Designing the EU Agri-Food Just Transition Fund: Why systemic investing holds the key to transforming the European food system
By Dominic Hofstetter (TransCap Initiative) and Murray Gray (Metabolic)
January 2025
The recently published report “Strategic Dialogue on the Future of EU Agriculture” calls for deep and structural changes to the European agri-food system to address the intertwined challenges of climate change, biodiversity loss, and social inequality. The report identifies the creation of an Agri-Food Just Transition Fund (“AJTF”) as a critical measure for achieving this objective.
So far, so good.
But if the European Commission approached the establishment of such a fund in a business-as-usual, more-of-the-same fashion, would it create an instrument capable of transforming the European food system? Or does the European Commission currently have the capacity to tap into the cutting edge of sustainable finance innovation to develop something truly groundbreaking?
We believe the answer to both of these questions is “probably not” — and propose a different approach.
Why business-as-usual will not lead to an AJTF capable of meeting its goals
Transformative change of the kind called for by the Strategic Dialogue most often results from the combined effects of many interrelated shifts within a system, whereby these shifts happen concurrently and with a degree of shared directionality.
It follows that catalyzing systems change hinges on the ability to coordinate a variety of interventions spanning multiple domains, such as technology development, business model scale-up, infrastructure build-out, farmer capacity building, and consumer education.
The many interventions needed to transform systems have diverse financing needs. Some are investable with market-rate investment capital or catalytic capital. Others need philanthropic or public-sector grants. Still others need supply chain finance, risk transfer mechanisms (insurance, advanced market commitments), or changes in tax codes and subsidy schemes.
The fundamental challenge of funding systems change thus boils down to developing an investment architecture that spans the entire capital spectrum and is rooted in a system’s actual finance needs. Capital deployment then needs to be strategically orchestrated across the organizations that provide it — matching the right kind of capital to the right type of intervention at the right moment in time.
This is not how purpose-driven finance operates today. Capital allocators tend to operate in silos, usually with a single asset class, narrow selection criteria, and incomplete risk/return estimation. They rarely collaborate with other providers of capital, particularly across asset classes and financing types (with the exception of one-off blended finance transactions). And they often work outside of specific contexts, looking to support “universal” solutions rather than weaving them together in specific places and supply chains.
As a result, dominant approaches to sustainable finance and impact investing are ill-positioned to drive transformative change.
Tapping the cutting edge of sustainable finance innovation
Systemic investing is emerging as a structural response to this issue. Designed as an investment logic for funding systems transformation, systemic investing advocates for taking a “systems first” approach and building multi-capital, multi-stakeholder coalitions operating in long-term strategic partnerships and under a shared theory of transformation for specific contexts. It is thus well-positioned to provide the paradigms, mindsets, and methods needed to achieve the stated objectives of the AJTF.
Further, while the AJTF implies the need for a cross-European fund, it will likely be necessary to translate this ambition to the regional level to enable more contextual application. Place-based transition funds provide a blueprint for organizing, structuring, and governing such context-specific investment instruments. And the general field of systems innovation (e.g., Deep Demonstrations) and systems orchestration (e.g., innovation weaving in general and Bioregional Weaving Labs in particular) provide principles and protocols for mobilizing and coordinating multi-stakeholder action on the ground.
When integrated, these frameworks and approaches provide the conceptual foundations for designing an AJTF that could deliver the level of impact desired.
Learning from years of research and innovation
It is also paramount that the AJTF harnesses the many lessons learned over the past 3–5 years from innovation inquiries and experiments around funding agri-food systems transformations. This work has been led by a diverse group of organizations, including:
- Metabolic, through its regenerative agriculture Lighthouse initiative with the Rockefeller Foundation and Transformational Investing in Food Systems (TIFS),
- TransCap Initiative, through its conceptual work on “Transition Maps” and its prototypes in the agri-food systems of the American Midwest and Switzerland,
- Climate Farmers, through its investigation of regenerative investment,
- Climate-KIC, through its agri-food Deep Demonstration project in the Republic of Ireland, and
- TIFS, through its Financing for Regenerative Agriculture report.
One important pattern coming into view across these different efforts is that transforming agri-food systems requires more than developing new technologies (big data, artificial intelligence, robotics) and food products — areas that currently capture the attention of policymakers and investors, resulting in the outsize allocation of public resources and risk capital to R&D and start-up incubation.
Instead, other tools in the finance toolbox will be increasingly important, including insurance, advanced market commitments, and infrastructure finance — topics that tend to stand less in the spotlight.
The need for a collective design effort
In the design of the AJTF, the uptake of the principles of cutting-edge innovation frameworks and the learnings from past innovation experiments is not guaranteed. In fact, it’s likely that due to institutional inertia, political conservatism, and the lack of innovation capacity within EU politics and institutional finance, the AJTF will be designed as a conventional mechanism under a business-as-usual, more-of-the-same capital deployment philosophy.
There is a need to break this cycle with a new approach — a multi-stakeholder innovation program dedicated to scoping and designing the AJTF based on systemic investing, place-based transition funding, and bioregional weaving. And do so in partnership with a coalition of stakeholders from finance, politics, industry, and the civic sector.
One of the key objectives of this effort needs to be to explore what exactly the AJTF’s role in transforming the EU’s agri-food system should be, given the variety of existing investment funds, policy programs, and foundations actively deploying capital and technical assistance. While the word “fund” is part of the AJTF’s name, we believe it is worth considering whether establishing a new investment fund is, in fact, the most effective approach to achieving the desired outcome.
For instance, it is entirely possible that the result of the scoping and design process proposed herein leads to a recommendation of designing the AJTF as a broad-based, multi-capital investment fund; or that it should have a narrower mandate and be viewed as one of several vehicles collectively comprising a broader systemic investment program.
It is also possible that the project’s findings suggest that the AJTF should not be an investment fund at all — or at least not from the start — but instead a mechanism for strategically orchestrating capital flows across existing vehicles and programs without necessarily creating new aggregation and deployment mechanisms.
What’s next?
Whatever the recommendations end up being, it is clear that the Strategic Dialogue’s call for an AJTF represents a critical opportunity to fundamentally change how Europe deploys financial capital for agri-food systems transformation — as well as demonstrate new ways of financing other systems transformations.
The TransCap Initiative and Metabolic are thus joining forces in heeding the call from the Strategic Dialogue and taking the next step in the journey of establishing an AJTF and a systemic investment program around it.
Specifically, we are in the process of developing a collaborative innovation project with two phases:
- Phase 1: a 6-month multi-stakeholder innovation process to provide initial suggestions for scoping and designing the AJTF. This work will build on the results of the Strategic Dialogue, the principles of systemic investing and place-based transition funds, and the lessons learned from years of finance innovation in agri-food contexts. It will integrate the voices and perspectives of the people typically not involved in the design of finance programs, including but not limited to farmers.
- Phase 2: a 3-year initial implementation phase that seeks to establish the structures and coalitions needed for the AJTF to succeed and test key hypotheses in real-world contexts (e.g., specific bioregions) to inform the long-term mandate and design of the AJTF.
The project will be led jointly by the TransCap Initiative and Metabolic and involve design partners that contribute critical perspectives:
- 5–6 farmer representatives,
- 3–4 capital deployers, incl. agribusiness corporates,
- 1–2 political partners, and
- 1–2 food system finance experts.
A wider group of organizations will be convened as a sounding board and consulted during the process, including additional corporations in the agri-food supply chain, institutional and multilateral investors, agricultural banks, researchers, NGOs, and advocacy groups.
Call to action
If you’d like to learn more about our project and explore how to get involved, please drop us a line.
