Financing the Agri-Food Sector's Transition to Net Zero

Progress towards Innovative Pathways and Financial Strategies for Sustainable Agriculture 

The agricultural sector is on the brink of a transformative journey towards net zero, navigating through a landscape marked by diversity, fragmentation, and contextual specificity. This complex journey intertwines climate change mitigation with biodiversity conservation, adaptation, resilience building, and the pursuit of food security and social justice. 

In light of these multifaceted challenges, Climate Bonds explores the innovative pathways and financial strategies pivotal for fostering a sustainable transition within the agri-food sector. Drawing upon the newly outlined key messages, this blog offers a comprehensive analysis and forward-looking perspective on financing the transition to sustainable agri-food systems.


Navigating Complexity and Sector-Wide Decarbonisation

The agri-food sector's inherent diversity and fragmentation pose significant challenges in defining a universally applicable pathway to net zero. These systems vary greatly across regions, necessitating tailored approaches that address climate goals alongside biodiversity, resilience, and social equity. According to three available studies, the climate-related investment required for decarbonising agri-food systems is significant, with estimates ranging from USD 212 billion (FOLU, 2019), USD 381 billion (UNEP, 2022), to USD 1.3 trillion (Thornton et al., 2023). 

The complexity of agri-food supply chains further complicates efforts towards responsible sourcing, presenting logistical and financial hurdles in ensuring transparency and sustainability across geographically dispersed and often opaque networks.

The Agriculture, Forestry, and other Land Use (AFOLU) sector faces a critical mandate to achieve and go beyond net zero emissions before 2050, a goal that is indispensable for balancing global emissions over the long term. This objective calls for an integrative strategy that leverages a spectrum of decarbonisation measures, from enhancing carbon sequestration in soils to transforming livestock and fertiliser practices. The sector's transition plan must be inclusive of these diverse yet complementary approaches to ensure a holistic reduction in greenhouse gas emissions.


Technological Innovation as a Catalyst for Change

The transition towards sustainable agri-food systems requires substantial financial investment. Although several frameworks exist to guide transition finance, there is a pressing need for tools to ensure that investments also contribute to biodiversity enhancement, water conservation, reduction in food loss and waste, and support social equity. Existing transition finance instruments, such as Sustainability-Linked Bonds (SLBs) and Use of Proceeds Bonds (UoP), have faced criticism for their sometimes-unreliable climate credentials, highlighting a gap between pledges and tangible actions, particularly in covering scope 3 emissions. Read more here.

Emerging technological tools offer promising solutions to reduce greenhouse gas emissions and promote sustainable practices within the agri-food sector. Innovations such as, precision farming, new zero or low-emissions fertilisers, bio-inputs (biofertilizers and biocontrol), improved rice production management and cold chain technologies, alongside R&D on alternative proteins hold the potential to revolutionise agricultural practices. These technologies not only contribute to emissions reduction but also attract essential investment to scale their implementation.


Agri-Food Transition Framework: Integrating New Developments and Regulatory Insights

Anchored to Climate Bonds Principles and Hallmarks , emphasising alignment with 1.5°C climate targets, the adoption of science-based targets, the inclusion of scope 3 emissions, and a focus on actionable measures over mere pledges, Climate Bonds Initiative is actively developing a dedicated agri-food transition framework. 

This ambitious initiative seeks to address the sector's diverse challenges, encompassing land use change, absolute GHG emissions reduction, biodiversity, water management, food loss and waste, circularity, and the imperative of just transition. These guidelines aim to instil market confidence and provide clear direction for issuers on sustainable practices.

The development of Agri-Food Transitions Criteria is in progress, initially with a focus on Agriculture Criteria (Crop production and Livestock production), and Agri-Food Deforestation and Conversion Free Sourcing Criteria. These criteria are set to be pivotal tools for evaluating transition plans for agri-production and procurement, marking significant steps towards a sustainable and equitable shifts in the agri-food sector. 

Slated for Certification under the Climate Bonds Standard this year, the new criteria will enhance existing Agriculture Criteria, enabling the Certification of entities and assets and activities with even greater precision and impact.

In 2021, the Climate Bonds Initiative launched its Agri-Foods Transition Programme. The subsequent year, insights from the Agri-Foods Issues Paper and the establishment of collaborative working groups laid the foundation for progress. 

By January 2024, the initiative reached a milestone in the development of the suite of Agri-Food Transition Criteria: The Agri-Food Deforestation and Conversion Free Sourcing (DCF) Criteria was launched with a Public Consultation and the Agri Production Criteria (Crop and Livestock) finalised the full set of Technical Working Group meetings to guide its content.


