Impact investors focused on climate and the environment see regenerative farming practices as the most investable, cutting-edge solution to decarbonize the planet while feeding the world's 8 billion people. I'm paying more and more attention.
Brad Harrison, co-head of impact, says that rather than putting money into solar panel manufacturers or wind farms, some investors are focusing on improving soil health, ecosystems and biodiversity, and investing in equity. It says it is meeting climate goals by investing in approaches to agriculture that promote labor practices. AlTi Tiedemann Global is a global asset management company headquartered in New York.
Regenerative agriculture, as this approach is known, falls into a broad category of nature-based solutions that “if activated, have the ability to sequester, and in fact absorb, CO2 and methane from the atmosphere,” Harrison says.
Tiedemann's clients include family offices and high-net-worth individuals who invest for impact, and are excited about a variety of nature-based solutions, including forestry, wetland mitigation, and regenerative agriculture. Because “they want to show up where their capital is a catalyst,” says Harrison. “Without their investment, the investment would not have been made.”
About a decade ago, such “impact risk capital” invested by wealthy individuals and families was funneled into solar and wind power development and manufacturing, as well as battery technology. Institutional capital is currently flowing into a variety of renewable energy projects, boosted by the 2022 US Inflation Control Act (IRA).
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“This has paved the way for the impact investing community to focus on nature-based solutions, as they are often overlooked or misunderstood by institutional investors,” he said. To tell.
Soil is “one of the largest living species” and improving soil health is “key to broader climate issues,” Harrison said. Agriculture accounts for between 20% and 30% of total emissions, and this amount is compared to things like the built environment and power generation. ”
By investing in renewable forestry and agriculture, investors are also putting money into real assets that “offer uncorrelated returns from a portfolio perspective in a high-inflation world,” he said.
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Many investors may be more familiar with the term “sustainable agriculture,” or organic farming. In a 2021 report, Pathstone, an independent advisory firm based in Inglewood, N.J., uses definitions provided by Farmland LP, a Larkspur, Calif.-based investment fund that converts conventional land into sustainable land. I explained the difference using.
Organic is a term used to describe products that are grown without the use of non-organic compounds and meet a set of standards from the United States Department of Agriculture. “Sustainable” is a looser term that means “continuation and maintenance rather than the continuous improvement that regenerative agriculture implies,” the paper said.
There are also no standards for regenerative agriculture, primarily because “it is a relatively new concept that is still being defined and debated,” but essentially it “fundamentally improves soil health.” “by reclaiming land for better future use,” the paper states. Rather than simply maintaining the land for current crops. ”
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It also introduces technologies and practices to help farmers (mainly small family farmers) increase crop yields and profitability “while supporting biodiversity and improving the soil health of the land.” Harrison also co-wrote an October article for customers. It is “based on the principle that supporting human and environmental health can coexist in harmony.”
These practices include planting cover crops, crop rotation, planting without tilling the soil first, and reducing or eliminating synthetic fertilizers and other soil inputs. This also includes integrated crop and livestock practices that rotate land between crops and pasture.
Farmers, entrepreneurs and investors cite access to capital as “the biggest challenge facing the transition to regenerative agriculture,” the authors write. Farmers need money not only to buy land, but also to buy equipment and advanced technology for planting, harvesting, transitioning and monitoring progress.
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One of the ways change happens is through policy changes. “Food and agriculture are shaped by a combination of federal, state, and local regulations and a variety of public funding streams,” according to Pathstone's 2021 report, which states that food entrepreneurs, workers, and residents insists that everyone needs to be involved in its formation. Policies that promote sustainable practices.
At the federal level, the IRA provided a significant policy boost by approving US$18 billion in funding for climate-smart agriculture and forestry activities that reduce greenhouse gas emissions and sequester carbon. .
But the transition to regenerative agriculture is also a matter of financing. This is because farmers need cash to switch from traditional practices, which requires a multi-year process that is cost-prohibitive. But the benefits of being able to charge a premium price for sustainably grown food are significant, Harrison said.
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Impact investors can do everything from philanthropic funds to advance the regenerative agriculture movement to market return investments in advanced technologies such as drones and satellite systems that can track improvements in soil health and carbon emissions. A variety of financial supports are available to intervene. Isolation, Harrison says.
Investors can also help by providing farmers with short-term debt to purchase equipment, or by providing first-loss funds that can absorb losses before they or other outside investors reach investment, he said. says.
“What's interesting in the private market is when you invest directly in a farm, when you buy land,” Harrison says. “Lands that can be converted to regenerative farming practices, such as no-till, cover crops, soil mechanics, and livestock integration, can be transformed by focusing solely on the land and simply owning the land, making all the principles of regenerative farming very You can measure it in an interesting way: you take an asset, you own that asset, and then you incentivize farmers to convert to renewable energy. [practices]”
While there are some large, publicly traded food conglomerates investing in regenerative farming practices, most opportunities for impact investors exist in these private transactions through direct purchases of land or There will be private equity, private credit and venture capital funds to convert and buy. And it's investing in regenerative farming techniques, he says.
There are several impact funds focused on sustainable agriculture amid broader climate change, and others focused on land restoration for both forestry and agriculture.
“I totally understand that,” Harrison said. “These are interesting because when you think about landscape-scale land management, a coordinated approach is often better.”
A paper co-authored by Harrison points out the risks of investing in sectors that are still developing. He said: “There is work to be done to standardize processes to measure and verify what is happening on the farm and avoid adopting practices that have little scientific basis.”
There is also the risk of investing capital in a farm that may not reach full productivity for several years. But as Harrison's paper points out, this transition is an important one in addressing greenhouse gas emissions.
“Imagining a future where farmers, freed from economic constraints and equipped with the means to adopt new technologies and more sustainable methods, no longer have to choose between fighting food insecurity and protecting ecosystems.” You will be able to do it.”
