GLOBAL FINANCE DIALOGUE - PANEL DISCUSSIONS
Discussion was rich and varied. The following points were identified as priorities for action across the dialogues:
The need for an ecosystem & locally-sensitive approach: there was broad consensus that interventions to transform food systems need to account for the complex nature of international value-chains and financial systems, as well as varied local contexts. Financing challenges vary significantly across countries – including the nature of public subsidies, the formal financial sector’s contribution to agricultural GDP and the role and performance of financial institutions. An ecosystem approach can bring together diverse stakeholders, accounts for the complex web of ecosystem risks and is tailored to local contexts.
Linked to this, an integrated framework is needed to provide finance where it is needed most and place financing food systems at the top of the political agenda, with priority in budget allocation by governments (especially Ministries of Finance).
Account for the true cost of food: many tables discussed the need to internalise both the negative and positive impacts of food systems. Food systems have environmental, social and health impacts that are not factored into market prices, yet the world is paying for these in terms of degenerated environments, high health costs and social inequities (such as unfair wages). Accounting for these costs can help to transition towards more sustainable systems by raising awareness and informing investment and other decisions. This can also help to accelerate the development of markets for post-transition models.
Interventions to do so include true cost accounting, carbon prices/ taxes, awareness raising, and the emergence of regenerative, forest-/nature-positive business models that create value from sustainable practices (e.g., agroforestry, creating value in standing forest, sustainable fisheries, etc).
It is critical to ensure that this shift does not disproportionately affect poorer consumers as a result of reduced food affordability. Support mechanisms may be necessary to secure a just and orderly transition, even if ultimately accounting for the true cost of food leads producers to shift to more sustainable products and practices that benefit all.
Risk mitigation: negative externalities of the food system generate significant risk (physical, financial, transition risks linked to unsustainable practices e.g., deforestation, forest and land degradation, high emissions, poor nutrition, etc), which must be factored into investment decisions and strategies to protect financial returns and economic stability. At the same time, risks associated with the transition from current practices and business models to new ones hold back investment (i.e., uncertainty around technology trajectory, costs, future demand). These need to be mitigated in order to catalyse transformative finance to these opportunities. Participants in the Dialogues discussed opportunities to mitigate risk in food systems, including:
Mandatory climate disclosure (and nature/ biodiversity) from companies is key for investors & financial markets to mainstream recognition & integration of risks, hold companies accountable, ensure transparency and provide comparable data on company transformation. This can enable companies and investors to better understand sustainability issues that threaten financial returns – and to shed light on companies’ best practices and sustainability initiatives – across the value-chain. Growing engagement in TCFD and TNFD should be encouraged.
De-risk private investment in sustainable practices and businesses. Blended finance can be effective but needs to be (i) scaled up, (ii) designed to ensure it can be accessed by smaller firms, e.g., MSMEs, (iii) positioned in broader toolbox and accompanied by strategies for market development.
Reduce the burden of risk placed on farmers through solutions including insurance and guarantees that can act as a form of safety nets to smooth farmer transitions.
Redirect incentives: there is strong recognition that current incentives do not yield desirable outcomes for the economy, livelihoods, environment or human health. While the capacity to redirect public subsidies is constrained, there are opportunities to rethink the structure of agricultural subsidies and redirect funds, including to R&D.
Increased public R&D investment could generate significant gains given the potential unlocked through enhanced technology. These shifts also need to be coupled with other incentives to support producers to adopt new technologies and sustainable practices.
Consumers also need to be considered: directing incentives to encourage the consumption of sustainable, healthy products will have a knock-on effect on what is produced to meet this demand.
Scale and roll-out interventions to secure more inclusive food systems. Access to finance remains a major challenge to sustainable agriculture and regenerative businesses, with significant numbers of small farmers, MSMEs, indigenous groups and rural communities unable to access to finance in order to invest in sustainable practices. Smaller firms can fall into a category of the “missing middle” – too big for microfinance yet not eligible for formal credit or loans from domestic banks, impact funds and DFIs. Priorities to build more inclusive food finance systems include:
Social payments and social assistance subsidies can deliver improved food outcomes, particularly when used to strengthen production capacity
Draw on solutions to reduce risk, including blended finance, insurance and microfinance institutions
Build project pipeline to use public finance to incubate/ support nascent regenerative and forest-positive business models and technical assistance
Provide project-level support to build capacity and incubate regenerative & sustainable business models to secure private investment
Improve contractual relationships between value-chain actors
Leverage digitisation to enhance access to finance by enabling informal actors to build financial histories and credit profiles, monitor risk and access finance through fintech services.
Bolster the enabling environment, including supporting the emergence of local financial systems (and community microfinance institutions), addressing land tenure issues and creating a stable policy environment.
Innovation is needed across policy, business models, technology and financial instruments. Innovation can disrupt our current food systems and unlock significant returns. Forms of innovation include:
Increased R&D and access to finance for innovative technology & solutions to support improved agricultural inputs & services, supply-chain linkages, food loss and waste solutions, fin-tech and more. But innovation is not limited to science and technology.
Innovative business models that create value from sustainable practices need to be supported and scaled (through policy interventions, financial solutions and incubators, such as Partnerships for Forests).
Innovative financial instruments can help to crowd-in investment to sustainable agriculture and food systems while improving access to finance for small producers and SMEs
Innovative policy interventions are needed to shift system settings and create the enabling environment for transformation. Successful innovations should be shared, replicated and scaled – including through Dialogues like the Food Systems Dialogues.
Empower farmers to access and drive innovation, by linking them to markets, raising awareness and building capacity.
Improve access to information and education: many tables discussed the importance of addressing data gaps, lack of transparency and limited awareness of the impacts of food systems – and the availability of solutions – to facilitate transformation.
Improved access to information would help investors, financiers, companies, producers (including smallholder farmers), consumers and policymakers to access tools and solutions and to make more informed, more sustainable decisions. Technology can play a powerful role in improving access to information across the value-chain.
Improved information is also essential to enhance accountability and transparency: needed by investors (to assess companies), by industry/ voters from governments (on regulation for orderly transition); by citizens and consumers to understand health and environmental impacts, and how food environments are shaped by private actors. Transparency should extend to corporate political expenditure and lobbying actions of trade associations.
Implement clear and standardized reporting measures for climate and biodiversity, e.g., development of meaningful biodiversity metrics that are both context specific and scientifically-grounded. While many reporting frameworks have emerged to assist companies with disclosing the relevant sustainability data, the finance system is demanding the harmonization of the sustainability standards and the development of widely recognized definitions. It is also important to ensure that reporting on sustainable food systems encompasses issues across the environmental, social and nutrition sphere.
Great collaboration and ambition across public and private actors is needed to deliver this transformation agenda. The Food Systems Summit represents a critical moment to raise ambition, place food system transformation on the top of the political, business, financial, humanitarian and research agenda, and profile, replicate and scale interventions and solutions that work.
The Finance Lever will reflect on the points raised in the Dialogue to inform a Food Finance Architecture that sets out the shifts required in finance. This will inform key outputs (including Finance’s representation in the UN Secretary General’s Statement) and will underpin a programme of ambition and action that the Lever will work to roll-out up to the Summit – including targets, commitments and initiatives from key food finance players.