October 18, 2018 | By Lauren Stadler

Guest Commentary - Closing the Gap with Impact Investing: Reassuring Trust in the Sustainable Development Goals

The Sustainable Development Goals (SDGs) are intertwined challenges that seek to achieve a fairer, more secure, and more prosperous society. Although it will take about $5-7 trillion to achieve these goals, they have the potential to open up $12 trillion of market opportunities in food and agriculture, urban infrastructure, energy and materials, and health and wellbeing. Though it is hard to separate the funding needs for each goal, when looking specifically at SDG 2, which focuses on sustainable food and agriculture, one report suggest that $148 billion is needed annually to achieve this specific goal.

However, a recent report from UN Stats on the progress of the SDGs revealed that in 2017 aid to agriculture in developing countries fell to 6 percent of all donors’ sector allocable aid from 20 percent in the mid-1980s and that world hunger appears to be on the rise again. Furthermore, the OECD DAC reported in 2016 that assistance for all development goals only reached $142.6 billion, much less than the $5-7 trillion needed annually to achieve the SDGs by 2030.

A Call for Impact Investing in Food and Agriculture

The current progress on these goals illustrates the dire need for increased capital. While this points to the necessary engagement of the private sector to make up for the gap in funding, the private sector is still largely focused on short term financial returns instead of long term impact. Thus, there is a need to more effectively persuade the private sector to actively engage in social impact to leverage their investing capabilities.

Impact investing is investing in organizations, companies, or funds that search for the “triple bottom line” which seeks financial, social, and environmental returns. The case for involving the private sector in sustainability goals, particularly in SDG 2, through impact investing includes new opportunities that offer efficiency gains, the ability to focus on for-benefit projects that provide measurable impact on major problems, enhancing company reputation, and encouraging innovation and entrepreneurship. Without increased effort from the private sector to meet the SDGs, global burdens will worsen which could create a volatile business environment vulnerable to strict government regulation.

New Opportunities & Efficiency Gains

As noted above, achieving the SDGs has the potential to open $12 trillion in market opportunities. A recent survey from the Global Impact Investing Network reported that 57 percent of leading impact investors were investing in food and agriculture. While this represents the highest percentage of investments to any sector, only 6 percent of assets under management were used- compared to the sustainable energy market where 48 percent of respondents noted investing in the sector and 14 percent of assets under management were used. This indicates that while investment remains small in food and agriculture, exposure and interest is prominent.

The survey also found that the 5 year growth in total assets managed for impact investments of the respondents grew from $30.8 billion in 2013 to $50.8 billion in 2015 and that the food and agriculture sector along with education represented the largest growth. Additionally, an in-depth review of the financing needs of SDG 2 projected that if $320 billion were to be invested every year in sustainable food and agriculture, private sector gains from implementing work toward this goal, which would produce through long term efficiency gains, could be worth $2.3 trillion annually and created 80 million jobs by 2030. These figures paint a picture of a fast growing sector with high potential for returns and thus pose as an enticing opportunity for the private sector and impact investors.

Measurable Impact

Agriculture has a complicated relationship with climate change. Agriculture contributes globally to 10-12 percent of greenhouse gas emissions and 75 percent of deforestation. The growing population, inequality in access to resources, the threat of another food price crisis, and shrinking arable land all point to the dire need for a major shift in the agriculture sector to be able to meet global food and nutrition security needs, while also protecting the environment.

Luckily, investing in sustainable food and agriculture has direct synergies with nutrition, climate, water resources, biodiversity, and land resources. Agriculture has the potential to strengthen society, particularity in terms of rural prosperity, nourish health and development, mitigate climate change, and fortify economies. Thus, investors worried about agriculture’s negative impact on the environment can instead be attracted to sustainable food and agriculture’s potential to address a multitude of social impact targets.

Enhancing Company Reputation

In the current climate, companies are subject to enhanced scrutiny from their consumers. There has been a growing trend for companies to adapt to an increasingly socially conscious customer base. It has been argued that large food and beverage corporations are most sensitive to customer feedback. Thus, there is space in the food and agriculture sector to listen and adapt to the needs of conscious consumers.

Encouraging Innovation & Entrepreneurship

When seed money and private equity becomes visibly available to those in food and agriculture, it will spur innovation. Agricultural technology is desperately needed to adapt agriculture to the increasing pressure of climate change and the growing population. Furthermore, in the pursuit integrating more technology into food and agriculture it will help engage the growing youth population as they would see the sector as an opportunity for innovation.

Investing in Sustainable Food & Agriculture across asset classes

Investing in sustainable food and agriculture comes in many shapes and sizes and there are opportunities across every asset class as summarized by a sector report by the Croatan Institute:

  1. Cash
    Individuals can deposit cash in mission oriented banks or community development financial institutions that target key regions to lend to farmers.
  2. Fixed Income
    The greatest opportunity here comes from private debt through social lending institutions. This includes institutions that provide micro-finance loans and slow money that give lower rates of return over a longer time period and instead focus on high social impact returns
  3. Public Equities
    Public equity can be used to provide funding for small and midcap companies that are working on sustainable food and agriculture. Furthermore, shareholder engagement can be leveraged to hold companies accountable for impact across their value chain.
  4. Private Equity/venture capital
    These funds provide crucial seed money for companies working on solutions for sustainable food and agriculture. As a funder of a social enterprise, venture capitalists can encourage and help manage impact across the value chain.
  5. Real assets
    Investors interested in real assets could finance the conversion and management of sustainable farmland. Financers could be enticed by the organic pricing premium as well as the potential to protect ecosystems and the environment.


Overall, there is a need for the private sector to expand their business models beyond profit maximization to also include strategies that advance social impact. The SDGs, especially SDG 2, needs business financing and there is a variety of entry points for for-profit organization to help generate social, economic, health, and environmental impact. If we could galvanize support for the private sector to transition to a more sustainable growth model and collaborate with governments and non-profits on social impact goals, there would be an unstoppable ecosystem working towards a sustainable future.

About

The Global Food and Agriculture Program aims to inform the development of US policy on global agricultural development and food security by raising awareness and providing resources, information, and policy analysis to the US Administration, Congress, and interested experts and organizations.

The Global Food and Agriculture Program is housed within the Chicago Council on Global Affairs, an independent, nonpartisan organization that provides insight – and influences the public discourse – on critical global issues. The Council on Global Affairs convenes leading global voices and conducts independent research to bring clarity and offer solutions to challenges and opportunities across the globe. The Council is committed to engaging the public and raising global awareness of issues that transcend borders and transform how people, business, and governments engage the world.

Support for the Global Food and Agriculture Program is generously provided by the Bill & Melinda Gates Foundation.

Blogroll

1,000 Days Blog, 1,000 Days

Africa Can End Poverty, World Bank

Agrilinks Blog

Bread Blog, Bread for the World

Can We Feed the World Blog, Agriculture for Impact

Concern Blogs, Concern Worldwide

Institute Insights, Bread for the World Institute

End Poverty in South Asia, World Bank

Global Development Blog, Center for Global Development

The Global Food Banking Network

Harvest 2050, Global Harvest Initiative

The Hunger and Undernutrition Blog, Humanitas Global Development

International Food Policy Research Institute News, IFPRI

International Maize and Wheat Improvement Center Blog, CIMMYT

ONE Blog, ONE Campaign

One Acre Fund Blog, One Acre Fund

Overseas Development Institute Blog, Overseas Development Institute

Oxfam America Blog, Oxfam America

Preventing Postharvest Loss, ADM Institute

Sense & Sustainability Blog, Sense & Sustainability

WFP USA Blog, World Food Program USA

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