speaker: Well, early in the pandemic, of course, we experienced a lot of pantry loading and that led to a very, very tight supply
Speaker: But I have to say the CPGs and the packing plants worked extremely hard to replenish inventory.
Speaker: And as time passed, the levels of inventory began to rise to a more normal level.
Speaker: Sustainable goods rose in popularity.
Speaker: Back in the day, people were getting away from perhaps sustainable canned goods, but they became vogue, they became top of mind because
Speaker: none of us knew how long the pandemic would last.
Speaker: And so therefore the consumer really wanted and needed goods, food, nutrition that would be on the shelves for quite a while.
Speaker: So they had some sort of sense of nutrition.
Speaker: And in the early part of the pandemic, farmers, ranchers, dairymen had to make very difficult decisions regarding their herds of milk.
Speaker: Animals ended up having to be euthanized and milk was poured down drains and
Speaker: Of course, those difficult decisions led to financial challenges and losses.
Speaker: So I think what we've learned from it, should we have predicted it?
Speaker: That's a very difficult question to answer, I think.
Speaker: As we all know, it's hard to predict the timing of events when they're not in your control.
Speaker: But what I do believe I can say is that the industry as a whole has
Speaker: somewhat benefited from the pandemic.
Speaker: I think we're much better prepared for major setbacks in the future than we were previously.
Speaker: A recent study conducted by AIB International of some 320 companies, C-suites of those companies, I should say, said that three quarters of those that were interviewed said that they are preparing for a future global pandemic and 30%
Speaker: are expecting another one within the next four years, 50% are expecting one within the next decade.
Speaker: So I think we've learned a great lesson.
Speaker: And I think there's a real need now to tighten that supply chain to make sure that we're producing a goods more closely located to processors and to the consumer to help mitigate some of those logistic challenges that we experienced.
Speaker: I think that's an excellent point.
Speaker: And a lot of people are saying that the next crisis that we may or may not be prepared for is climate change, right?
Speaker: And we came out with a study at the height of the pandemic that we partnered with the sustainability consortium on resilient supply chains.
Speaker: What specific do you think that they can do to strengthen food supplies against specifically climate impacts?
Speaker: I mean, how does that tie to regenerative agriculture?
Speaker: I think through the employment of better land management practices, identifying and growing food based on soil types and climate conditions located closer again to the processors and the consumers would help.
Speaker: Also new seed hybrids are needed to work in concert with the land management practices to help ensure yield performance.
Speaker: And then perhaps on the animal protein sector side, there appears to be a need for more processing facilities
Speaker: and greater geographic diversification.
Speaker: And those facilities aren't as big as we see them as today.
Speaker: They are likely to be much smaller.
Speaker: So we really just need to tighten the supply chain by sourcing more closely to home, I believe.
Speaker: Interesting.
Speaker: And with big impacts for the US, I would think on that.
Speaker: So we both kind of danced around and talked a little bit so far about customers and some other stakeholders.
Speaker: What do you think the greatest drivers for change in the industry from talking to your clients are right now?
Speaker: And it could be investors, customers, employees, executives, media, our new U.S. administration, the farmers themselves, the suppliers.
Speaker: And you're allowed to say all of the above if you want.
Speaker: But I want an explanation for maybe why you would say that.
Speaker: Well, yeah, I would say all of the above.
Speaker: But I would say what's really in the forefront of many
Speaker: of us as minds, of our minds, I should say, is food security.
Speaker: We need also more consistent and predictable climate.
Speaker: And we also need a preservation of a finite resource called land.
Speaker: We're not producing land like we are goods.
Speaker: We have so much land that's tillable and some land today is being tilled that perhaps shouldn't be tilled.
Speaker: So we have a finite resource that we need to maintain and enhance.
Speaker: And those things will come at a cost and all stakeholders need to share in the expense, frankly.
Speaker: I'm glad you said expense because that's our business, right?
Speaker: Is how are our clients going to finance this change they want to see?
Speaker: What are you seeing that is actually impactful in the sustainable finance world?
Speaker: I mean, HSBC has a myriad of products,
Speaker: to offer, but what are the ones that you see that might have a real impact in this area specifically?
Speaker: I'd say the sustainability-linked loans are beginning to gain popularity.
Speaker: there is a lot of interest.
Speaker: I think companies, shareholders are asking for them to practice differently and source product differently than they have in the past.
Speaker: And they have to set KPIs to achieve those goals.
Speaker: And to that end, there are credit facilities that are becoming available to the corporates that allow them to set forth goals, KPIs.
Speaker: And if those milestones are met, their cost of capital becomes less.
Speaker: And there's a certification process that takes place to make sure on an annual basis that the companies are meeting those goals and they're done by their auditors.
Speaker: And if they meet those goals, then they enjoy a slightly reduced cost of capital.
Speaker: So that's one way in which the banking and in particular HSBC is contributing to the process.
Speaker: But in addition to that, we're working with our clients
Speaker: that are currently in the portfolio to reduce its financed emissions.
Speaker: And our goal is to help mitigate or bring that down to zero, those emissions down to zero by 2050 or sooner, and that are in line with the goals of the Paris Agreement.
Speaker: We will also continue to focus on clients' efforts to operate in a more sustainable manner
Speaker: And by doing so, we're prepared to lend upwards of and invest in upwards of a trillion dollars between now and 2030 to help these clients achieve their goals.
Speaker: Yeah, and I'm really glad that you flagged sustainability link loans because we've seen such a huge increase in those this year.
Speaker: And I think what's been most inspiring for me, and this certainly is relevant in food and beverage, is the amount of our clients who have
Speaker: added social goals into their KPIs for their sustainability loans.
