Large Australian companies have been investing in rural Australia, pursuing “green investment” and increasing the demand for natural capital, a new Knight Frank report showed.
Knight Frank head of agribusiness valuations and advisory in Australia, Jason Oster, said while corporate demands for most agricultural businesses are strong, natural capital opportunities have been at the forefront of investors’ demand.
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“Buyer demand for agricultural properties with strong natural capital qualities in Australia is still very much growing, especially when compared to a market like the UK, where the trend is much more established due largely to legislation, with a legislated commitment to net zero by 2035,” Oster said.
Natural capital represents the natural resources of a country, including vegetation, soils, water, oceans and biodiversity, and has financial and non-financial value for investors as it encourages sustainable land practices.
Among others, companies can decide to invest in the crop and livestock sectors, forestry and fishing.
“There has definitely been an increase in demand for assets such as low-rainfall pastoral grazing that have the potential to sequester carbon,” Oster said.
“Premiums are being paid for these properties, however, given it is a developing market there are variations in appetite for the income from carbon credits.”
According to Oster, corporate buyers have been chasing green investments to meet their environmental target.
“It’s a bit of a dark art, but big businesses are keen to own such assets because it helps them with their ESG stories,” he said.
“Over the past 12 months, we have seen the demand for natural capital in Australia become much more evident largely as corporates have invested, and we expect continued growth over the following 12 months as this space continues to evolve.”
In Australia, ESG stands for environmental, social and governance and has companies operating in transparent, environmentally and socially responsible ways to safeguard the environment.
A recent environment bill to be rolled out by 1 January 2025 has now made climate reporting mandatory for large businesses and financial institutions, which will need to prepare annual sustainability reports containing climate-related compulsory financial disclosures.
The new mandatory climate reporting requirements will be phased over three years across three groups depending on their scale and revenue.
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Companies have to calculate their carbon footprint, including emissions in properties they own and/or lease, and how much and what type of electricity they use. Additionally, companies will have to report on their suppliers’ emissions.
Oster said rural properties would help corporates with the mandatory sustainability reporting requirement by providing more ESG solutions.
“We expect the mandatory sustainability reporting to lead to greater investment in agribusiness assets with strong natural capital attributes,” he said.
Oster noted that the farmland market is starting to turn around as land values are rising, inflation is back under control, and livestock markets are recovering.
“Institutional investors seem to be finding it really easy to raise funding to invest in agriculture at scale. Centuria Capital’s agricultural fund has, for example, invested over $400 million in protected cropping assets in recent acquisitions,” Oster said.
Managing principal of McGrath Upper Hunter, Michael Burke, said green investments have been increasing locally with buyers looking at large-scale lands of a minimum of 400 hectares.
“The biodiversity offsets space has been particularly active over the last five to 10 years in particular as environmental impact assessments have become mandatory for industrial and corporate clients, including those in mining,” Burke said.
“Over the course of the last 15 years, properties purchased for this use have cumulatively accounted for more land acquisitions than any other use.”
“Properties suitable for biodiversity offsets command as much as a 10 to 15 per cent premium above traditional grazing markets in the Hunter Valley,” he noted.
