At the World Economic Forum in Davos this week, the Dutch Ministry of Foreign Affairs announced that it will become an anchor public investor in the AGRI3 Fund by contributing US$40m – an amount matched by Rabobank.
The AGRI3 Fund was created by UN Environment Program and Rabobank, together with partner IDH, the sustainable trade initiative, and with support from FMO, the Dutch entrepreneurial development bank. The goal is to mitigate climate change. The founders were spurred on by the fact that seven million hectares of tropical forests disappear annually and emissions related to agriculture and tropical forest loss contribute 24% to total global greenhouse gas (GHG) emissions.
They want to help transform the financial sector’s attitude towards sustainable investments.
Nathalie Walker, director, tropical forests and agriculture, National Wildlife Federation, told us.
“I think this fund is the type of investment that is urgently needed at scale; coupling improved agricultural practices to enhance yields and become more resilient must be tied to forest protection. Forest conservation is essential as without it, improved yields can result in accelerated deforestation. Forests are essential buffers against climate change impacts, plus they support healthy water cycles that improve yields.”
Joris Hoff, spokesperson, Rabobank corporate affairs, told FeedNavigator: “AGRI3 will provide de-risking instruments for banks in order to provide clients with loans on sustainable and deforestation-free transactions that would otherwise be too risky, [due to a longer tenor]. By doing so, the fund bridges the gap between the needs of farmers and the limitations due to banking regulation. The open structure of the fund enables others to help facilitate the transition towards more sustainable food systems.”
The fund acts as a blended finance vehicle aimed at unlocking at least US$1bn in finance. The contributions of the Dutch government and Rabobank itself will work as an enabler to catalyze public funding, to drum up commercial finance, said the spokesperson.
“The AGRI3 fund has an open architecture set-up. Rabobank will use its network of commercial banks and clients in order to mobilize capital, as well as jointly develop a pipeline through their client networks.”
Mirova Natural Capital, FOUNT and Cardano Development will act as investment advisors.
The founding partners will also leverage their networks to help grow the commitments to AGRI3, continued Hoff.
Getting projects investment ready
The IDH will manage the fund’s Technical Assistance (TA) facility, which is set up to provide support to help potential projects become investment ready.
“The TA facility is related to pre-investment support, designing projects so that their positive impact on rural livelihoods, sustainable land use and forest protection are maximized, as well as post-investment capacity development, including farmer training, and knowledge sharing.
“The TA Facility will be managed by IDH The Sustainable Trade Initiative. So basically, it provides technical advice, feasibility assessment, and financial structuring to make the project investment ready. Any post-investment TA will aim to maximize the project’s sustainable agriculture and forest protection impact,” explained Hoff.
Financial incentives to halt deforestation
Such financial incentive schemes are growing in number. A range of stakeholders, from industry and the world of finance, are finally hearing the rallying cry of NGOs and environmental campaigners on sustainable agriculture.
Last July, we reported on the world’s first financial facility to offer green bonds for sustainable soy production in Brazil.
The scheme was launched at London Climate Action Week.
The Responsible Commodities Facility, unveiled at the London Stock Exchange, plans to provide low-interest credit lines to Brazilian soy and corn farmers who commit to using degraded pasture and avoid clearing forests and native grassland for agriculture. For farmers, the initiative will offer an important complement to official credit lines.
The facility is expected to provide US$1bn over four years to fund the production of more than 180m tons of responsible soy and corn, worth around US$43bn over the next decade. The investment will contribute to national targets of agricultural expansion into currently underutilized land, and the first US$300m bond issuance is planned for the planting season of 2020.
Over the same period, the facility's ambition is to protect or restore 1.5 million hectares of natural habitat in Brazil’s Cerrado, or savanna, leading to an estimated emissions reduction of 250m tons of carbon dioxide.
And in December we saw a feed and a seafood company along with a leading retailer putting their money where their mouth is as Tesco, Nutreco and Grieg Seafood announced funding for soy farmers in the Cerrado region of Brazil.
They became the first companies to lend their support to a new industry-led scheme aimed at helping to end soy-linked deforestation in one of Brazil’s most biodiverse regions, the Cerrado. The Funding for Soy Farmers in the Cerrado initiative is designed to conserve native vegetation and biodiversity in that region, halting deforestation by providing financial incentives to farmers to produce soy only on existing agricultural land.
By doing so, the farmers would be preserving more land than they are legally required to, under the Brazilian Forest code, as native vegetation.
The three companies are all signatories of the Business Statement of Support (SoS) to the Cerrado Manifesto.