The power of youth

Across the finance sector we are fast waking up to the fact that our tried-and-tested methods for calculating value have significant shortcomings. This blog is written by four experts in sustainable finance and what they know of calculating value by incorporating environmental and social factors: Hesse McKechnie, Director Sustainable Finance, Deloitte; Professor Dirk Schoenmaker of RSM; Anne Mesguish, a Fellow of the Impact Institute; and Nadia Vriend, a consultant with Deloitte Consulting.

They write: Our models are great at determining financial value. However, they are not so great aat incorporating environmental and social factors to calculate what is known as ‘integrated value’, the value of a product, business case or company once all positive and negative externalities are included – in other words, a financial value attributed to environmental and social capital. On the downside, our products and portfolios contain significant, yet-to-be-quantified risks for climate and biodiversity. On the upside, we don’t yet know how sustainability benefits us in terms of brand, talent, and customers’ willingness to pay.

As we try to build a better picture with our calculations, we often run into the same problem: the data isn’t there! And because we are all busy people and have other urgent problems to deal with, we tend to give up. As a result, we are flying blind: our strategies and investment decisions are not based on a complete picture of value and risk. 

This is a story of how a group of 10 students from the Honours programme of RSM’s MSc Finance and Investments tried to see if they could do better. Over a six-week period in May-June 2021, they studied one of society’s most pressing problems – the sustainability of our agricultural sector. Here is what they did and what banks can learn from the insights they generated.

Financing the transition to sustainable farming

“The banks carry some responsibility for the problems faced by the agricultural sector.” BNNVARA, an independent, Dutch media organisation published an article in January 2021 titled: Rabobank: 'We are partly responsible for the problems in agriculture'. You can read the article in Dutch here.

The Netherlands economy is facing multiple environmental crises, ranging from agricultural nitrogen fertilisers entering the environment to carbon dioxide emissions from the petrochemical industry. Shell was recently ordered by a court to cut its CO2 emissions by 45 per cent compared to its 2019 emissions. Farmers can be part of the solution.

There are many Dutch farmers who want to farm more sustainably and make the switch to organic farming, but many are also struggling to get finance for this transition. There are indeed transition costs. There is a two-year qualifying period before an agricultural product can be labelled and sold as ‘organic’ with a premium price. During this qualifying period, output quantities are lower but the farmer does not yet benefit from higher prices. Even after the farm’s produce is successfully certified as organic,  the demand for organic produce is still uncertain and there is constant pressure from supermarkets to reduce prices.

So what should the banks do? How can we quantify the environmental benefit of the organic business case? By each farm, by each bank, or as a country, how much value are we failing to take advantage of by not financing this transition? This is what we wanted our students to find out.

About the study

Time pressure ensured that the students focused on what was important rather than trying to be complete.

We gave the students access to nine real credit applications from farmers who were looking to make the transition from conventional to organic farming. Three banks, Rabobank, ABN AMRO and Triodos Bank, provided us with five dairy cases and four crops cases to study. 

Eight of the nine cases were financed by the banks. One case was not. This was interesting to us: we wanted to know if the ‘integrated business case’ of the failed credit application might be positive if the environmental costs were considered.

The students used these cases to calculate the ‘integrated value’ of each of these cases using the True PriceTM methodology.

With guidance from the banks, the students chose to focus on the most important externalities. The top four impacts for both the crops and diary cases were environmental:

  • Dairy: CO2, Nitrogen, Methane, and land use opportunity cost
  • Crops: CO2, Nitrogen, Phosphorous, and pesticides

The students conducted original research and created a model. Where data was unavailable, they made assumptions. Students were guided by The Impact Institute in the application of the methodology, and supported by the banks, who offered their knowledge of the agricultural sector and the credit files.

Eye-opening insights

“The banks’ portfolios contain hidden risks due to unpriced environmental externalities; quantifying these externalities could help banks reduce the risk of their portfolios.” (Study insight)

Six weeks later, the students had gathered the information they wanted from the cases, and their insights are profound. :

Crops: the switch from conventional farming to organic farming results in a decrease of 41 per cent of environmental costs – primarily in pesticides and greenhouse gas emissions. The monetization of these costs is estimated at nearly €5,000 per hectare.[1] At a national level[2], this number implies that the Netherlands could avoid €2.65 billion of environmental costs by producing crops organically rather than conventionally.

Dairy: across the five dairy cases, the financial cost of producing 100kg of milk was €38.53. The additional environmental cost of conventional dairy production is estimated at €25.91 per 100kg. The implied environmental cost to the Dutch economy of diary production is enormous: €3.7 billion annually.[3] The environmental cost of organic production is 12.5 per cent lower but still significant (€22.83 per 100kg of milk). Nevertheless this represents a saving in environmental costs at national level of €440 million annually.

Another profound insight from the students’ research is that the dairy industry destroys integrated value. The financial margins in this sector are so slim that the addition of environmental costs from either conventional or organic farming turns the integrated business case negative. The implication is that the price of milk is too cheap. The power of the market in the dairy industry and from supermarkets is so substantial that it forces an entire sector to destroy more natural capital than it creates in financial capital.

