- January 14, 2021
Washington, D.C. — A new report from the Center for American Progress examines the mounting threat of climate change for the agricultural finance sector.
From emerging pests and diseases to changing weather patterns, the climate crisis poses extreme risks to farmers and ranchers. If left unchecked, climate change will likely devastate the agricultural economy, with dire implications for the agricultural and rural credit market. The report explores the agricultural lending sector’s exposure to climate change-related risk. It finds that a climate-related agricultural downturn would ripple throughout the financial system but would most acutely harm firms that specialize in agricultural lending, especially smaller community banks—potentially leaving some rural communities without access to credit. Moreover, if the magnitude of the climate crisis is severe enough, the Farm Credit System (FCS) could become insolvent, potentially requiring a federal bailout.
The report makes the case that regulators and policymakers should take action to prepare for the coming climate threat to America’s agricultural credit market by:
- Bolstering agribusiness climate risk disclosure requirements at the U.S. Securities Exchange Commission
- Mandating climate resilience analysis of the FCS by the Farm Credit Administration
- Increasing capital reserve requirements for the FCS
- Expanding programs to finance sustainable farming practices
- Tackling systemic climate financial risk created by the largest financial institutions
“For years, the largest banks have been driving climate change by financing fossil fuels. As a result, small agricultural banks and public agricultural programs are exposed to enormous climate risk, endangering the supply of farm and rural credit in the long term,” said Zoe Willingham, a research associate for Economic Policy at CAP and author of the report. “Financial regulators and other policymakers need to act now to mitigate the sector’s risk by enacting reforms, before it’s too late.”
Read the report: “Promoting Climate-Resilient Agricultural and Rural Credit” by Zoe Willingham