The urgent need for sustainable food systems transformation and the opportunity for finance

Food and agriculture systems account for nearly one-third of global climate emissions,¹ of which 39% are tied to agricultural production, followed by land use (32%) and supply chain activities (29%).² Food systems are also responsible for more than 80% of tropical deforestation and biodiversity loss as well as 70% of global freshwater withdrawals.³

These emissions are projected to increase 60% to 90% between 2010 and 2050 unless transformative measures are taken.⁴

The transition to a sustainable food system represents a major opportunity for the global finance community to achieve progress against climate change. With appropriate financing, it can drive 20% of the emissions reductions needed to reach 2050 climate goals and generate US$4.5 trillion in new market opportunities each year.⁵ Such a transformation requires the deployment of new financial tools, alongside at least a 15-fold increase in investment in food systems, to meet the US$300 billion to US$350 billion yearly expected investment needs over the next decade.⁶

Green returns: Unleashing the power of finance for sustainable food systems

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Sustainable food systems: A significant growth opportunity for climate finance

Sustainable food systems transformation remains chronically underfunded, making up only approximately 4% of climate finance,⁷ including the following estimates:

• The agriculture, forestry and other land use (AFOLU) sector receives less than 4% of overall climate finance while renewable energy, energy efficiency and sustainable transport receive 18%, 30% and 43%, respectively.⁸
• Only 3% of climate finance attributable to banking and capital markets targets the AFOLU sector.⁹
• Only 5.5% of total philanthropic giving toward climate change mitigation is allocated to decarbonising food systems and agriculture.¹⁰
• Food systems receive 3% of total public climate finance.¹¹

Filling this gap and addressing the transformation investment needs of the food and agriculture sector thus represent a significant growth opportunity for the finance sector.

Five financial vehicles: How the finance community can lead food systems transformation

Agriculture transformation-specific versions of five financial vehicles could help to mitigate climate and food value chain risks, drive market growth and lead to better socioeconomic outcomes such as creating jobs and improving farmer resilience and equity. Banks, asset managers, insurers, development finance agencies, philanthropic organisations and governments all have roles to play.

1. Food value chain finance: Supply chain partners can offer more favourable financing terms to suppliers who meet certain sustainability requirements, while helping food value chain companies make progress toward their sustainability goals (e.g., Scope 3 emissions).
2. Debt: Loans and bond issues specifically designed to incentivise and reward transformation activities, such as sustainability-linked loans and green bonds, can help to lower the cost of capital and mobilise investment for projects aligned with a company’s sustainability goals.
3. Equity finance: Private equity finance is an increasingly common approach for investment in new and emerging agricultural technology and innovations that can be utilised to scale food systems transformation.
4. Grants and blended finance: This is an approach to development finance that strategically employs public and philanthropic funds to mobilise private capital flows to emerging markets.
5. Insurance: This distributes or reduces the actual or perceived risks associated with an investment. These tools can help to address the risks associated with transitioning to sustainable practices and manage ongoing price volatilities and yield risks related to climate change.