Groundswell NZ spokesperson Jamie McFadden has slammed the Government’s proposed New Zealand Finance Taxonomy as “the scariest thing I have seen yet,” warning it could lead to farms being effectively shut down.

“It’s breathtaking how impractical it is, and the impact it could have,” he said.

“If this proposal goes through without any changes, and everything is followed to the letter as per the proposal, a lot of farms would be phased out.

“This isn’t fearmongering. It’s written in the proposal. It’s fact.”

So, what is a financial taxonomy?

At its core, a financial taxonomy is a classification system - used to label financial activities like investments or loans.

Think of it like a supermarket categorising food into aisles: fruit, dairy, snacks.

A financial taxonomy works similarly, but for economic activity.

It tells banks, investors and governments what counts as a “green” or sustainable investment (like a wind farm), and what doesn’t (like a new coal mine).

It’s designed to help guide where money should go based on environmental or ethical goals.

“Taxonomy is a way of classifying something – it’s a common way of categorising plants and animals,” McFadden said.

“But this proposal will apply taxonomy to businesses – that’s anyone involved in economic activity.

“But they are going to start with farming and forestry first.”

The NZ Taxonomy proposal is currently being developed by the Centre for Sustainable Finance and the Ministry for the Environment.

The aim is to create a consistent framework for defining what qualifies as “green” or “sustainable” within financial markets.

Under the draft proposal, farms could be classified as green, amber, or even “red” - a rating McFadden warns could lead to financial institutions pulling support and farms being “phased out.”

“I have looked at those rules, and some of them are cost prohibitive to try and meet, some of them you can’t practically meet at all.

“The majority of farms would be gone if this proposal was put in place as currently drafted.”

McFadden believes the Government should step back from the proposal entirely.

“What will happen to those farms if they are phased out? Is it all going to go into forestry? Because what else are sheep and beef farms going to be used for?

“The NZ Taxonomy proposal conflicts with the direction the current government is trying to take which is to cut back on forestation.

“This needs to be stopped.”

He said the taxonomy would require farms to meet criteria across a wide range of activities, including emissions reductions, fertiliser use, methane inhibitors, and even grazing restrictions.

“The proposal is saying they expect the taxonomy to be initially voluntary, and in the words of the proposal their expectation is that it will become mandatory after a grace period.”

McFadden said the move is yet another reason New Zealand should exit the Paris Agreement.

“We are going to keep getting these nonsense policies because we are part of the Paris Agreement.”

Federated Farmers is also calling for the taxonomy to be scrapped, warning that it risks serious harm to the rural economy.

“This framework is fundamentally flawed,” said Federated Farmers banking spokesperson Mark Hooper.

Hooper said the taxonomy would make it harder for productive and legitimate farm businesses to access finance, insurance or investment - not because they’re unviable, but because they don’t meet an arbitrary ‘green’ benchmark.

“It has been created without meaningful input from working farmers, it imposes unrealistic standards, and it risks cutting off financial services to legitimate, productive rural businesses.”

He also criticised the makeup of the Technical Advisory Group.

“There are no hands-on farmers involved with the Technical Advisory Group.

“Instead, it’s full of shiny-shoed bankers, sustainability advisors, and forestry lobbyists.

“If you're designing a finance framework for agriculture, farmers must be at the table. This is a total governance failure.”

Despite the high stakes, Hooper said there has been no economic analysis of how the taxonomy could impact farm businesses, landowners or rural lenders.

“For a framework that could fundamentally alter access to finance, this is an unacceptable oversight.”

By Claire Inkson