Financing the future of food: Scaling the transition to sustainable agriculture
The agriculture and food sector is vital for global food security. It plays a key role in addressing climate, nature and inequality goals. Responsible for one-third of global emissions and about 75% of biodiversity loss, transitioning this sector to more sustainable approaches holds immense potential to contribute to climate mitigation, adaptation and nature protection.
Increasingly, companies are transforming supply chains to tackle climate risks and align with global sustainability goals, while investors and financial institutions are financing these transitions to sustainable business models. Scaling these efforts could significantly impact global targets.
Investing $205 billion per year – about 2% of all food and agriculture revenues – could reduce agri-food systems emissions by nearly half by 2030. Crucially, these transition costs must be distributed fairly across the food supply chain; farmers should not bear this burden alone. The World Economic Forum estimates that this transition could unlock $1.2 trillion in economic returns through agricultural innovations over the next 10-20 years.
Despite these opportunities, the sector’s complexity presents challenges for stakeholders in scaling investments and supporting sustainable practices. Understanding these obstacles and identifying pathways for scaling efforts will be essential for driving meaningful change where farmers and businesses collaborate effectively.
Agricultural value chains are particularly complex, extending from farming to food processing, distribution and retail. Farming business models face unpredictable weather patterns and depend heavily on environmental factors like soil health, water and biodiversity. Climate change exacerbates uncertainty, as we see the number of extreme weather events like droughts or floods increasing over the past decades, impacting production.
These aspects lead financial institutions to view agriculture as a high-risk sector with unstable returns, often requiring de-risking capital to provide viable financing solutions for the transition to sustainable practices.
Additionally, sources of greenhouse gas (GHG) emissions are dispersed across the entire value chain coming from farms, supply chains and land-use changes, making tracking emissions more intricate than in sectors with more direct emission sources like energy or manufacturing. These factors complicate efforts to baseline, track and set climate and emission reduction targets for investments.
Initiatives like Banking for Impact on Climate for Agriculture, established by the World Business Council for Sustainable Development (WBCSD) in collaboration with partners, have been pivotal in guiding financial institutions through the steps from emissions baselining to net zero target-setting and tracking progress.
The complexity of the agriculture value chains, and the multiple emission sources require that financial solutions address the entire value chain, emphasizing farm-level investments as well as deep collaboration with all stakeholders to promote net-zero models.
To strengthen the multi-stakeholder collaboration needed, WBCSD, together with key partners, has been convening regional multi-stakeholder roundtables to discuss concrete financial solutions for specific challenges (e.g. deforestation- and conversion free soy production, the transition to regenerative agriculture etc.).
Moreover, initiatives like the Farmer First Clusters by the Soft Commodities Forum exemplify the pre-competitive collaboration needed across the sector, fostering partnerships that enhance the scalability and financing of sustainable practices.
Many companies and financial institutions are already taking significant steps to achieve climate and sustainability goals by investing in sustainable practices and engaging in innovative financing collaborations that foster low-carbon and regenerative agriculture and circular economies. Collaborative financing models aim to incentivize farmers to adopt sustainable practices while sharing the financial risks and costs associated with the transition.
Examples include Unilever’s partnership with AXA and Tikehau Capital to develop the global Impact Fund for Regenerative Agriculture, a fund dedicated to accelerating and scaling the regenerative agriculture transition.
The Landscape Resilience Fund, developed by South Pole and WWF, is a financing collaboration with climate funds and corporates partnering to scale their support for meaningful climate adaptation in rural landscapes.
Focusing on reducing scope 3 emissions, Yara and PepsiCo established a partnership that emphasizes financial collaboration to reduce GHG emissions linked to fertilizer use. By working together on co-financing initiatives and optimizing fertilizer management through low-carbon products and digital tools, they aim to achieve a reduction in production emissions as well as on-farm emissions while enhancing crop yields and promoting sustainable farming practices.
Blended finance approaches, like the Food Securities Fund, combine public and private capital to de-risk investments in agriculture, making sustainable development more financially viable for smallholder farmers and companies. Supply chain collaborations are also driving progress, with initiatives like the Farm to Market Alliance supporting smallholder farmers through productivity enhancements, income stability and increased resilience. These efforts showcase how the private sector can play a transformative role in scaling sustainable practices at farm level.
While promising initiatives and financing models are under way, scaling these efforts across the agriculture and food sector remains a significant challenge. Efforts to encourage private sector investment need to recognize the critical role for agri-food systems in delivering global goals as well as their complexities.
Scaling up de-risking mechanisms, such as concessional finance, is needed to lower perceived risks in the sector and make loans for sustainable agriculture more accessible. Furthermore, requiring the financial performance of past blended finance transactions to be published would provide data that will enable investors to assess the potential risk-return profile of future investments more accurately.
Enhancing collaboration across value chains through collective action initiatives with deep stakeholder engagement is needed so that costs and risks can be shared fairly. Supportive policies and regulatory frameworks – such as ambitious Nationally Determined Contributions with clear food systems targets, roadmaps and investment strategies and finance and trade policies that incentivize investment in the sector – are critical.
Finally, capacity building and streamlined access to finance are essential, particularly for small businesses and smallholder farmers. Simplifying financial processes and providing the necessary tools and knowledge can empower these stakeholders to adopt and scale sustainable practices more effectively.