Speaker: So you'll see the usual GHG emissions or water usage or things like that.
Speaker: But then we're seeing a lot of goals around the human rights and their supply chain or the diversity of their suppliers.
Speaker: And as you know, I mean, there are humans working in these farms.
Speaker: There are humans in these supply chains.
Speaker: And I think when those two things are tied together, that's when we see real change, real lasting change.
Speaker: I just want to, you know, pull on a little thread there because I know you and I know you personally.
Speaker: Your work here is kind of a personal story for you.
Speaker: You grew up in a farming community, right?
Speaker: So, I mean, I can't imagine a background that has shaped you better for the job that you have today.
Speaker: But what does it mean to you to work with these companies and know those farm communities as well as you do on the ground?
Speaker: Well, thanks for mentioning it.
Speaker: Yes, I did grow up in a farming community from a farm family.
Speaker: I'm very proud and fortunate to have done so, actually.
Speaker: My family remains very actively engaged in farming and has grown the business, the enterprise significantly through its 100 plus year history.
Speaker: And, you know, when growing up, being the son of a farmer wasn't nearly as cool as it is today.
Speaker: Yeah, everybody wants to know more about food from, you know, inside the farm gate to all the way to the plate.
Speaker: So there's a real passion to learn more about how things are grown, how things are processed and how things are financed at the corporate level so that the financed food, if you will, or the food that's produced gets to the table.
Speaker: So it's an interesting pathway.
Speaker: And, you know, when people hear that I'm from a farm,
Speaker: They just begin to ask a lot of questions and not only with regard to the processing, but the type of food and the commodities that are grown and You know, again, as I said, food and farming and ranching has become very cool.
Speaker: While at the same time very capital intensive so we don't lose sight of the risks that growers take every day when they put a crop in the ground or when they're raising
Speaker: livestock.
Speaker: It's quite a commitment and devotion.
Speaker: I think what has resonated really, really well with the clients is that I speak their language.
Speaker: They know my background.
Speaker: We have much in common.
Speaker: And I think they also feel and sense a high level of passion for financing of their aspirations, if you will.
Speaker: And their aspirations could be
Speaker: could be minor, they could be very major.
Speaker: And, you know, they definitely want to make sure that they produce healthy, clean label food for the consumer for not only health benefits, but in some respects as a medicine, if you will.
Speaker: Yeah.
Speaker: And I'm like you, I come from a very similar background.
Speaker: I went to elementary school in Waldo, Ohio, and had kids drive their father's tractor to school instead of a car.
Speaker: So I know the community you're talking about.
Speaker: And I think
Speaker: That's why I appreciate so much working with bankers like you who have that understanding and that perspective.
Speaker: And I think our clients do because look, these farms, they want to do the right thing.
Speaker: They want to put the same healthy food on the table for their families that they put on the shelves for us.
Speaker: Right.
Speaker: And we just need to find out ways to finance it.
Speaker: I mean, when you look at catastrophic disasters that happened in the pandemic, like the derecho storms in Iowa,
Speaker: someone has to finance these improvements.
Speaker: And I think what you're doing is so, so important.
Speaker: So in closing, what is the future?
Speaker: What do you want to see in five years or in 10 years?
Speaker: And what role do you hope to play in that?
Speaker: Well, I think, you know, the future for food and egg is actually quite bright.
Speaker: As stated at the beginning of the discussion, food is a life necessity.
Speaker: And without food, we don't enjoy
Speaker: the other things in life that we tend to enjoy.
Speaker: So consumers are keenly interested in food safety and security and the health benefits associated with certain foods.
Speaker: Food companies are listening to the consumer's desire to develop and to produce cleaner labels and food innovation.
Speaker: And they really are delivering.
Speaker: They're listening and they're delivering.
Speaker: Ag input companies and farm equipment manufacturing companies are working hard to develop
Speaker: new products that will continue to help feed the world, address labor challenges and conserve resources.
Speaker: And, you know, I think for me personally, their efforts coupled with the bank's commitment to help finance those aspirations are very meaningful.
Speaker: And I think we're well positioned as a firm to contribute to elevating the need, contributing to the need, and certainly, hopefully as a society, enjoying the benefits of our support
Speaker: that all stakeholders are being asked to contribute to.
Speaker: I love it.
Speaker: And I love ending on a positive, upbeat note because I believe in the same way that you do that there's so much commitment to improving this that we have to come together.
Speaker: And I think great things are possible.
Speaker: Well, I hope I get to sit across from you at a real table and have a real meal with you at some point in the next year to thank you for doing this because this was incredible.
Speaker: So thanks so much for your time, John.
Speaker: My pleasure, Kelly.
Speaker: Thanks so much for having me.
Speaker: It's been truly inspiring to talk about how much farming is changing, how much of that is driven by a real desire to create a cleaner and more sustainable food supply chain from the farmer to the companies and all the way to their bankers.
Speaker: So thank you so much for your time.
Speaker: And thank you to all of you who joined us to listen in.
Speaker: I hope that you are as inspired as I was to go out and do one thing differently from this point forward.
Speaker: And thank you for listening to another episode of Business Plan for the Planet.
Speaker: If you're interested in learning more about sustainability and sustainable finance and how HSBC can support you, visit business.hsbc.com slash sustainability.
Speaker: We'll also be releasing more Business Plan for the Planet podcasts.
Speaker: So please do look out for those soon.
Speaker: This has been a special podcast in the Business Plan for the Planet series.
Speaker: More episodes will follow shortly.
Speaker: So please do keep an eye out for those.
Speaker: For more information on the programme, visit business.hsbc.com forward slash sustainability.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
