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240912_ISF Climate Links Adaptation Report Presentation_vFTF Format-508.pdf
- 1. Climate Adaptation Financingfor Agriculture Webinar September 12, 2024 This Project is supported by Feed the Future Market Systems and Partnerships (MSP), an activity of the U.S. Government
- 2. CLIMATE FINANCE GAP Climatefinance in agrifood systems represents a very small portion of total climate funding Global project-level climate finance (2019/2020) $660.2 Billion Total Agrifood Systems $28.5 Bn 4.3% Of this, only $7 bn (1% of total climate finance) went to agrifood adaptation $631.7 Bn All other sector s 95.7% We need to see at least 7x increase in climate finance for agrifood Agrifood finance versus estimated need Tracked Finance Company-level $2.3 Bn Project-level $28.5 Bn Estimated Need (FOLU and UNEP) $381.0 Bn Leading estimates of agrifood adaptation finance range from $212bn to $381bn Source: CPI, 2023. Landscape of Climate Finance for Agrifood Systems.
- 3. ABOUT THIS RESEARCH Billand Melinda Gates Foundation engaged ISF and AgFunder to identify funding flows and key investment trends in private adaptation finance for smallholder farmers Robust data analysis on adaptation finance for smallholder farmer relevant solutions Comprehensive taxonomy of adaptation solutions 6 adaptation-centric investment opportunities USAID engaged ISF to develop guidance for stakeholders to identify, assess, and measure investment opportunities in adaptation-focused agriculture investment funds Set of selection criteria for selecting and assessing adaptation-focused agriculture funds Assessment of catalytic funding opportunities and considerations Framework for assessing climate adaptation impact Download at http://www.isfadvisors.org/research
- 4. Key challenges Thereare a variety of barriers associated with identifying and investing in adaptation solutions Primary challenges (not intended to be exhaustive) Lack of Definition There is no one-size-fits-all definition of adaptation - definitions range from very broad to very specific Varying Taxonomies A variety of taxonomies exist, however prior to this report no taxonomy focused on investable adaptation-centric business models High Risks Many investors shy away from investing in smallholder farmer markets, due to their risky profiles and high cost to serve Context Specificity Adaptation is very context specific; what’s needed in a drought-prone region is very different than a flood-prone region Diverse Funding Needs Many climate-smart businesses need diverse capital, from grant to commercial, and have longer payback timelines Sources: ISF & AgFunder Analysis Key challenges There are a variety of barriers associated with identifying and investing in adaptation solutions Sources: ISF & AgFunder Analysis Lack of Definition Context Specificity Varying Taxonomies Diverse Funding Needs There is no one-size-fits-all definition of adaptation - definitions range from very broad to very specific Adaptation is very context specific; what’s needed in a drought-prone region is very different than a flood-prone region A variety of taxonomies exist, however prior to this report no taxonomy focused on investable adaptation-centric business models Many climate-smart businesses need diverse capital, from grant to commercial, and have longer payback timelines High Risks Many investors shy away from investing in smallholder farmer markets, due to their risky profiles and high cost to serve Primary challenges (not intended to be exhaustive)
- 5. Key findings Despitethese challenges, investors are finding deals in adaptation solutions for smallholder farmer-focused agrifoodtechs Private funding to smallholder farmer adaptation agrifoodtech startups $5.7 bn Total $ Investments (2012 – Q3 2023) Corporate venture capital arms contributed 14% of total investment ($780 mn) 1,543 Total # Deals (2012 – Q3 2023) 710 Total # Unique Companies (2012 – Q3 2023) DFIs contributed to 63 deals with FMO, Israel Innovation Authority, Finnfund, and CDC leading the charge $1.7 mn Median Deal Size 14% of funded companies also received grant funding totaling $1.5 bn across 484 deals (in addition to the commercial and sub-commercial funding listed above) Defining Adaptation ADAPTATION: Adaptation comprises the measures taken to minimize the adverse impacts of actual or expected future climate change or exploit beneficial opportunities ADAPTIVE CAPACITY: The ability to adjust practices to reduce potential damage associated with adverse events or conditions, to respond to consequences of the same, or to take advantage of opportunities Our methodology used keyword search and natural language processing to identify adaptation investments relevant for smallholder farmers that explicitly called out adaptation as well as those that can be considered adaptation, but may not have a direct call out Sources: ISF & AgFunder Analysis
