Financing a healthy, fair and sustainable food system
Food systems today generate $ 12 trillion in hidden social, economic and environmental costs. It prioritizes volume over nutritional value, fails to pay a living wage while creating significant profits for a concentrated set of actors, and treats the natural environment as an infinite resource – resulting in massive waste and compromising sustainability. stability of the entire food system and the world economy. .
The United Nations Food Systems Summit brought people together to develop the solutions we need. The Summit’s “financial lever”, made up of the World Bank, IFPRI and the Food and Land Use Coalition, developed the Food Finance Architecture, a guidance note that presents the building blocks of how banks, investors, development institutions, businesses, farmers and governments can move capital out of assets. high-carbon, unequal and extractive foods towards inclusive assets, circular and climate-smart business models that benefit people and the planet.
The architecture of food finance focuses on five imperatives needed to optimize public spending and mobilize private capital for a transformation of the global food system:
1. Reshaping public support and incentives
Current food systems encourage unsustainable choices. Most of the $ 600 billion in global public financial assistance to agriculture and fisheries contributes to the overexploitation of natural resources and often benefits the richest and largest farmers. Reshaping public support can remedy market failures and steer the market towards sustainable practices. Governments can reuse tax incentives to no longer support the production of carbon emissions, excessive sugar consumption and other harmful behaviors. Instead, regulations should aim to support sustainable practices, the construction of rural infrastructure, flood risk mitigation, and the generation of knowledge and innovation. Public spending should also create mechanisms for others to invest in nature conservation.
2. Integrate health, environmental and social risks into financial decision making
The food sector is increasingly exposed to risks that destabilize public and private sector portfolios. We need to change the way risk is assessed and integrated into financial decision making. Investors and large corporations can adopt and report on the Climate-Related Financial Disclosures Working Group, help develop the Nature-Related Financial Disclosure Working Group, and target a net zero portfolio. For governments, it is essential to coordinate services, align public procurement with good food practices and recognize the risks of continuing to depend on unsustainable supply chains.
3. Scale up suitable financial products and business models
Raising capital to run start-ups that benefit people and the planet can have high transaction costs. Companies looking to switch to more sustainable production practices often have to switch to innovative business models that have not been proven successful, which limits investor interest. To meet these challenges, development finance institutions can use their capital as a catalyst, including issuing food system bonds and providing readiness facilities for sustainable business models through incubators. Banks and investors can engage with blended finance solutions early on and scale up financial solutions that consider the value of sustainable practices.
4. Ensure equitable food systems
Income inequality and lack of social protection leave millions of people hungry every day and billions unable to afford healthy food. Public and private actors can cultivate equitable food systems within and between countries. Governments need to improve social protection systems, with nutrition-sensitive poverty lines, to ensure that everyone can afford a nutritious diet. Companies in the supply chain need to ensure that they are paying sufficient wages to their employees and review the prices paid to suppliers to ensure that they can also maintain their livelihoods and invest to improve sustainability.
5. Strengthen food governance and stability
Food markets are inherently volatile. Weather, economic conditions, conflict and health shocks all affect food production and food availability. Food systems today are not designed to cope with increasing risks, such as climate change or loss of biodiversity. The international governance system must be improved to promote stable, productive and equitable food systems. International coordination is essential to share expertise and respond to emerging crises. An international coordinating body could help play this role. Improvements can be made to the flow of food, reforming trade barriers and investment in infrastructure in underserved areas.