Carrie Walczak Senior Advisor Sustainability Strategy and Policy
Pieternel Boogaard Director Agribusiness, Food & Water
Tackling inequality and climate change by investing in agri-food entrepreneurs
The world has less than seven years to achieve the SDGs, inequality is on the rise and the impact of climate change is becoming painfully palpable. Agriculture, including forestry, is one of the domains in which all of this comes together and where solutions can be realized by investing in local entrepreneurs. Here, FMO’s Pieternel Boogaard and Carrie Walczak talk about the bank’s agri-food ambitions, challenges and experiences on the ground.
portfolio in SDG 10
portfolio in SDG 13
At a time when countries and communities around the world are struggling with climate change and inequality, FMO has challenged itself to tackle both at the same time. Both topics have been an integral part of FMO’s trailblazing approach to development finance for years and in 2022, the bank launched an ambitious new strategy towards 2030, titled Pioneer - Develop - Scale. This strategy aims to grow FMO’s impact and build a €10 billion portfolio in each of the SDG goals Reduced Inequality (SDG 10) and Climate Action (SDG 13), through organic growth combined with market creation and innovation, mobilizing more funds, and increasing efficiency.
In 2022, FMO also published its Climate Action Plan, which provides a practical pathway towards achieving its SDG 13 goals. It focuses on aligning its portfolio and investments with the Paris Agreement mitigation and resilience goals, increasing climate investments and supporting FMO’s clients to take climate action. In the area of forestry, the bank aims to invest €1 billion by 2030 and help build forestry products and carbon removal markets. In agriculture, FMO wants to improve food security and support economic development in rural areas, for example by financing businesses that generate jobs and want to be more resource efficient and climate change resilient.
“EXTREME WEATHER, ESPECIALLY DROUGHT, IS MAKING THINGS WORSE”
FROST AND DROUGHT
FMO’s ambitions align with the daily struggles of agri-food entrepreneurs in Africa, Latin America, and Asia, where, in some cases, an existing lack of nutritious food is being exacerbated by climate change. “In South Africa, we have a producer of blueberries dealing with frost, while in Zambia a fish producer is struggling with lake water that is either too high or too low. Extreme weather, especially drought, is making things worse. Even without climate change, some countries in Africa need to import basic food commodities like grain, because they don’t have the resources to become self-sufficient. We want to change this by supporting companies and projects that are or will be financially healthy and sustainable and that can act as a catalyst for change,” says Pieternel, who is Director Agribusiness, Food & Water.
According to Carrie, Senior Advisor Sustainability Strategy and Policy, FMO works with its customers to invest in climate mitigation, adaptation and resilience, biodiversity, and other footprint reduction measures. This includes drought-resistant crops, using renewable energy for agricultural processing, using less fertilizers and becoming more resource efficient. “Ideally, we not only finance such measures directly, but also extend credit lines to local banks so they can finance these solutions with their customers. A key challenge is to make new technologies and practices affordable and available to all contributors to the agriculture value chain, including smallholder farmers.”
Pieternel argues that in order for FMO to realize its ambitions, it needs to balance the climate goals of the international community with the actual capabilities, limitations and needs of individual countries. A clear example of this is with the production of animal proteins in Sub-Saharan Africa. With the rise of the middle-income class, the consumption of affordable animal proteins (especially poultry) is increasing (which is still only at some 6 kg p.c. yearly versus > 20kg in The Netherlands). The same holds for production and consumption of dairy products. Dairy products play a key role in reducing the amount of stunted growth due to malnutrition in African children (which stands at 35% vs. global average of 22%). "We believe it is important to support the sustainable development of these sectors in regions where there is a deficit despite of the fact that this could drive up carbon emissions", says Pieternel. "The production of affordable nutritious food is a priority for these countries".
Carrie adds that this also underlines FMO's commitment to engage with its customers on their climate journey to 2030. "While we have committed to reduce our portfolio emissions to net zero by 2050, towards 2030 we think it is critically important to prepare our clients for the changes that are coming. This means helping them find practical and affordable solutions toward reducing emissions and increasing resilience to physical climate change. This is much more challenging than just divesting or not investing, but represents the impact we want to have ahead."
