The Climate Bonds Initiative (CBI) has claimed that the main challenge for the transition of the agriculture food sector is not the lack of finance, but the efficiency of financial mechanisms.
In its latest report titled Transition in Action – Agri-food, the NGO said that while an estimated USD400bn is needed annually until 2030, the amount is “not that material compared to the amount of financing already going to the agri-food sector from both public and private sources”.
The challenge facing the transition of the sector was primarily driven by “a historical lack of efficient financial mechanisms to channel national and international capital towards the millions of farmers and Small and Medium Enterprises (SMEs) that need the financing”.
In 2023, sustainable finance frameworks with use of proceeds (UoP) earmarked for agriculture or fishery projects reached USD160bn, according to the report.
Scaling of sustainable finance
Among the possible measures to increase sustainable finance, the report suggests to raise the standards currently applied.
One key recommendation of the report is to establish material key performance indicators (KPIs) for sustainability-linked instruments.
“More emphasis is needed to ensure that KPIs are material and SPTs (Sustainability Performance Targets) are sufficiently ambitious to credibly scale the market, together with strong corporate engagement to ensure financing is reaching farmers,” the report writes.
It cites a number of KPIs for each actor along the value chain. Regarding sustainability-linked bonds or loans the proceeds are only deemed impactful if the KPIs reference a robust transition plan.
In addition, the report finds that banks’ sustainable finance frameworks currently capture “only a fraction of eligible activities”.
The CBI names the framework by the British international bank Standard Chartered as one of the best practice frameworks issued in 2023.
Its agri-food sector UoP categories include agricultural and aquaculture processes, investment in alternative proteins, climate change adaptation, and activities which enhance food security.
Furthermore, financial institutions and investors can deploy sustainable finance at scale through emerging technologies, which can help boost the disclosure of data.
Banks can build a series of metrics monitoring the impact of their portfolio by aggregating geolocalised data to landscape level.
This data linked to satellite imagery and machine learning can help monitor carbon stocks and sequestration and land conversion, and be used to ensure certification of Deforestation and Conversion Free Sourcing (DCF) activity financing.
Multi-stakeholder and catalytic funding
The report also outlines a multi-stakeholder model for financing the agri-food transition, which can be supported by catalytic funding.
It says that the transition of the agriculture, forestry and other land use sector requires strong collaboration among all private stakeholders and jurisdictions to ensure a system-wide shift.
“Farmers need incentives and support to shift production practices. Understanding their socio-economic needs and building local expertise in adequate sustainable practices are the foundations which must underpin impactful sustainable finance instruments.
“Local institutions like banks, NGOs, or public services and farmer representatives must collaborate to identify the resulting financing needs,” the report notes.