How finance can drive the global food industry's sustainability transformation

Food systems are central to the global sustainability agenda and form the backbone of global nutrition and economic stability. It takes a complex array of steps to deliver food from farm to fork to landfill, creating a sometimes fragmented system that can be subject to climate shocks. In fact, climate change not only threatens the global food industry’s stability, it is also a direct consequence of how it operates.

Finance is critical to driving innovative sustainable practices, enhancing resilience and supporting the transition to more equitable and efficient food production. At least $300 billion is needed annually for the broader transformation of the global food industry, of which around $200 billion is needed for the climate transition in order to meet the Paris Agreement targets. At present, the food industry only receives between 4 and 6% of global climate financing, according to figures from the Climate Policy Initiative.

More innovative financing mechanisms could help drive the transformation of food systems and ensure sustainable development

The world's food systems are responsible for 30% of global greenhouse gas (GHG) emissions. The upstream activities of the food value chain – food production – account for 70% of the sector’s emissions.

Without swift action, these emissions are projected to increase, primarily driven by increased livestock management and land use changes. This trajectory would diverge further from the path the global food industry should be taking to meet Paris Agreement targets. This underscores the urgent need for collaborative, multi-stakeholder engagement to reform global food systems.

Many initiatives aim to reduce emissions in sustainable food production through practices like regenerative agriculture, land use change prevention, low carbon livestock practices, on-farm food waste reduction and green energy use. But effectiveness is often limited by insufficient commercial capital, lack of coordination among stakeholders and gaps in critical capabilities and networks.

Farmer-focused, innovative financing mechanisms could help the global food industry to address these challenges. By mobilizing capital and enhancing coordination between key players, the financial sector could drive the sustainable transformation of the world's food production systems.

In particular, the following three financing mechanisms are already helping to channel resources towards the development of a more sustainable global food industry:

Agricultural producers can be incentivized to use conservation practices that improve soil health, enhance water quality and reduce GHG emissions.

The US-based Soil and Water Outcomes Fund (SWOF), for example, takes a market-driven approach to environmental conservation, aligning financial incentives with ecological outcomes. Established in 2020, SWOF offers farmers non-financial services such as technical assistance and measurement, reporting and verification support, as well as cash payments that can enable further sustainable development.

The fund helps farmers generate revenue by monetizing environmental benefits from activities such as carbon sequestration and avoidance, nitrous oxide mitigation and water quality improvement practices. SWOF creates a market for these outcomes by connecting farmers with buyers such as corporations, municipalities and utilities who want to purchase environmental credits or certificates as offsets for their own sustainability goals. It can help farmers sell output from a single field to multiple buyers, funding more sustainable practices.

By crowding in catalytic, commercial and concessionary capital, blended finance can mobilize large-scale investment in sustainable land use and act as a de-risking mechanism.

The Innovative Finance for the Amazon, Cerrado, and Chaco (IFACC) initiative, launched in 2021, has 16 signatories, including banks, companies and investors, who have committed $4.6 billion to scale innovative finance for deforestation and conversion-free soy, cattle, agroforestry and non-timber product projects in the Amazon, Cerrado and Chaco regions of South America. These key areas for biodiversity and carbon storage are under threat from deforestation and agricultural expansion.

Acting as a specialized financing mechanism within the IFACC, the Responsible Commodities Facility (RCF) is a collaboration between UK retailers in the upstream soy supply chain. It offers low-interest annual loans to farmers in the Cerrado biome who meet certain ESG criteria. Since its launch in August 2022 with an $11 million investment, RCF has successfully repaid its first round of farmer loans. In 2023-2024 the fund expanded to $47 million, which includes an additional $36 million investment from financiers.

This is a great way to channel investment into next generation technologies and sustainable farming practices. For example, NewAg Partners, an investment firm launched in 2019, focuses on food system transformation by seeking attractive risk-adjusted financial returns from its investments, alongside significant carbon, biodiversity and people benefits.

NewAg’s New Cerrado Brazil opportunity is a 44,000 hectare (ha) project that aims to revolutionize cocoa production. Rather than producing cocoa in West Africa’s equatorial rain forest – which suffers from deforestation and child labor issues – New Cerrado will operate from a semi-arid region in Brazil.

By converting around 18,000ha of degraded cattle pastures into a sustainable and regenerative cocoa farm, the project will also protect around 9,000 ha of original vegetation and restore 17,000 ha of native Cerrado biome. The New Cerrado project will produce approximately 1% of the world's annual cocoa supply, targeting a 20% internal rate of return in Brazil over 15 years. The project also generates carbon credits and, eventually, biodiversity credits.

The World Economic Forum’s 2024 Sustainable Development Impact Meetings provide an opportunity for leaders from the global food industry, finance and government to reaffirm their commitment to transform food systems. This change will be pivotal to achieving all 17 UN Sustainable Development Goals by 2030.

There are already many innovative food production sustainability initiatives in place around the world, but they often face significant scaling challenges due to inadequate funding and coordination gaps. To catalyse real systemic change in the global food industry, investors, governments and market participants can work alongside or through initiatives such as the Food Action Alliance, the First Mover Coalition for Food and 100 Million Farmers (focused on scaling regenerative agriculture). With the support of farmer-focused, innovative financing mechanisms, it will be possible transform food value chains and help feed the world more sustainably.

Vikki Tam, Partner, Global Social Impact Practice Leader at Bain & Company, and Christian Graf, Partner, EMEA Practice Lead Sustainability & Responsibility in Financial Services at Bain & Company, also contributed to this article.