JUST AND INCLUSIVE
When developing its new strategy, FMO spent a lot of time thinking about how to adapt to the differing needs of high, middle and low-income countries. In Europe, discussions focus on decarbonizing fuel-intensive industries such as manufacturing to achieve a 55% reduction of emissions. In low-income countries FMO looks for low-emission solutions, while in middle-income countries it will embrace both. Furthermore, as part of its Climate Action Plan, FMO wants the transition to a low-carbon economy to be just and inclusive, which is why it also considers the social aspects of its clients. FMO aims to both reduce inequalities and take climate actions, so we are looking for synergies on a transaction level.
In Sri Lanka, for example, FMO invested in a shrimp processing plan. The mangroves in which the shrimps grow, sequester CO₂, while the processing plant provides jobs for the local community. FMO also invested in HPW, a market-leader in dried fruit processing in West-Africa. In its factories in Ghana and Ivory Coast, the company dries mangos and other fruits, many of which would go to waste because they are not good enough for export. HPW provides year-round employment to more than 2,000 people and supports over 1,500 smallholder farmers, including in neighboring Burkina Faso. The investment qualifies as inclusive, given the technical support provided to smallholders, and green, since HPW has a sustainable and circular business model.
In Bolivia, meanwhile, FMO has invested in Sembrar Sartawi through its DFCD facility, which provides microfinance loans in combination with technical assistance to small farmers in rural Bolivia, most of which are not serviced by traditional banks. Sembrar Sartawi will use the facility to support small farmers impacted by climate change who are working to improve their agricultural practices. This includes purchasing environmentally certified seeds, investing in energy-efficient equipment, or taking out a climate risk insurance product.
REDUCE INEQUALITY AND TAKE CLIMATE ACTION
In the last few decades, industrialized agriculture and a globalized agri-food trade have brought wealth and increased food security in many parts of the world. But some parts have been left out. The Paris Agreement explicitly refers to fostering climate resilience and low greenhouse gas emissions development in a manner that does not threaten food production. We believe that efforts toward climate mitigation action in the agriculture sector need to prioritize equitable access to healthy diets.
Both Pieternel and Carrie are optimistic about the prospects of the industry. “I have great admiration for the agricultural companies we invest in. They operate in extreme circumstances, such as post-armed conflict or a general lack of infrastructure and public services. They are the first to get hit by climate change and yet they manage to innovate and take good care of their workers and communities. This kind of entrepreneurship and commitment gives me hope and faith that things will get better,” says Pieternel.
Carrie concurs, saying during her visit to the COP27 conference in Egypt she saw a real shift in thinking about agriculture. “In the debate around climate change, the focus so far has been on the energy industry. Now there is an increasing focus on food production and the complex role and needs of the industry going forward. I am proud that we can help bring the experiences of our clients to the global dialogue.”
FMO EXPANDS ITS FORESTRY STRATEGY
About 20% of annual global GHG emissions are related to deforestation and forest degradation. FMO has been investing in forestry since 2014, using both its own balance sheet and concessional funds that FMO manages on behalf of the Dutch government. Our focus was very much on brownfield plantations and integrated forestry given that these projects are commercially viable and ESG risks are generally manageable.
In 2023, we expanded our forestry strategy, now including both Natural Forest Management and Nature Based Solutions. This makes us better positioned to contribute towards our goal of a €10 billion SDG 13 portfolio by 2030 whereby it aims to create a forestry investment portfolio of up to €1 billion. By adding new forestry sub-sectors, FMO will not only contribute to an increase in timber production to allow for a transition to a bio-based economy, but also include important objectives such as biodiversity and the strengthening and conservation of natural forests.
FMO expects the risk associated with this portfolio to be higher and will be investing in knowledge and people to build a diversified portfolio that both is commercially viable and reaches the highest combined impact around SDG 13. In addition, we will work with important donors such as the Dutch and UK governments that have provided concessional finance to FMO to blend with more commercial finance and reach riskier, but also more impactful initiatives in forestry.
CLIMATE ACTION PLAN
FMO has published its first Climate Action Plan, providing a framework for the actions we will take to 2030 to fulfil our Sustainable Development Goal 13 (Climate Action) objectives. The Climate Action Plan provides guidance on how we will build on the strong foundation of work we have already done toward this goal, given that SDG 13 has long been an integral part of FMO’s core strategy. We view this plan as a foundation and expect to continue to refine our approach in the years ahead.