Guest Blog: Finance tools to facilitate zero-carbon agriculture
Agriculture is well known to be a carbon-intensive sector, but there is a growing movement to achieve Net Zero in the sector globally. Recently, Horizons Institute supported a project to help understand how global finance can help expedite the sector’s progress to sustainability. Here, Bookie Ezeomah explains about that project and what it entails.
Zero-carbon agriculture key to planetary health
Agriculture has historically been one of the world’s largest sources of greenhouse gas emissions. It is, therefore, an important area to address in efforts to lessen the adverse effects of climate change. Tillage, fertiliser use, and animal production are only a few of the current agricultural practices that considerably contribute to greenhouse gas emissions.
The Food and Agriculture Organization (FAO, 2019) have identified that about 10 per cent of worldwide greenhouse gas emissions come from agriculture and 14.5 per cent from animal production alone. Soil erosion, water contamination, and animal and plant extinctions are only some of the unintended consequences of conventional farming methods.
These environmental effects endanger agricultural productivity and, by extension, human health, and standard of living. That is why it is critical that we rapidly adopt zero-carbon agriculture practices that cut down on emissions, preserve our natural resources, and protect our ecosystems from damage.
Understanding the impact of agricultural finance
Funding research, innovation, and infrastructure development at scale are essential during this transition period. However, many farmers need more funds to transition to more environmentally friendly farming methods. Financial instruments can be helpful in this respect.
Financial institutions can reduce the risks involved in the transition to zero-carbon agriculture by facilitating the adoption of sustainable farming practices among farmers by providing cash, incentives, and insurance.
Our study aims to shed light on how various farming systems are financed and insured around the world today. This will reveal opportunities to encourage the adoption of sustainable practices and lower greenhouse gas emissions by better comprehending the current role of financial institutions in the agricultural sector. We also explore decarbonisation “hotspots” and critical levers for financial institutions, like banks and insurers.
For instance, identifying farming practices which result in high greenhouse gas emissions and areas where investing in sustainable infrastructure could have the most positive impact. Focusing on these “hotspots” can help financial institutions to increase their impact in driving the global net-zero agenda.
The power of technology and information
Other key areas of investigation include the use of already available technologies and on-farm metrics to validate conventional farming practices and recommended practices that facilitate the transition of whole-farm systems to zero carbon. Financial institutions can better direct their investments towards environmentally beneficial farming methods if they know the best technology and metrics for monitoring the environmental impact of those methods.
The research will also capture case studies of farming systems that have already transitioned from a process-based to an outcome-based metrics framework and can also shed light on the difficulties and possibilities of making the switch.
What we’re looking to achieve
Our research will investigate global ecosystem markets and payment mechanisms for ecosystem services, to identify successful public-private initiatives and collaboration models on farms.
Financial institutions can develop instruments that acknowledge the environmental benefits of zero-carbon farming by understanding how ecosystem markets function — for instance, compensating farmers for environmental-friendly services like reducing carbon emissions, enhancing water quality, and protecting biodiversity. In addition, public-private partnerships can pool public and private sector knowledge to develop novel approaches for shifting to sustainable agriculture.
Identifying policies and regulations that facilitate the shift to zero-carbon agriculture and are consistent with the Paris Agreement’s 1.5C route is crucial. Therefore, the study will also investigate preexisting policies and regulatory frameworks aimed at (or are at odds with) the finance and insurance industries. This is crucial for ensuring the financial and insurance sectors align with the Paris Agreement’s 1.5C roadmap. Among them are initiatives to create global ecosystem markets, and payment for ecosystem services schemes and those that incentivise the use of environmentally-friendly farming methods.
The research will also involve conducting interviews with major industry players in the financial and insurance sector, to get insight into internal best practice net-zero approaches across key operational areas and problems associated with implementation.
In doing so, the research will determine current financial instruments that aid the agricultural sector. Essential requirements for robust reporting mechanisms will also be discussed, along with potential finance instruments that acknowledge the environmental benefits of zero-carbon techniques of farming.
Lastly, the study will investigate knowledge gaps and obstacles to action that prevent banks and insurers from implementing green agricultural financing. Financial institutions can speed up the shift towards sustainable and carbon-neutral agriculture by better understanding the obstacles and developing targeted solutions to them. Therefore, the urgent need to transition to sustainable agriculture practices that help reduce the environmental impact of conventional agriculture makes this research into finance tools for zero carbon agriculture very crucial.
Reference
FAO (2019) The State of Food and Agriculture 2019: Moving Forward on Food Loss and Waste Reduction. Online Available: http://www.fao.org/3/ca6030en/ca6030en.pdf Date Accessed: 13/04/2023
