Decarbonization momentum will continue to support ag

The year ahead will see strengthening focus on reducing emissions across the economy continue to feed LP interest in agriculture.

Some speculate that covid-related shutdowns may ultimately have helped bring about a peak in global carbon emissions. Regardless of whether 2020’s silver lining proves quite so bold, the shock of the pandemic has clearly helped strengthen the consensus that climate change requires systemic response.

McKinsey partner Josh Katz told Agri Investor in June that the need for heightened focus on resilience links carbon management with pandemic response. He said the lack of progress toward formal regulation and significant carbon credit markets has traditionally limited appetite to finance large-scale emissions abatements that do not offer direct returns.

Amid the post-covid focus on resilience, Katz noted, momentum on carbon is clearly building.

In a September report, the US Commodities Futures Trading Commission called implementation of an economy-wide carbon price the “single most important step to manage climate risk and drive the appropriate allocation of capital.” The past year has seen actors throughout the agricultural supply chain respond to such endorsements of climate’s centrality by positioning themselves within a burgeoning “carbon farming” market that pays producers for emissions sequestered through regenerative farming practices.

Ryan Sirolli, Cargill’s director of row crop sustainability, told Agri Investor in April that its Soil and Water Outcomes Fund collaboration plans to solicit private capital next year to equip farmers to combine income from carbon credits with other payments for water and soil quality. November saw Indigo Agriculture sell carbon credits to a slate of eight buyers including Barclays, IBM and JPMorgan Chase for $20 per ton of CO2 abated; a price that Nick Reinke – a sustainability manager at Land O’ Lakes subsidiary Truterra – acknowledged is “a bit arbitrary at this point” in the market’s development.

Other managers not yet visibly active in carbon farming report careful study of early developments and the keen interest that high-level signaling on climate continues to provoke among LPs active and interested in agriculture. Also among factors driving interest is the election of Joe Biden, who said earlier this month that he hopes to see his USDA combine emissions reduction with “new sources of income for farmers.”

A report authored by an academic leading Biden’s USDA transition calls for steps that would see forestry and ag combine to account for between 10 and 20 percent of emissions reductions needed to reach net zero by 2050. It proposes using the Commodity Credit Corporation to create, within the first 100 days of the administration, a carbon bank to finance “large-scale investment in climate-smart land management practices.”

The year ahead will see such proposals continue to feed LP interest in agriculture as corporates position themselves ahead of regulation many see as inevitable. Certain managers can expect chances to tap into growing focus on ag’s natural capital by building upon core operations. Others may be challenged to re-examine key assumptions.