Three entry points for companies to act on climate change
September 2021 – The latest IPCC (AR6) Report paints a dire picture of our current climate and a world expected to surpass global warming levels of 1.5°C in the next few decades unless immediate steps are taken. In parallel to public sector action, businesses have a major role to play in limiting the effects of climate change. Although a wide range of agri-businesses are delivering climate solutions to build resilience and reduce their emissions, more needs to be done in order to meet the Paris Agreement and avoid catastrophic climate change.
According to the IPCC Special Report ‘Climate Change and Land’, the agriculture, forestry, and other land use (AFOLU) sectors contribute around 23 percent of total greenhouse gas emissions (GHG), with businesses responsible for a significant portion of this amount. In addition, many food and agriculture companies are already exposed to climate risks, both in their direct operations and in their supply chains. Given the right incentives, companies can take effective action across the AFOLU sectors to reduce emissions and adapt to climate change in ways that align with the countries’ nationally determined contributions (NDC) and National Adaptation Plans (NAP).
Indeed, carbon neutrality is a key policy theme across the globe with many governments setting ambitious carbon reduction targets - the UK, France, Sweden, Denmark, New Zealand, Hungry, Japan and South Korea have all announced legally binding net-zero emission targets by 2050. Businesses are responding by establishing their own emission reduction targets. For example, major agri-companies like Danone, Nestle, and Cargill, have all announced 50 percent carbon reduction commitments by 2030. These companies and many more are already contributing towards national climate goals by climate-proofing their operations and supply chains, developing goods, services and technologies that support resilience, or financing adaptation interventions.
But many companies are still uncertain about how they can get more involved. To strengthen private sector engagement on emissions reduction and resilience, FAO and UNDP are working to increase awareness of climate action opportunities and support greater collaboration between companies and governments through the Scaling up Climate Ambition on Land use and Agriculture through NDC and NAP (SCALA) programme, with funding from Germany’s International Climate Initiative (IKI). Here are three of the private sector engagement entry points that SCALA will promote to incentivize companies to increase their role in climate action.
1. Companies can climate-proof their operations and supply chains
Agri-businesses and their supply chains are increasingly exposed to significant climate hazards. These are caused by higher temperatures, variable precipitation, extreme weather events and climate-induced pest and disease outbreaks, which can negatively impact yields, prices, input costs and market access. For businesses that don’t take climate considerations into their operations, the cost of inaction will be high – in the trillions of dollars. Climate adaptation solutions can bring gains of USD 236 billion in increased revenues to companies based on a business survey in 2019. Companies should invest in managing climate risks not only to avoid production or supply chain losses, but for the long-term financial benefits that come with these investments.
This is why national and global companies are working with subsidiary companies to enable climate-smart agriculture practices amongst farmers to manage climate risks in their supply chain. For example, Unilever capacitates farmers across global markets with climate-smart practices, to protect and restore soils, forests, and water resources to strengthen their supply chains and improve yields and incomes. The company has also set up a climate and nature fund to accelerate climate action. Golchha industries supports subsidiary sugar mills in Nepal to build the capacity of farmers in climate resilient practices, including planting stress tolerant saplings, integrated pest management, and using demonstration plots. In Cote d’Ivoire, Mars has collaborated with E.Com to provide extensive agri-business training to 10,000 cocoa farmers in 20 cooperatives, to support sustainable agricultural practices and secure its supply of cocoa. These companies realized that when farmers are vulnerable to climate risks, it directly impacts yields and company returns. Therefore, businesses have clear financial reasons to address climate risks and strengthen their supply chains by investing directly in farmers and communities.
2. Businesses can seize market opportunities to support agriculture sector resilience
Beyond creating risks to be avoided, climate change also provides opportunities for companies to invest in the design, innovation and dissemination of resilience and mitigation-oriented goods, services, and technologies. In the AFOLU sectors, some of these opportunities are climate and drought resilient seeds, drip irrigation technology and weather-index-based insurance. For example, the global market for climate tolerant seed types is approximately USD 9 billion, according to a 2013 PWC report. The NDCs of more than 18 sub-Saharan African countries have highlighted adoption of climate-resilient crop varieties as an adaptation action. Companies, such as Equator Seeds in Uganda, are tapping into this market by producing, processing, and marketing climate-resilient varieties for vegetables, legumes, and cereals, including rice. The company was set up in 2012 as a social enterprise but experienced reduced revenue due to climate change effects on seed production levels. As a result, it began investing in resilient varieties and tailored training support services to farmers to enable the uptake of climate resilient seeds.
3. Private capital can finance this transition
Transitioning to climate resilient practices can be costly, often with uncertain returns on investment. Some companies will invest in climate solutions in response to government and market pressure. But these efforts will depend on the estimated financial return from the investment or the financial loss due to inaction. To support companies’ transition to greener practices, investors and financiers can develop tailored financial products, and also leverage concessional finance and innovative financial instruments in circumstances where the perceived lending risk is too high. For example, Rabobank is making investments in sustainable agriculture through its blended finance facility Agri3 fund. Understanding the costs of transition to farmers and the financial risks of investing in them, the fund offers de-risking instruments like guarantees to incentivize investments in integrated crop livestock forest systems, as well as long-term loans and funding for technical assistance to support farmers engage in climate resilient practices, such as land rotation for livestock and crops. In Brazil, where the livestock sector accounts for more than half of the GHG emissions, an investment by Agri3 is supporting livestock producers shift to sustainable practices that can help restore degraded pastureland and forests.
Companies have also established funds to invest in resilience, such as The Livelihoods Fund that was set up by 17 companies aiming to build sustainable supply chains while improving the lives of smallholders through sustainable agricultural practices that help restore ecosystems and improve yields. The Livelihoods Carbon Fund is another, which has been set up by 13 companies including Danone and Mars, to finance environmental restoration, agroforestry and rural energy projects benefiting vulnerable communities in developing countries. Companies can use this momentum within their corporate visions to align their climate initiatives, targets and sustainability objectives with gaps and requirements outlined within national targets of not only their headquarter countries, but also their supplier countries.
Collaboration between the public and private sector is key
There has never been more momentum for companies to be more sustainable. Given the emergence of climate-related investment opportunities along with regulatory requirements and pressure, many companies are responding by taking important steps towards investing in mitigation and adaptation. However, there are still several barriers restricting scaled up private sector engagement in climate action. For example, companies need more accurate climate data and climate risk information, improved financial incentives and better enabling environments for investing, and more information on emerging business opportunities that overlap with NDC/NAP priorities in order to increase private funding for climate action.
In recognition of these barriers and risks, the SCALA programme aims to identify public sector de-risking measures that target financial, policy and regulatory barriers to private investment, with the aim of crowding-in private investment to support NDC/NAPs. Ultimately, while clear entry points for private sector engagement on climate action already exist, greater public-private collaboration is essential if we are to limit the impacts of climate change, with governments doing more to incentivize and clear the way for private sector investment in climate action.