Rapid population growth and changes in dietary habits mean global demand for food is expected to grow by up to 70 percent in the coming decades. Before reaching our plates, that food must be produced, processed, stored, packaged, transported, prepared and served. At every stage, food provisioning releases greenhouse gases.
Indeed, agriculture currently accounts for 14 percent of greenhouse gas emissions. Livestock release large amounts of methane, which can also escape from manure and organic waste in landfills. Meanwhile, the processes of fertilizing soils, burning biomass, growing rice and producing fertilizers all contribute significantly, according to the Food and Agriculture Organization of the United Nations. Deforestation, often associated with repurposing land for farming, accounts for a further 17 percent.
But while agriculture is a major contributor to climate change, the sector itself is also deeply affected by climate change impacts. Climate change alters the basics of productive ecosystems, such as temperature and rainfall. It impacts on natural resources, such as land and water availability, and as such, it affects food security, rural livelihoods and sustainable development at global, regional and local levels.
According to the World Bank, a warming climate could cut crop yields by more than 25 percent, while extreme weather events can also have devastating effects on farmers, their land and crops. In addition, changes in temperatures and growing seasons might affect the proliferation of insects, invasive weeds or diseases. “Investors in the global food supply chain face significant exposure to losses and value destruction due to climate change impacts, from rising feed costs to increased livestock mortality,” says Aarti Ramachandran, head of research and development at the FAIRR Initiative. “Driving investments in responsible agricultural practices – such as regenerative agriculture projects to improve water management and soil health or diversification of agricultural systems – will be critical to protecting future returns and ensuring global food security.”
Indeed, transforming the agricultural sector and building resilience will require significant amounts of climate-smart investment. Agri investors must ensure climate change considerations are embedded in every aspect of their decision making, from asset selection to exit. In doing so, they will be able to unlock enormous economic potential and have a major impact on sustainable food production, mitigating climate change and achieving several of the UN’s Sustainable Development Goals.
“Responsible investing is an important tool to mitigate and manage climate change risk exposure in agriculture investment portfolios,” says Sanaz Raczynski, head of sustainability for Nuveen’s real assets and private markets business. “By integrating climate change considerations throughout the investment and farmland management process and engaging with tenants and operators to adopt climate-resilient practices, a responsible investor can reduce exposure to climate change risk while also mitigating agriculture’s impact on climate change. It’s a win-win.”