REPORT: Driving Finance for Sustainable Food Systems: A roadmap to implementation for financial institutions and policy makers

UNEP (2023) Driving Finance for Sustainable Food Systems: A roadmap to implementation for financial institutions and policy makers # 78 p.

The environmental and social impacts of the global food system are interconnected and affect diverse impact areas ranging from climate change mitigation, adaptation, biodiversity, resource efficiency and the circular economy, as well as social dimensions including human rights, labour conditions and gender equality.

This report attempts to address these challenge by providing a roadmap for private financiers to drive significant capital flows towards food systems. It includes identifying their impacts, measuring performance, setting targets, monitoring and disclosing. 

The report also describes innovative new instruments and financing techniques, including blended finance, and addresses the policy changes needed to create an enabling environment. 

The primary target audience is financial institutions from the private and public sector that have an agriculture and food sector exposure but also policymakers that play a role in fostering the enabling conditions for these institutions to drive significant flows of capital towards making food systems more sustainable.

Related:

28 April 2024. @14:00 CEST. UNEP Publication Launch: Driving Finance for Sustainable Food Systems: A roadmap to implementation for financial institutions and policy makers - Side event 24-28 April 2023. Good Food Finance Week 2023.

The webinar will: 

• Present key findings of the launched report; 
• Highlight good practices demonstrated and promoted by the Good Food Finance Network´s High Ambition Group; 
• Provide insights from a panel discussion on issues, challenges, and ways forward to unlock opportunities for financiers and policymakers to increase sustainable investments and lending in the agri-food sector.

Extracts of the report

The Good Food Finance Network: The first tranche of targets under the Good Food Finance Network exemplify how finance can be redirected towards sustainable food systems through concrete, timebound 

steps and by addressing different ESG dimensions and geographies. Targets include a wide range of measurable environmental and social goals to build a sustainable food system, such as: increasing the use of technology to modernize agricultural practices, avoiding deforestation, investing in climate adaptation, and unlocking smallholder farmer income through incentivising carbon removal. Promoting gender equality and human rights-based approaches is a crucial element of environmental sustainability and this should be specifically reflected in social targets. (page 9)

The past few years have seen a growing appetite of financial institutions—banks, investors, and insurers—for green products. The market now offers innovative investments that are linked to sustainability performance indicators, and financial vehicles designed for special purpose securitisation. The critical features of innovative instruments are scalability, replicability, and the versatility of the instrument. (page 10)

Global, national and local food systems operate on six main financial flows, namely: consumer spending, financial flows through food trade and retail, funds allocated through official development assistance, public financing through fiscal policies, financing through the banking systems, and investment flows from capital markets. (page 23)

The Principles for Responsible Banking has developed target setting guidance for the following impact areas: (page 32)

• Climate change mitigation
• Resource efficiency and the circular economy
• Biodiversity
• Financial health and inclusion
• Gender equality

There are few sectors that touch on as many sustainability challenges as food and agriculture. The sector is turning to the sustainable finance market to raise capital. The challenge for both companies and financial institutions is understanding what sustainability in the food system and agriculture looks like, what the associated risks and opportunities are, and how private finance can channel additional flows beyond public finance. (page 39)

Through deploying blended finance, innovative debt instruments, securitisation techniques and blockchain-enabled tools financial institutions can direct capital into promising SFS ventures and projects. (page 39)

Covering the support policies of 54 countries, the OECD estimated that an annual average amount of more than USD 500 billion was provided to farmers in the form of direct support between 2017 and 2019. 

• A substantial proportion of these support measures maintain domestic prices above international levels, at the expense of poor consumers. 
• They also reinforce some environmentally harmful farming activities. On the other hand, the amount of public spending on the long-term sustainability of the sector through research and development, investment in green infrastructure, biosecurity, and biodiversity amounted to only USD 106 billion per year (page 53)

The main objective of a green taxonomy is to signal and inform markets about sustainable activities and investment areas in a given jurisdiction. By providing this signal, policymakers aim to attract and direct financial capital to these activities. At the same time, green taxonomies provide a framework to define what type of investments can legitimately constitute sustainable investments, hence limiting ‘greenwashing’. (...)  Many central banks and financial regulators look for ways to incorporate considerations of climate change into their assessment of monetary policy and risk management practices for their supervised entities. (page 56)

The harmonisation of relevant policy tools (e.g. repurposed agricultural subsidies, fossil fuel subsidies, green trade policies in agriculture, and green fiscal policies) is crucial to developing a coherent and consistent policy environment. (page 61)