Implementing natural capital credit risk assessment in agricultural lending

Agriculture has critical impacts and dependencies on natural capital, and agriculturallenders are therefore exposed to natural capital credit risk through their loans tofarmers. Currently, however, lenders lack any detailed guidance for assessing naturalcapital credit risk in agriculture and are challenged by the fact that the relevant material risks vary considerably by agricultural sector and geography. This paper developsa natural capital credit risk assessment framework based on a bottom‐up review ofthe material risks associated with natural capital impacts and dependencies forAustralian beef production. It demonstrates that implementing natural capital creditrisk assessment is feasible in agricultural lending, using a combination of quantitativeand 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 lendingorganisations and across the banking sector