Food systems are key to achieving the Sustainable Development Goals (SDGs), yet their current trajectory is unsustainable. The way we produce and consume food contributes greatly to climate change. At least one third of total global greenhouse emissions from human activities can be attributed to the way we produce, process, transport and package food. The expansion of agricultural commodities is the largest driver of deforestation worldwide and food systems remain a key contributor to global nature loss with profound implications for people (e.g. related to food security, employment, public health and gender).
There is great potential for driving positive impacts from the financial services industry: Financial institutions with significant portfolio exposure to the agrifood sector have a fundamental role to play in addressing the world’s most pressing challenges. They can influence clients and suppliers across value chains to improve their policies and practices, demand accurate quantitative monitoring and reporting from investees and drive financial flows towards more sustainable food systems. These efforts can underpin strong economic recovery, climate action, nature protection and public health and make food systems more sustainable, resilient, and fair.
Channelling private finance to food systems is a major challenge: Information asymmetries exist between financial institutions and potential borrowers or investee companies. The sector is prone to high transaction costs and small ticket sizes foragribusiness financial transactions upstream at the farm or production level. A significant proportion of actors operate in the informal sector, which lacks access to formal finance channels. The institutional capacity to set and enforce regulations to around financial transactions is often limited in countries where access to finance is most needed. In addition, food systems exhibit growing risks—they are exposed to increased frequency and intensity of extreme climate events, high volatility of commodity prices, heightened macro-economic challenges (inflation, recession) and geopolitical risks (local and regional conflicts, disruptions in international trade). Directing adequate volumes of private finance to sustainable food systems remains a major challenge. This report addresses how private finance can overcome significant hurdles on the path to fostering sustainable food systems.
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