The DCF Criteria & EUDR

The ‘Agri-Food DCF Criteria’ are a game-changer for agri-food-based entities beyond the farm gate. These criteria ensure that the commodities sourced by them are free from deforestation and conversion of natural ecosystems. By adhering to these criteria, agri-food entities can demonstrate their commitment to deforestation free and natural ecosystem conversion, as well as ensure consistency with the EU Deforestation-free Regulation (EUDR). 

The criteria go beyond EUDR to target the conversion of natural ecosystems, covering all agri-food commodities either produced or dependent on land-based production systems. For those aiming for the EU market, adhering to these criteria could mean early awareness of the EU regulations and a competitive edge in the market.

In parallel, the Climate Bonds Initiative has delved into the implications of the European Union's Deforestation Regulation (EUDR), producing two critical reports. The new criteria will ensure consistency with EU Deforestation-free Regulation (EUDR) and guide those aiming for the EU market for early awareness and adherence. These publications not only delve into the impact of the regulation on global agricultural supply chains but also influence the formulation of the new Climate Bonds Criteria, ensuring consistency with the EUDR. 

This alignment aids entities targeting the EU market in gaining early awareness and compliance, positioning the EUDR as a pivotal force in combating commodity-driven deforestation. The EUDR emerges as a comprehensive policy directive, designed to mitigate deforestation related to the sourcing of commodities, regardless of their legality, thereby establishing a new benchmark for global sustainability practices.


China making shifts 

Although China has been addressing the deforestation issue for decades, it has recently gained additional market attention regarding the commodity supply chain angle with the introduction of the EU Deforestation Regulation. Even with the absence of clear regulations governing this issue, China's leading companies have begun to recognise the opportunity and start taking action. The recent agreement between COFCO International and Modern Farming Group, a Mengniu Group subsidiary, sign the first soybean order in China with a clear “deforestation- and conversion-free (DCF)” clause. This deal valued at over $30 million, and this agreement showcases the increasing demand and potential for sustainable commodity trading practices that safeguard natural ecosystems.  

It not only serves as a key example of the shifting regulatory and market landscapes towards sustainable agri-food practice, but also a strong market signal for DCF commodity.  

This move aligns with broader efforts, such as the World Economic Forum's Green Value Chain Taskforce, aimed at combating commodity-driven deforestation and contributing to a more sustainable global agri-food industry, a sector which is a significant contributor to global emissions. 

The Climate Bonds Initiative's upcoming DCF Criteria will aim to supply this guidance for the agri-sector in China, and globally. The agreement between COFCO International and Modern Farming Group represents a positive stride forward, aligning with the wider industry trend of integrating sustainability at the heart of agri-food supply chains.

As these new standards are introduced, they will play a crucial role in guiding companies towards aligning their operations with net-zero transition goals, marking a pivotal moment in the journey towards sustainable agriculture that prioritises environmental integrity, biodiversity, and social equity. 


Empowering Investors for a Sustainable Future in Brazil

In Brazil, Climate Bonds Initiative unveils a trilogy of initiatives, positioning the agri-food sector as a global leader in environmental stewardship. The 'Investment Opportunities in the Agri-Food Sector in Brazil' report, launched in November 2023, charts a course for resilient and sustainable investment in the agricultural sector. Available in both English and Portuguese, it delves into critical analyses of climate issues, offering recommendations for companies to explore sustainable debt instruments.

In December 2023, the 'Agriculture Sustainable Finance State of the Market 2023 - Brazil Briefing Paper' highlighted the sector's pivotal role in Brazil's transition to a net-zero emissions economy and showcases three Climate Bonds Certified ABS deals totalling BRL 218.3 million (USD 40.8 million) under the Agriculture Criteria. 

The most recent release, the 'Comparison Study of Chinese and Brazilian Agriculture Criteria: Harmonising Green Standards in the Agricultural Sector' explores green agriculture policies and investments between China and Brazil, aiming to foster a shared framework for a sustainable future. Together, these initiatives signify a bold stride towards cultivating a greener, more prosperous tomorrow. 


The Last Word

The agri-food sector's journey towards net zero is fraught with challenges but also rich with opportunities for transformative change. By embracing technological innovation, securing necessary financing, and adhering to a robust transition framework, the sector can navigate its path to sustainability, contributing to global climate goals and fostering resilient food systems.

Uncover the knowledge of Food and Waste management, Demystifying Agri-Food Systems Transition Challenges & Opportunities, 'Climate Bonds Café: Food for Thought in Brazil' with Planet Tracker and embark on a journey through Biodiversity, Deforestation and the Journey to a Net-Zero Agri-Food System in our gripping podcasts released earlier.

But that's not all– the 'Agribite Series: CULTIVATING SUSTAINABILITY: EU Companies Leading the Path to Net Zero' has also returned, so cultivate your curiosity, and have a listen on how to reap the benefits of sustainability. 

Let’s plough through the challenges together on this fruitful path to a green transition for agri-food!


‘Til next time,

Climate Bonds.