Climate change, the loss of biodiversity and consequential reduction of ecosystem service provision, and the degradation of key agricultural factors (such as soil quality and water availability) will require a transition in agriculture and in other industries that are highly dependent on nature.
A well-planned and just transition in the agri-food sector will support resilient food systems that benefit all stakeholders, from companies to financial institutions and governments, as well as the 1 billion people employed in agriculture globally.
This is particularly important in Asia and Africa, which account for 88% of global employment in agri-food systems, according to the FAO.
However, there are already signs of an unplanned transition, with soft commodities such as cocoa and beef experiencing significant price volatility in recent years, and this is likely to worsen without action.
As this insight piece highlights, shifting towards a planned transition will require sustained long-term financial support and incentives from private and public capital, especially in developing economies, with COP30 providing an opportunity to scale up that support.
Why a just agricultural transition matters to investors
Climate change and biodiversity loss expose investors to climate- and nature-related risks, with significant cost implications for value chains associated with conventional agriculture, such as:
Those physical risks to farmers will have cascading impacts on global value chains and the agri-food industry, as well as translating into credit and market risks for investors. Fostering a planned and just transition in agriculture is a solution to help investors manage these material financial risks in their portfolios.
Barriers to the transition: long-term financial incentives are needed
Long-term financial incentives are essential to addressing the financial burden of transitioning to a new agricultural approach such as regenerative agriculture, which has been shown to contribute positively to reversing land degradation and building resilience to climate shocks, resulting in greater financial and system resilience.
For example, practices such as cover cropping, increased crop diversity and low- or no-tillage can improve soil quality, biodiversity and water retention as well as carbon sequestration.
For food systems to be sustainable in the long term, the agricultural transition must also be just, taking a systemic, whole-economy approach, with a focus on maximising the social benefits of the transition and empowering those affected by change, while mitigating social risks.
However, the financial burden of transitioning remains a major barrier to farmers and landowners looking to adopt regenerative agriculture or other nature-based solutions.
Studies show that adopting these practices often comes with high upfront costs, lower yields in the initial years and long pay-back periods before benefits materialise. Without adequate financial support and assurances, this transition can lead to unsustainable debt burdens and can wipe out farmers’ and landowners’ net incomes, making it unviable for many.
Alongside the early higher costs of regenerative agriculture and nature-based solutions, their adoption is also hindered by continued incentives for environmentally harmful practices, which are supported by agriculture-focused public funding, including in developing economies, as FAIRR’s investor statement on agricultural subsidies highlights.
The UN estimates that subsidies make up around 15% of total agricultural production value globally, with import tariffs and export subsidies distorting commodity prices and incentivising over-production and -consumption, further driving greenhouse gas emissions and land degradation.
What does financing a just agricultural transition look like for investors?
Moving to a system of regenerative agriculture has been estimated to require funding of between US$200bn to US$450bn each year for the next decade to address the aforementioned challenges, yet current funding flows are less than 10% of that. Stacked financial support, which combines short-term transition finance with long-term incentives, will be needed to help farmers manage transition risks while protecting long-term investor returns.
While much of the transition funding will need to come from governments and value chain partners – such as food processors and retailers – through uptake agreements, grants and access to expertise, investors also have a key role to play in supporting the transition and managing their exposure to risk.
To date, investors have primarily focused on engagement to address risks related to unsustainable agricultural practices in their portfolios, but investment opportunities supporting the adoption of regenerative agriculture and other nature-based solutions are also emerging, as highlighted in Table 1.
Supporting such solutions can reduce investors’ exposure to climate- and nature-related risks while helping companies to align with evolving regulatory and consumer expectations and contributing to a planned transition of the agri-food industry.
Table 1. Financing examples to support a just agricultural transition
| Transition finance | Long-term incentives | Potential financial scale | |
|---|---|---|---|
|
Governments
|
Provide direct support for farmers adopting regenerative practices through transition grants (e.g. EU CAP funding scheme).
|
Reform subsidies to provide incentives for maintaining soil health, sequestering carbon and embedding regenerative practices.
|
Government support for regenerative agriculture can lead to substantial long-term economic benefits for farmers, enhancing profitability and resilience.
|
|
Investors (e.g. asset owners and asset managers)
|
Gain exposure to high-integrity carbon credits tied to regenerative agriculture and conservation practices, through direct purchases, nature-based fund allocations or through direct investment in companies developing nature-based solutions that generate credits.
|
Provide capital to blended finance vehicles that target the just transition (e.g. Rabobank and AGRI3 Fund).
Refinance farm debt, including seasonal loans and commodity trade finance, with sustainability-linked products that tie interest rates to meeting environmental key performance indicators (KPIs). Farmer debt loads in most countries tend to be high but, where new debt is sought, proceeds can fund regenerative agriculture projects
Structure private equity or debt investments (e.g. in farmland or forestry) with long-term incentives, where returns are linked to ecosystem outcomes such as biodiversity or soil health and over five- to 10-year horizons (e.g. Mirova).
|
Voluntary carbon markets could be worth from US$7-35bn by 2030.
The global sustainability-linked loan market reached EUR 650bn in 2024, though only a small part goes to agriculture.
|
|
Insurers
|
Design insurance products to help farmers transition and manage risks related to climate change and adaptation (e.g. named peril, combined insurance, multi-peril and parametric insurance).
|
Provide insurance policies that incentivise farmers to implement resilience-building practices by offering insurance premium discounts and investment grants (e.g. Austrian Hail Insurance).
|
The global agricultural insurance market is projected to reach US$67.4bn by 2032.
|
The path to food system resilience
Regenerative agriculture offers a path to resilient food systems, healthier ecosystems and stronger rural economies. Achieving this transition will require coordinated global action, sustained investor involvement and mechanisms to reach farmers and land-users of all sizes and in all locations – whether in developing or developed economies.
COP30 provides an opportunity to demonstrate the feasibility of private capital mobilisation towards climate and nature objectives, and to call for an enabling environment from policy makers, both of which FAIRR and the PRI will support.
The PRI blog aims to contribute to the debate around topical responsible investment issues. It should not be construed as advice, nor relied upon. The blog is written by PRI staff members and occasionally guest contributors. Blog authors write in their individual capacity – posts do not necessarily represent a PRI view. The inclusion of examples or case studies does not constitute an endorsement by PRI Association or PRI signatories.
