Ag joins impact investing’s main stage

The 2021 Responsible Investor Forum heard how the agriculture investing market’s well-developed themes of environmental risk management and stewardship are now at the center of discussions about post-pandemic capitalism.

As recently as the 2019 Responsible Investor Forum, ag-focused observers could lament the sector’s relatively low profile amid a rush toward impact in private markets which was already well underway.

RIF 2021, however, made very clear that the themes of environmental stewardship and social responsibility, which have already become key arenas of competition among agricultural investment firms, now occupy the center of a much broader discussion about post-pandemic capitalism.

Not only was there a panel devoted to agriculture at RIF 2021, but one of the market’s boldfaced names (who cannot be named due to the Chatham House rule) was a key participant in a main stage discussion on the first day of the conference. That panel provided an on-the-ground state of play on the pace and focus of GP/LP communication around impending climate and impact disclosures, and proved to be among the most valuable of the two-day event.

The pandemic’s shadow made healthcare a natural focus for the RIF’s main stage and issues of diversity and inclusion featured more prominently by both design and necessity. However, consensus that covid-19 increased the likelihood of systemic response to environmental challenges found its way into most discussions and elevated climate as a key theme of the conference.

Agricultural asset managers have never had the luxury of being able to ignore increasingly-tangible climate risks, unlike 40 percent of respondent CIOs to a recent PGIM survey who said they still do not incorporate them into decision making.

Firms that proactively made impact an implicit or explicit focus within their approach to ag years ago have recently found themselves presented with new financing options, in a rapidly changing paradigm reflecting urgent public and private attention to the food, water and energy nexus.

Others who relied on intrinsic connections between profitability and stewardship alone to define their approach to impact now find themselves beginning the process of thinking about how to maximize management for social good, alongside well-capitalized newcomers brought to agriculture through their search for antiquated sectors in need of rapid disruption for society’s benefit.

An ERM survey of 54 private equity investment professionals presented at the RIF found 93 percent of respondents expect ESG-focused markets to provide opportunities, and highlighted climate change as the most promising theme for the next three to five years.

Investors are society’s sponges for optimism and it is no surprise few of the RIF’s panels veered too far from a tone of excitement about opportunities for impact available today. Still, a ‘boom times’ atmosphere characterizing some discussion provokes a note of caution.

RIF 2021 marked a full year since what for many had been their last in-person conference before lockdown. A virtual gathering was perhaps a helpful reminder that difficult objectives are hard to accomplish – whether the target is finding a way to contain disease or achieving genuine impact through investments – and the challenges facing society are indeed significant.

One LP panelist with personal experience as a manager cautioned against responding to the urge to display continual progress on very difficult impact objectives and instead counseled transparency and honest communication about ESG setbacks as well as opportunities.

RIF 2021 made clear that agricultural investment firms that have been laggards on impact now have reason to regret opportunities wasted as their forward-looking peers are brought into the main stage discourse around impact investing.

It also suggested that as generalist firms look to merge the best of what has driven private equity’s development over the past quarter century with a responsible investment movement underway for at least as long, they would do well to heed the example provided by the ag market’s laggards and not fall into the trap of reframing private equity itself as impact investing.