- 6. Investment opportunities Sixmajor opportunities for private sector investment in adaptation emerged from our research ON FARM & POST FARM INFRASTRUCTURE ADAPTED INPUTS ENABLING DATA & INTELLIGENCE FINANCIAL SERVICES CLIMATE ADAPTIVE SUPPLY CHAIN CONNECTORS AG MARKETPLACES Sources: ISF & AgFunder Analysis
- 7. Donor deep diveConsiderations for donors investing in adaptation focused funds Criteria Assessment Questions Best Practices CONTEXT AND GEOGRAPHY Does the fund focus on investing in high-priority regions and consider the local context in its investment strategy? ✔ Funds should conduct science-based climate risk assessments to inform their investment decisions ✔ Target funds that invest in highly vulnerable countries as indicated in the Notre Dame Global Adaptation Initiative’s (ND-GAIN) Country Index ✔ Emphasize local presence or experience within the fund’s team SOLUTIONS-LED APPROACH Does the fund invest in accepted and science-driven adaptation practices? ✔ Invest in funds that use a set of science-based climate adaptation solutions to inform their investment thesis. As a starting point, donors can consider the adaptation solutions outlined by FAO, ASAP, and the UN CTCN taxonomies ✔ However, donors must ultimately select a set of solutions that aligns best with their Theory of change (ToC) and impact objectives INTENTIONALITY AND ADDITIONALITY Does the fund have processes for assessing the intentionality and additionality of an investee's contribution to adaptation? ✔ Prioritize funds with the ability to assess intentionality at the investee level by aligning with the DAC Rio Markers and ensuring investees possess or are developing comprehensive ESMS capabilities ✔ Prioritize funds with the ability to assess additionality at the fund level by aligning with either the IMP’s Investor Contribution Strategies or the MDB’s Harmonized Framework for Additionality Source: ISF Analysis
- 8. Assessing impact Frameworkfor measuring impact of adaptation investments Intensity of measurement High Low Impact approach Description Existing frameworks / tools Example metrics Reach of impact Describes the extent of climate-adaptive services or products supplied by the enterprise ✔ GIIN IRIS+ ✔ GCF Integrated Results Framework ✔ GIZ • # individuals trained in climate adaptive capacity • # people with improved access to adaptation and resilience information • Value of physical assets made more resilient to effects of climate change Proxy metrics Impact metrics, specifically around soil health, water usage and inputs, that can be used in conjunction as a proxy for climate adaptation ✔ GIIN IRIS+ ✔ GIZ ✔ COSA • Total water consumed • # cubic meters of water conserved • Severity and prevalence of observed erosion on farm • Areas of land treated with pesticides • Amount of pesticides used Perceived adaptation Degree to which beneficiaries feel better adapted to existing and future climate impacts ✔ 60 Decibels ✔ COSA • Has the company affected how prepared you feel for an unexpected weather event? • Has the company affected your knowledge of how to adapt to an unexpected weather event? Results of actual shocks Change of production and income of agri-SMEs and farmers as a direct result of actual climate events ✔ 60 Decibels • Did your involvement with the company affect how long it took your household to recover from shock? • How did your involvement with the company affect the strategies you used to deal with the shock? Source: ISF Analysis
- 9. Concessional capital needs|To spur climate adaptation in ag, donors should consider three sets of market-level interventions Market level Objective Opportunities for catalytic funding Demand side Target investments towards the most pressing adaptation solutions • Investors expressed notable gaps for post-harvest management, precision agriculture, crop insurance, Mid-stream infrastructure (cold chain, irrigation, logistics) • However, the most pressing adaptation needs will vary by geography and local context Supply side Address fund-level market gaps • Support for local climate risk assessments to focus, structure, and negotiate investments with respect to local climate hazards and risks • Need for patient and flexible capital to accommodate the high risk and long-time horizon of many adaptation investments • Support the costs and risks associated with smaller ticket sizes1 Ecosystem support Take a systems approach, ensuring adaptation investment is transparent, coordinated, and distributed across the food systems value chain • Provide additional financial support for farmer training and information at the ecosystem level • Support learning initiatives to better inform the direction and coordination of the sector • Fund a holistic suite of initiatives across value chains, recognizing the interdependent systems nature of many adaptation solutions Note: 1) ISF and AgFunder found the median adaptation investment across emerging markets is approximately USD $1.0M