Achieving the mitigation goals of the Paris Agreement calls for a shift in where and how our food is produced, processed and transported to consumers. At the same time, this shift needs reinforcing with changes in our eating habits and how much food we waste. Development finance has the potential to play an important role in bringing about this change.
Drawing on sectoral benchmarks for shifts in the food system, we propose a rating system to guide investment decision making by dividing agribusinesses into four categories according to their consistency with mitigation objectives. For each, we propose guidance on when to not finance, opportunities to engage to promote a shift to best practice or scale up finance for climate positive business models.
- A categorisation of “misaligned” would rule out investments in the production of agricultural commodities that expand agricultural production, which drives deforestation or the conversion of vital peatland or coastal wetland ecosystems, and production of commodities dependent on export via air freight.
- A categorisation of “mostly misaligned” would exclude providing working capital to companies engaged in misaligned activities but would allow for project finance for agribusiness interested and willing to shift away from such activities.
- A categorisation of “partially misaligned” would include agribusiness not directly involved in misaligned activities, but not yet in line with best practice – such businesses would be eligible for working capital with conditionality to move towards best practice.
- A categorisation of “aligned” would correspond to agribusinesses that are not only deforestation-free in its activities and supply chains, but that is also in line with best practice in terms of manure management, soil carbon conservation, fertiliser application, and irrigation, as well as transparency and due diligence. Agribusinesses would particularly count as “aligned” if their practices enhance carbon sinks (such as agroforestry) or specialize in plant-based protein foods that serve as meat and dairy alternatives.
Further important opportunities can be found in establishing facilities and capacity building programmes to help farmers overcome the upfront costs for targeted investments that can help realise important development, climate, resilience, and health objectives.