Standards and Investments in Sustainable Agriculture
How can voluntary sustainability standards lower financial risks for investors?
This report examines how voluntary sustainability standards (VSSs) can reduce financial risks to support investment in sustainable agriculture.
Achieving food security requires a rapid shift to more sustainable and resilient agriculture that remains viable in the face of economic volatility, supply chain disruptions, and increasing adverse impacts from the changing climate, which will exacerbate the estimated USD 260 billion investment gap that needs to be overcome to meet the targets of Sustainable Development Goal 2 (zero hunger). We need to feed the planet using farms that can limit greenhouse gas emissions and adapt to the changing climate while protecting forests and biodiversity. And we need investors to quickly get behind this transition to make it happen.
Investors are ever focused on financial risks, but it is increasingly clear to many financial service providers (FSPs) that risk and sustainability profiles have a lot of overlap in the agriculture sector. Simply put, a sustainable farm can yield a more sustainable return on investment and lower risks while doing more to protect people, communities, and the planet.
IISD’s SSI Review: Standards and Investments in Sustainable Agriculture looks at VSSs from the investor’s perspective and shows that sustainability standards promote synergies between sound business practices and better environmental and social performance to catalyze much-needed investment in sustainable agriculture.
Our research shows that when farmers adhere to sustainability standards, their operations can become more productive and profitable and can mitigate environmental and social risks for investors. We also found that compliance helps producers build market linkages and secure contracts that they can use as collateral for financing.
The report benchmarks the production criteria of 12 widely adopted VSSs against the themes and subthemes of 10 popular sustainable finance frameworks. Our researchers also surveyed 51 FSPs active across the globe to understand how sustainability affects investment decisions. We found that, in many cases, VSS and investment criteria overlap. With standards compliance, farmers improve their practices in many ways that facilitate financing, such as by keeping detailed records; conserving water, soil, and forests; and building good relationships with workers and communities.
However, much more can be done to leverage standards to increase investment in sustainable agriculture and our report includes recommendations to standard-setting bodies, FSPs, and governments to leverage VSSs to attract much-needed investment in sustainable agriculture.
For VSS bodies:
• Develop VSS requirements that help farmers access finance (e.g., anti-corruption policies, climate adaptation plans, financial records)
• Assess VSS-compliant farming operation sustainability impacts
• Ensure full product traceability and transparency
• Support business diversification in VSS-compliant operations
• Improve farmer financial knowledge and decision making
• Develop preferential investment and loan programs for more sustainable farming operations
• Train investment teams on sustainability risks in agriculture
• Leverage VSSs to achieve impact investment objectives
• Establish VSS-focused investment products such as certification bonds
• Establish tailored loan programs for farmers aiming to become VSS compliant
• Create favourable investment conditions in VSS-compliant production (e.g., incentives, better infrastructure, commercial readiness, and value-addition programs)
• Promote business relationships between VSS-compliant farmers, buyers, and FSPs to catalyze investments (e.g., blended finance)
• Provide guarantees and insurance programs for VSS-compliant farmers
• Promote the creation of farming organizations
• Support and encourage FSPs to increase lending to VSS-complaint farmers (e.g., offer tax incentives, reduce collateral requirements, provide concessionary loans for on-lending to VSS-compliant farmers)