According to the Sydney Morning Herald, NAB will include "natural capital" assets such as soil, water and forests in a range of lending policies and will initially raise the issue with its farming customers.
The change means farmers with better environmental practices could receive higher credit ratings from the bank.
NAB's move is aimed at lifting its market share and comes at a time when financial services firms are being pushed to examine how they might be exposed to risks around environmental issues.
General manager of NAB agribusiness Khan Horne told the Sydney Morning Herald that within three to five years the concept of natural capital would likely feed into its credit assessments, with borrowers who manage their natural resources more sustainably receiving credit rating upgrades.
"I think it will eventually feed into credit scoring, pricing models," Horne said.
NAB's decision follows the release of a paper last year by the bank, KPMG, the Melbourne Sustainable Society Institute and Flora and Fauna International, which provided an overview of why natural capital was a material risk for the economy.
"Australian businesses should not ignore the risks associated with the ongoing decline of our natural capital assets. When assessing business risk, Australian companies need to account for natural capital in a similar manner as they do their financial capital," the paper said.
Horne said there was a clear correlation between farmers' environmental performance and their profitability and those who had better environmental management practices tended to have more reliable yields and lower input costs.
"We're making these investments because we know that farmers who effectively manage their natural capital assets, such as water, soil and energy resources, generally have a more robust and resilient business model," he said.
