Last week, Federated Farmers called on the government to scrap the proposed Sustainable Finance Taxonomy, saying it is ideologically driven, unworkable, and risks harming rural communities.

The Centre for Sustainable Finance is partnering with the government to create the taxonomy to provide a consistent framework for defining what is ‘green’ or ‘sustainable’ in financial markets.

In a letter sent to ministers and key officials, Federated Farmers outlined “serious concerns” with the taxonomy, including a lack of practical farming expertise involved in its development, failure to reflect the operational realities and sustainability efforts, and calling it a 'total governance failure'.

CSF has since released a detailed rebuttal, rejecting a number of the lobbying group's assertions.

Federated Farmers claimed none of the taxonomy's Technical Advisory Group agriculture members actively work in agriculture. "The absence of working farmers or land managers on the TEG or TAG is more than an oversight – it is a governance failure."

CSF says this is incorrect.

"The TAG included several former “working” farmers. As well as experts who have and continue to work as operations managers, trustees, advisors and providing supporting functions for farmers.

"The TAG was formed through an open EoI process, with careful consideration to balance of expertise and preventing undue influence, and with Government oversight."

It said feedback that the TAG includes too many Agricultural experts and interests has also been received.

"We believe a balance has been struck in the makeup of the TAG and we are confident in the TAG members' expertise and their expressed commitment to creating an NZ Taxonomy that has a positive impact for farms, farmers, and land managers."

Federated Farmers argued the threshold of 1 tonne CO2e per hectare per year to be considered "green" is not achievable by any operating New Zealand farm.

CSF says they are actively seeking feedback on the proposed definition for green activities, as well as the proposed threshold for the whole-farm farm green activity, via public consultation.

The draft criteria for mitigation defines green activities as already aligned with net-zero objectives. The NZ Taxonomy also classifies transition activities, which are on a credible pathway to alignment. The green/transition classification definitions are in line with the global finance standard for definitions of green/transition.

"A ‘green’ whole-farm activity that could meet these definitions was suggested by wine and horticulture representatives, and the threshold was determined to be achievable by woody perennial and regenerative farmers," CSF says.

"A ‘transition’ whole-farm activity has been proposed in the draft NZ Taxonomy for climate change mitigation activities – to support farmers who cannot meet the threshold but are demonstrating emissions reductions over time. The effective design of this measure is a key part of the current public consultation, and we welcome views, including from the Federated Farmers, on its design."

Federated Farmers said productive farmland is disqualified from eligibility if it was a natural ecosystem at any point since 2008.

"This ignores decades of sustainable stewardship and penalises farms that have long been operating responsibly."

CSF says this statement is misrepresentative, and that productive farmland is not disqualified from NZ Taxonomy alignment if it was a natural ecosystem at any point since 2008.

However, activities on land that was high-carbon stock, e.g. wetlands or peatlands, at any point since 2008, are ineligible for alignment specifically with the draft green whole-farm activity.

Federated Farmers also argued that the taxonomy's requirement that 80% of fertiliser to be low-emission within three years is not feasible, and that alternatives are not yet economically viable or widely available in New Zealand.

CSF also disputed this claim, saying the NZ Taxonomy does not create requirements or restrictions on fertiliser use, nor timeframes for fertiliser use change.

The CSF also hit back against Federated Farmers' claim that many of the practices required by the taxonomy already exist under national regulation or industry programmes, adding unnecessary compliance without delivering extra environmental or financial gains.

"The NZ Taxonomy is not a compliance framework," it says.

"It is correct that several of the practices outlined in the NZ Taxonomy reflect activities already undertaken by farmers, voluntarily or through following regulation or voluntary industry programmes. This is deliberate.

"By formally recognising these existing practices as “taxonomy-aligned,” it enables capital providers, especially international investors, to confidently support them. It also acknowledges and validates the work already being done by New Zealand farmers, landowners, and businesses."

Federated Farmers said the NZ Taxonomy should sit with central financial institutions such as the Reserve Bank of New Zealand – not an environmental regulator.

However, the NZ Taxonomy governance structure includes the Council of Financial Regulators (CoFR), made up of the Reserve Bank of New Zealand (RBNZ), Financial Markets Authority, Commerce Commission, Ministry for Business, Innovation and Employment, and the New Zealand Treasury.

Federated Farmers also argued that that the taxonomy fails to reflect New Zealand’s agricultural sector as being considered emissions efficient, and that it "punishes one of the world’s most sustainable farming systems".

In response, CSF said, "The NZ Taxonomy climate change mitigation criteria does not aim to rank or classify farm entities or the sector but classify specific activities/measures that may be undertaken on farms for climate change mitigation.

"The NZ Taxonomy includes both low-emissions “green” agricultural classification for the most efficient farms, as well as the transition classification, to support hard-to-abate industries take measures to decarbonise.

And finally, Federated Farmers argued the taxonomy's intent to be mandatory conflicts with Two Members’ Bills that prevent banks from withdrawing services based on ideological or reputational grounds.

CSF says Federated Farmers is incorrect in the assertion that the intent is for the NZ Taxonomy to become mandatory.

"The NZ Taxonomy is and has been designed to be voluntary. Federated Farmers are also incorrect in the interpretation of a mandatory taxonomy mandating or restricting capital allocation."