Unleashing the power of finance for sustainable food systems

Introduction: The power of finance for sustainable food systems

Food systems account for around one-third of all global emissions. Regardless, they receive a disproportionately low amount of climate finance compared to other high-emitting sectors. Therefore, players from across the finance sector have a role to play in the design and scale of both existing and new innovative financial products and solutions. This is required to ease access to capital and de-risk the transition to climate-smart, equitable practices throughout the food value chain in order to adequately support a sustainable food system transformation.

This paper includes actual market examples as well as five financing instruments to scale across the food value chain. There is an urgent need for the financial and food-agricultural sectors to collaborate on the development of strategies to address the widespread difficulties associated with generating sector-specific knowledge, developing appropriate standardized metrics and reporting practices, and coordinating across the food value chain.

Sustainable food systems

The transition to a sustainable agricultural system represents a tremendous opportunity to advance the fight against climate change. If radical changes are not made, emissions linked to the food system are predicted to rise by 60–90% between 2010 and 2050. ¹

By making changes to the way food is produced and consumed, it is possible to feed a population of 10 billion people by 2050 while achieving net-zero climate solutions. Currently, the world's food and agricultural systems are responsible for about one-third of all emissions, 39% of which are attributable to agricultural output ², 32% to land use ³, and 29% to supply chain activities ⁴.

Figure 1: Current food system finance Source: World Economic Forum

Financial ways

The finance community can take the lead by designing, delivering, and expanding financial solutions in five critical areas:

• Supply chain finance
• Equity finance
• Insurance
• Debt
• Grants and blended finance

Nevertheless, the finance industry faces particular difficulties in creating, implementing, and scaling innovative solutions.

Barriers and solutions

Innovative financial instruments can motivate sustainable food system transformations despite significant obstacles. The absence of sector-specific expertise, the incapacity to carry out data-driven decisions, and the difficulty of coordinating throughout the food value chain were all recognized as the three main barriers in the article.

Lack of sector-specific knowledge

A significant number of financial institutions lack adequate food and agriculture-specific expertise. This lack of specialized knowledge frequently results in investment being prioritized in more familiar sectors (such as energy and transportation) despite the availability of funds.

Furthermore, due to a shortage of regional- and crop-specific knowledge, many investors have difficulty identifying suitable solutions or assessing portfolio risk exposure for a given region and its respective value chains. This deficiency can have a negative impact on the success and sustainability of their investments.

Inability to execute data-driven decisions

The lack of consistent, reliable data that enables financial institutions to develop, implement, and scale financial tools is the second major obstacle. Thus, three data obstacles were identified: immature technology, a lack of standardized sustainability metrics, and inconsistent criteria for acquiring public and philanthropic funds.

The complexity of coordinating across the food value chain

Investing in the transformation of the global food system necessitates strong cooperation across a complex and fragmented value chain.

Three significant problems have been recognized as a result of the difficulty of coordinating throughout the food value chain: the cost premium associated with sustainable products, limited government support, and a lack of trust among players across the value chain.

A call to finance

Several action-oriented solutions have been proposed as a result of research findings and collaboration with global financial leaders. These pathways are intended to serve as initial steps toward tackling key obstacles that inhibit investment in a sustainable food system transformation.

• Establishment of a community of practice
• Sector strategy
• Industry benchmarks
• Accuracy of data on investment choices
• Scale financial tools

Sources:

World Economic Forum (2023), Green Returns: Unleashing the Power of Finance for Sustainable Food Systems.

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2. Crippa, M., E. Solazzo, D. Guizzardi et al., “Food systems are responsible for a third of global anthropogenic GHG emissions”, Nature Food, vol. 2, 2021, pp. 198-209, https://www.nature.com/articles/s43016-021-00225-9#citeas.
3. United Nations Environment Programme (UNEP), Emissions Gap Report 2022: The Closing Window – Climate crisis calls for rapid transformation of societies, 2022.
4. Ibid.