EU classification tool brings momentum to sustainable agriculture

EU classification tool brings momentum to sustainable agriculture

Published on: 17 September 2020

The recently introduced EU Taxonomy for Sustainable Activities accelerates the sustainable agriculture movement, says Jos Lemmens, Senior Portfolio Manager at APG Asset Management. “Given the international orientation of European investors and companies, the EU’s initiative is expected to have global repercussions.”

 

What is the EU Taxonomy?

“The EU Taxonomy is a classification tool to help investors and companies navigate the transition to a sustainable, low-carbon and resource-efficient economy. Consisting of a detailed list of business activities that are considered ‘green’, it stimulates the financial sector to lead the way to a greener and cleaner future. The taxonomy - which was recently approved by the EU Parliament - applies to all asset classes, including investments in agricultural land.”

 

Why is the EU taxonomy relevant for you as an investor?

“It is in our interest as a long-term investor that the agricultural land in which we invest are being managed with a long-term view in mind. To give an example: a land manager may be able to reach high yields of a certain crop in the short term, but if this exhausts the soil that is simply not sustainable. But how do you measure if an agricultural asset is sustainably managed? The EU Taxonomy provides a pathway to quantify the effects of sustainable land management. At the same time, measuring impact is a challenge, as agriculture is very diverse in terms of farming systems, crops and regions. Therefore, the taxonomy also contains a list of best practices - or ‘essential management practices’. Still, quantifying the effects should be our ultimate goal.”

Can you give an example of a ‘best practice’?

“We know that the use of fertilizer contributes significantly to the emission of greenhouse gases and is an important source of bio-degradation. Precision agriculture enables farmers to apply fertilizer with greater accuracy  and avoid overuse of these chemicals. Other solutions can be quite simple. Soil erosion, for instance, can be lessened considerably by hedging farm land, or using ‘cover crops’ – plants used to cover the soil rather than for the purpose of being harvested. And always using the same track for tractors and other agricultural vehicles, rather than driving everywhere, contributes to a healthy soil.”

 

How does the EU Taxonomy work?

“The EU Taxonomy identifies six environmental objectives, two of which - climate change mitigation and climate change adaptation - are already sufficiently defined for application. The others (land use & protection of water and marine resources; transition to a circular economy; pollution prevention and control; and biodiversity) are to be developed to the same level in 2021. Under the taxonomy, an asset qualifies as ‘green’ if it substantially contributes to at least one of the objectives ánd does no significant harm to any of the other objectives.”

 

What do you expect to happen next?

“Although not all six objectives are as yet fully developed, I expect that many of the best practices that contribute to climate change mitigation will also contribute to the other objectives; in other words, practices contributing to reduced CO2 emissions are likely to also be favorable to, for instance, biodiversity. We are excited about the momentum that the EU Taxonomy brings to the sustainable agriculture movement. Given the international orientation of European investors and companies, the EU’s initiative is expected to have global repercussions.”

What does APG do in this respect?

“APG is developing its own Natural Capital Stewardship guidelines for investments in farmland. These will provide guidance to land managers on how we assess sustainability performance and help us to monitor our investments. The negative requirements (‘you should not do this’) are based on the OECD Guidelines for Responsible Business Conduct, whereas the positive guidance (‘we want you to do this’) is built on the EU Taxonomy. While we recognize the EU taxonomy is still being developed and will continue to develop, we expect to have a trial version of our guidelines ready early next year. We then want to start testing them on a good number of our investments.”

 

Further analysis on the EU Taxonomy and its application to agriculture can be found in this blog, by Dr. Christine Negra (Versant Vison), Tanja Havemann (Clarmondial) and Jos Lemmens (APG).