Private sector climate-smart investments are bridging the gap for agricultural development funding in a bid to help realise the Sustainable Development Goals through impact investing, a novel way of creating and sharing wealth.
“Climate-smart agriculture is an opportunity for private sector investment to bolster sustainable agricultural development,” says Viktoria Popova, technical assistance manager at Incofin Investment Management, a global impact investment management company, which has its headquarters in Belgium. Incofin manages investments and capacity-building support in emerging countries to promote inclusive progress.
In the context of climate change and its increasingly negative impacts - and the trend for discerning consumers to support a cleaner environment and fair, ethical products - many companies are changing their investment strategies. Investors are screening their portfolios to assess environmental, social and governance risks and there is a shift away from what can be viewed as more harmful industries; investors are looking to invest in ways that do more good than harm. The International Finance Corporation says such ‘impact investing’ is about making investments in companies, organisations, vehicles and funds with the aim of contributing to measurable positive, social, economic and environmental impact, alongside financial returns.
“We believe that investing in sustainable business models makes good business sense, and we truly believe that agriculture is key in addressing the need for doubling output to feed a growing population. Given both its potential to generate negative effects for the environment and its vulnerability to climate, agriculture should become more sustainable from an environmental point of view,” observes Popova. Engaging with microfinance institutions, producer organisations and other actors along the value chain, Incofin helps to unlock the potential of agriculture in the markets where it can make a change.
“We speak about climate-smart investment, as we understand that it is not only the productivity that needs to be improved, but also the resilience of farmers, so the challenges they face are addressed,” says Popova. In Colombia, for example, Incofin has supported a coffee cooperative to be more climate-smart by financing the construction of a centralised wet mill, which enables centralised processing of what the farmers produce. “This unit has a very strict water system and, through this, we have managed to reduce the amount of water from 40 kg to 4 kg per kilo of coffee produced. In addition, the water does not contaminate the source water as it would have done plus the coffee husks, pulp and all the waste which is there is used to feed this mill as well. So this something which has proved to be environmentally and socially positive but also has enabled good financial returns for the whilst improving the wellbeing of farmers,” she explains.
To improve productivity, produce quality and incomes, Incofin is also helping small producer organisations in developing countries to diversify crops and introduce best agricultural practices. Incofin also works with local microfinance institutions to enhance local resilience to weather shocks. In Nicaragua, this collaboration has led to an agricultural weather index-insurance product in which the local microfinance institutions act as policyholder and risk aggregator for, and with, their agricultural clients.“We are also raising awareness about climate change, to support those measures that help farmers to be more resilient and make their businesses more climate-smart,” she adds.
Since 2001, Incofin has invested more than €1.7 billion in 65 countries working with over 300 clients, including financial institutions, small producer organisations and agricultural small and medium enterprises. Incofin currently has four active funds and a number of advised facilities, with more than €881 million committed assets under management. On the technical assistance side, since 2010, Incofin has deployed over €6 million to support around 90 projects in more than 35 countries across all regions, including Latin America and the Caribbean, Africa, Asia, the Middle East and Eastern Europe.
“The challenges of the rural entrepreneur and smallholder farmer are at the centre of what needs to be addressed to achieve development goals which, in the end, affects all of us. Asan impact investor, I believe that it is our role to engage with those institutions that can go one step further and go into those areas which are perceived risky. Incofin is there to support this through combining the provision of financing with technical assistance,” says Popova.