CHAPTER FIVE

Climate Finance

Funding Sustainable Food Systems Transformation

Eugenio Díaz-Bonilla and Ruben Echeverría

DOWNLOAD

Financial flows for climate change can be reoriented to support sustainable food systems transformation

Reorienting financial flows to address climate change adaptation and mitigation is one of the key objectives of the Paris Agreement on climate change, and global interest in its important role for transformation of the world’s food systems is growing. Six main flows of funds are relevant: expenditures by consumers, sales by food systems operators, international development flows, public budgets, banking systems, and capital markets.
Current financial flows for climate change in the agriculture, forestry, and land use (AFOLU) sector, one of the components of food systems, amount to US$20 billion annually — less than 4 percent of total climate finance. Estimates of additional funds needed for a climate-positive transformation of food systems plus meeting other Sustainable Development Goals range up to $350 billion per year to 2030.
Reorienting funds requires further analysis of this financial gap, and identification of existing counterproductive investments as well as appropriate climate-positive activities and potential finance sources.

Important steps can be taken now to increase funding for climate change mitigation and adaptation in food systems:

Establish effective incentive frameworks, as well as enabling macroeconomic and trade environments, for climate-positive food systems transformation. Governments can consider legislating net-zero carbon targets, pricing of climate externalities, development of carbon markets, and disclosures of climate risks as ways to create an effective incentive framework.

Guide consumption- and production-related financial flows in food value chains. To reorient consumer spending, governments can influence the food environment using fiscal tools, regulations, and information; investments by food systems operators can be influenced by consumer demand and by taxes, subsidies, and regulations.
Use international development funds strategically. Multilateral and bilateral development agencies should be held to their climate commitments, and their investments can be used to leverage private funds from global capital markets.
Improve the allocation of national public budgets. To achieve the greatest impact, public funds should be targeted to research and innovation for sustainable intensification of agriculture, as well as investments in science across entire food value chains and the consumer environment.
Steer banking systems and capital markets toward climate-positive operations. Climate mitigation and adaptation projects constitute a miniscule share of bank lending and private sector investments, while investments in counterproductive activities remain high.
Ensure banking systems and capital markets support inclusive transformation by identifying investable opportunities and targeting credit lines to disadvantaged groups. Small farmers and businesses, women, and youth are most affected by climate change but often lack access to investment funds.

