Agribusiness Tool Bolsters Investor Efforts
Fresh framework looks to enhance practices and procedures in food systems amid increased global attention on the sector.
A recently released framework from the International Institute for Sustainability Development (IISD), the Responsible Agricultural Investment (RAI) Tool for Agribusiness, is designed to help investors to direct capital flows towards sustainable food systems.
The IISD developed the tool in collaboration with social and environmental joint venture Cerise+SPTF and the Swiss Agency for Development and Cooperation, aiming to assist investors and business leaders in understanding responsible practices and help drive the transition to more equitable, resilient, and sustainable food systems.
The tool offers a framework and reference tool for leaders to understand responsible business practices, identify gaps, and prioritise improvements as they target alignment with international principles.
Agriculture and food systems have been subject to increased international attention, with the preliminary release of the UN Food and Agriculture Organization’s (FAO) roadmap released during COP28 helping to catalyse this momentum. Achieving UN Sustainable Development Goal 2: Zero Hunger while reducing greenhouse gas emissions to levels compatible with limiting temperature rises to 1.5°C, has become a key focal point and goal for the global agri-food system.
“It’s still early stages, but following completion of the RAI tool we are now working with some investors to develop frameworks, metrics and indicators and align them with [investors’] ESG frameworks,” Hafiz Mirza, Responsible Agricultural Investment Research Lead at the IISD, told ESG Investor.
The tool is primarily intended for stakeholders including agribusinesses, investors, and industry associations who are engaged in promoting sustainable agriculture investments. But Marion Allet, Head of Environment and Impact at Cerise+SPTF, underlined the potential for the tool to serve as a “due diligence tool to let investors screen, monitor and report the responsible business practices of their agribusiness investees”.
This includes providing the basis for a framework, metrics and indicators to help investors decide whether to invest in a particular agriculture or food project; understanding what support an agribusiness might require; and assessing the degree to which an investee is conforming with RAI-related objectives agreed in the initial investment agreement.
“The tool should provide a basis for signalling appropriate agribusiness-related investment opportunities for institutional investors through the metrics and indicators intended to be developed under the framework,” said Mirza. “Such signalling is extremely pertinent for institutional investors. Many are inclined to support responsible and sustainable investment, but for those seeking to nuance their investments more information of this sort is required.”
Agribusiness currently accounts for 12% of global GDP and more than 40% of jobs, but agriculture drives 70% of terrestrial biodiversity losses and is the single biggest contributor to the deforestation of natural habitats.
Many view agritech as key to driving the changes needed to help farmers meet increasing consumer demand, and achieve emissions reduction without undermining environmental health. Valued at US$18.1 billion in 2021, the global market for such technologies is expected to reach US$43.4 billion by 2030.
International impetus
The IISD has already registered a lot of interest for the tool in Africa and Asia. It is currently being tested by a number of companies across the Association of Southeast Asian Nations.
According to the African Natural Capital Alliance and Financial Sector Deepening Africa, profit losses in critical sectors like agriculture and mining could reach up to 50% and lead to substantial job losses if businesses do not substantially reduce their negative impacts on nature. This could also trigger higher production costs for agricultural goods, which in turn could lead to higher food prices and inflation.
A recent report from the World Bank outlined actions that every country could take to ensure a more secure and sustainable global food system. It also called on low-income countries to avoid the mistakes made by wealthier nations, and capitalise on climate-smart opportunities to facilitate greener and more competitive economies.
Alongside the FAO roadmap – which set out ten measurable and timebound targets covering areas including livestock, crops, soil, water, methane and food waste – the Emirates Declaration on Sustainable Agriculture was also signed by 134 countries at COP28.
This committed signatory governments to including the food and agriculture sector in future nationally determined contributions and realigning subsidies with biodiversity and climate goals. At the time, experts underscored that the declaration should be appreciated by investors due to its potential to increase investment in sustainable food systems.
Last month, the Taskforce on Nature-related Financial Disclosures released tailored guidance for eight priority sectors – including food and agriculture – which was welcomed by industry. This followed global investor initiative Nature Action 100’s sectoral guidance, which also included food, back in March.
The alignment of efforts at all levels, including international initiatives and the development of frameworks to support agribusiness, is key. “While there has been a proliferation of principles, guidelines, frameworks and tools supporting the private sector – specifically agribusiness – to develop more responsible practices in how they engage with vulnerable stakeholders, [including] farmers, communities, women, the environment itself, these often lack a common framework and miss crucial aspects,” Mirza noted.
Mirza suggested the RAI tool could facilitate a more comprehensive common framework and approach globally – building on existing and tested indicators, rather than attempting to “reinvent the wheel”.
“It is important not to get ahead of ourselves [as] it is still early days,” he added. “The metrics we develop have to be aligned with existing ESG indicators that institutional investors already use. For the tool to be of real value, it requires significant uptake at the agribusiness level. These developments take time.”
A key next step for the IISD’s RAI tool will be to start working with parties, including industry associations, to stimulate mainstream adoption and use.
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