Do these estimates contain some big assumptions, and do the calculations have serious shortcomings? Yes. But equally, are these estimates better than having no estimates at all? Absolutely!

These conclusions should come as no surprise. A 2020 study[4] by the Netherlands Central Bank has already provided estimates of nature-related risks and exposures of Dutch financial institutions: €510 billion of finance has been provided to companies that are highly or very highly dependent on one or more ecosystem services. The transition risk of nitrogen-intensive business models alone is estimated at €81 billion. This farm-level analysis merely confirms what policy makers already know at the macro level.

It is important to realise that environmental gains can be achieved both by a switch to organic farming as well as by making conventional farming more sustainable. It may well be that the biggest impact per Euro invested can be achieved by selectively targeting the worst environmental impacts of conventional farming, however this question was not in the scope of the students’ research this time.

The opportunity ahead

“It is better to be approximately right, than to be precisely wrong.”

John Maynard Keynes

The lessons for the financial sector are profound. Many agricultural portfolios are made up of assets which are, in fact, value-destroying. Every day, new loans are provided on the basis of risk models which paint an incomplete picture of the situation.

What should we do about it? As a society, it is time to switch the default around. It is better to start with a more complete picture, even with shortcomings, than not attempt to understand integrated value at all.

Financial sector regulators echo this sentiment. Laura van Geest, Director of the Netherlands Authority for the Financial Markets (AFM), speaking recently at a financial services sustainability round table said: “We do not expect an ‘A’ or a Dutch ‘10’ the first time you report on ESG [environmental, social and governance] issues. We know this is hard, but we do expect you to try.”

Our students also provided insights into a possible path forward. This is what they recommend:


  • Review credit application procedures and risk policies to properly account for environmental costs
  • Set targets for integrated value. Do not finance loans which fail to meet the target
  • Reward farmers for reducing their environmental impact – for example by giving them more favourable credit terms.

Government and policymakers:

  • Ensure a level playing field between banks by asking them to accept and act in accordance with a set of standards for integrated value
  • Provide incentives to banks through capital charges and add-ons based on the environmental risks carried in their portfolios
  • Correct for market distortions caused by environmental externalities.

The national debate in the Netherlands has become too political and too personal. A more constructive discussion about the problems we face starts with having a better factual base about the costs and benefits we ultimately accrue as a society.

This study only scratched the surface of how the True PriceTM methodology might be applied to the environmental costs in the agricultural sector. More work needs to be done. What is needed is a bit attitude and more of the fearlessness which our students demonstrated in the six weeks that we worked together.



  • Hesse McKechnie (Director Sustainable Finance, Deloitte)
  • Professor Dirk Schoenmaker (RSM)
  • Anne Mesguish (Impact Institute)
  • Nadia Vriend (Deloitte)


This study was made possible because a large group of partners had the curiosity to come together and find out whether there are better ways to calculate value. We’d like to call out and thank:

  • Rabobank: Gea Bakker (Sector Manager Food & Agri Rabobank)
  • ABN AMRO: Daphne Nutma-van der Zee (Relationship Manager & Financial Advisor Sustainable Desk), Jan de Ruyter (Sector Banker Agriculture)
  • Triodos Bank: Paul Kortekaas (Manager Team Agriculture)
  • Rotterdam School of Management
    • Dirk Schoenmaker (Professor of Banking and Finance / Academic Supervisor)
    • Boyke Wieberdink, Guy Corsten, Ines Ludwig, Leon Koerwer, Maarten in de Braekt, Maxim Friege, Mees Borghouts, Onno Koch, Robin Lake, Tom Billekens (Sustainable Finance Honours Students)
  • Impact Institute : Anne Mesguish (Fellow / methodology & quality assurance)
  • Deloitte: Hesse McKechnie (Director Sustainable Finance, Project Sponsor), Nadia de Vriend (Consultant, Project Manager)

[1] The exact calculation of the students was an environmental cost of €4,991. For the sake of simplicity, only four environmental costs are included in this figure (Nitrogen, Phosphorus, Pesticides and GHG emissions). Consequently, the total environmental costs are likely to be higher. All prices per kg of pollutant and are based on CE Delft True Pricing estimates.

[2] According to the University of Wageningen, the number of hectares used for the production of crops in the Netherlands is 531,900 (link)

[3] According to the CBS, the Netherlands produced 14.3 billion kg of milk in 2016 (link)

[4] De Nederlansche Bank ‘Indebted to Nature: Exploring biodiversity risks for the Dutch financial sector’ June 2020 (link)

More information

This is a blog from the Erasmus Platform for Sustainable Value Creation at Rotterdam School of Management, Erasmus University (RSM). The Platform aims to enhance knowledge and debate on sustainability in the financial sector. Curious to learn more? Please see our webpage.

Platform for Sustainable Value Creation blog