Photo by Mircea Ploscar
Impact Investing & Sustainable Agriculture
Only a few years ago, impacting investing was for the most part, a PR play for financial companies and other institutions to appear sensitive to issues like climate change, social welfare, and inclusivity. However, as the demand for truly impactful investments rise, along with the availability of better measurement tools, impact investments, specifically in Agriculture, will dominate in 2020.
Why Sustainable Agriculture is on the Rise
It’s becoming widely understood that the Impact Investing market is rising to well above $14 trillion by 2023 (1). Affordable housing, community development, sustainable energy and health have been the dominating sectors of impact investments (2). However, investments made specifically in agricultural sustainability have remained relatively low compared to other impact investment categories. This is primarily due to the lack of regulation of what is considered “sustainable agriculture,” confusion around sustainable versus organic farming, and other challenges that have prevented accurate benchmarking.
With that said, the sustainable agriculture is now on the rise for other reasons, and should see a growth trend in the next year. A combination of the aging-out of farmers, growth of sustainable agriculture projects, and reported allocations from investors to projects in sustainable agriculture is allowing for this rise.
As the world population grows at an alarming rate (10 billion by 2050), and as we raise more people out of poverty, there is not only a higher demand for food, but higher priced foods like meat and dairy products. But as the average age of farmers rise to 58 years old, and output gains of the “green revolution” have reached their maximum, we are forced to seek smarter solutions to safely and sustainably produce more agricultural output to feed the world.
“Food and agriculture ultimately remain bounded by natural resource limits on a finite planet facing rapid population growth and urbanization, long-term soil degradation and land scarcity, and widening inequality in access to resources.”
Transformation, LLC outlines these issues in their 2018 report on Global Agriculture. Although Transformation was only formed in 2017, the firm plans to launch a global investment syndicate to address global agricultural issues. The plans for the fund will be formally announced on June 12, 2019 at the AIM Summit in Geneva.
Global Investment Capital Allocations
Transformation is not alone in their efforts. During the first week of March 2019, one of Europe’s largest private equity firms announced the launch of its own impact investing fund with Nordea Asset Management. The fund is planning to invest in companies with business models that contribute to the UN Sustainable Development Goals, of which includes five goals that directly relate to agriculture such as “Zero Hunger” and “Clean Water and Sanitation.”
The most recent survey (reported in the 2017 Croatan Report) by the Global Impact Investing Network of leading impact investors show that 63% of respondents reported allocating funds to food and agriculture. They write that “Investors across all asset classes are consequently making critical decisions to invest, divest, and engage based on deeper analysis of the social and environmental impacts of agricultural commodities and their extended supply chains.”
The various areas of investment can help the different sub-sectors of sustainable agriculture:
- Fixed-income investment managers can finance food and agriculture value chains as their preferences include corporate, municipal or government agency bonds.
- Equity investors can finance agriculture technology (AgTech) companies.
- Private equity and venture capital investors can provide early capital to private companies in AgTech and agriculture, food, and water companies with a measurable positive social and environmental impact.
- Real asset investors can finance farms, ranchland, and forests whose crops are sustainably managed.
Of course, there are many more ways investors can take part in this area of impact investing, which we believe will be realized in the next few years as more investment opportunities in the space come to fruition.
Products, Project, and Benchmarks for Sustainable Agriculture
To meet the demand for sustainable agriculture allocations, there are a number of organizations in AgTech, sanitation, water, food supply, and more that are bringing innovation to the marketplace.
The global market value of sustainable agriculture products (including ethically-labelled packaged food) is projected to grow from US $793.3 billion in 2015 to US $872.7 billion by 2020 (3). The Agriculture Drone Market alone is poised to grow at a CAGR of 21% between 2019 and 2025 (4). Sustainable agriculture products or projects include AgTech products like drones and surveillance tools, decentralized technology for supply chains and food management, and water and biotech companies that will help improve sanitation and manage water, disease, and waste.
As far as clearing up confusion around what qualifies sustainable agriculture, most are referring to the UN’s Food and Agriculture Organization’s definition:
“Sustainable agriculture conserves land, water, and plant and animal genetic resources, and is environmentally non-degrading, technically appropriate, economically viable and socially acceptable.”
In our book, any efforts on the front to improve efficiency in global food systems to feed more people, waste less food, and preserve our natural resource is a win. That’s why we’re betting on Sustainable Agriculture in 2020 and beyond.