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,⁸ 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.⁹
• Only 3% of climate finance attributable to banking and capital markets targets the AFOLU sector.¹⁰
• Only 5.5% of total philanthropic giving toward climate change mitigation is allocated to decarbonizing food systems and agriculture.¹¹
• Food systems receive 3% of total public climate finance.¹²

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 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 organizations, and governments all have roles to play.

1. Food value chain finance: Supply chain partners can offer more favorable 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 incentivize and reward transformation activities, such as sustainability-linked loans and green bonds, can help lower the cost of capital and mobilize 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 utilized 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 mobilize 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 address the risks associated with transitioning to sustainable practices and manage ongoing price volatilities and yield risks related to climate change.

Endnotes

¹ M. Crippa et al., “Food systems are responsible for a third of global anthropogenic GHG emissions,” Nature Food 2 (2021): pp. 198–209.
² United Nations Environment Programme (UNEP), Emissions Gap Report 2022: The closing window – Climate crisis calls for rapid transformation of societies, 2022.
³ World Economic Forum (WEF), Food, nature and health transitions − Repeatable country models, January 2023; Guillaume Gruere and Makiko Shigemitsu, “Water: Key to food systems sustainability,” Organisation for Economic Co-operation and Development (OECD), March 22, 2021.
⁴ Keywan Riahi et al., “The Shared Socioeconomic Pathways and their energy, land use, and greenhouse gas emissions implications: An overview,” Global Environmental Change 42 (January 2017): pp. 153–68.
⁵ Michael A. Clark et al., “Global food system emissions could preclude achieving the 1.5° and 2°C climate change targets,” Science 370, no. 6517 (2020): pp. 705–08.
⁶ Global Alliance for the Future of Food, Untapped opportunities: Climate financing for food systems transformation, 2022; Food and Land Use Coalition, Growing better: Ten critical transitions to transform food and land use, September 2019; Race to Zero, Assessing the financial impact of the land use transition on the food and agriculture sector, September 2022.
⁷ Intergovernmental Panel on Climate Change (IPCC), Climate Change 2022: Mitigation of climate change, Working Group III contribution to the Sixth Assessment Report of the IPCC, 2022; Food and Land Use Coalition, Growing better: Ten critical transitions to transform food and land use.
⁸ Eugenio Díaz-Bonilla and Ruben Echeverría, “Climate finance: Funding sustainable food systems transformation,” 2022 global food policy report: Climate change and food systems (Washington, DC: International Food Policy Research Institute, May 2022), pp. 48–57.
⁹ Baysa Naran et al., Global landscape of climate finance: A decade of data 2011–2020, Climate Policy Initiative, 2022.
¹⁰ Ibid.
¹¹ Global Alliance for the Future of Food, Untapped opportunities.
¹² Ibid.