Impact pressure is shaping ag markets

LP demands for climate-mitigating strategies and ESG hint at how the asset class might come into sharper focus.

Discussions at PEI’s Responsible Investor Forum held just a week before the indictment of a TPG executive on bribery charges raised questions over one of the highest-profile efforts within the impact-investment movement – had a somewhat tentative tone.

Executives representing leading firms’ impact and ESG-focused investment vehicles and analysis units acknowledged uncertainty about the social forces that had brought them onto relatively new ground.

Panelists at the event, held in New York earlier this month, described difficulties in collecting credible data to perform due diligence; vented about imprecise rhetoric; and debated approaches to increasing diversity and shifting connections between financial return and social change. Some even mocked their own adherence to the nascent markets’ rapidly-settling orthodoxies.

“We do not have a dedicated impact vehicle, but we do have SDG [Sustainable Development Goals] pins,” deadpanned one aspiring social entrepreneur, gesturing to their lapel.

Given agriculture’s key role in many of the social, environmental and governance challenges the SDGs aim to address – and its status as the sector that attracts the most impact investors – we were disappointed (if not surprised) to hear relatively little discussion of ag at the two-day conference.

Healthcare, infrastructure and renewables were the focus for what sector-specific discussions panelists did engage in, though the exchange of 30,000-foot views at the conference did highlight important features of the fundraising environment facing those on the trail with ag-focused vehicles.

One insight relevant to managers regardless of asset class came up more than once: despite the growing chorus from both sides of the GP/LP nexus on impact investing, few institutions are prioritizing investments designed to maximize social impact. One audience member reported feedback from GPs that too few of their investors have expressed interest in dedicated impact strategies to justify building one.

“The LPs are not demanding it,” the audience member quoted a manager as having told them.

If that lament – and the ambivalence of some panelists towards ‘impact’ – could tempt some to label these growing pressures as a passing fad, other recent developments indicate that climate concerns are certainly at the forefront for global ag investors.

In late February, the Employees’ Retirement System of Rhode Island announced it had reached an agreement with Archer Daniels Midland, in which it is an investor, to take steps to prepare for a carbon-constrained future. Earlier this month, a coalition of institutions with a combined $6.3 trillion AUM that includes CalPERS, the Minnesota State Board of Investment, APG Asset Management endorsed a statement recommending companies involved in soybean production take steps to ensure their supply chains do not contribute to deforestation.

“While we recognize the important role of agriculture and soybean production to economic development and the livelihoods of farmers, we are also concerned that the environmental and social issues associated with unsustainable soybean production could have a material impact on companies that source the commodity,” the group’s statement read.

Organized by the non-profit Ceres, the group explicitly linked its call for an extension of an existing moratorium on deforestation in Brazil’s Amazon region with the final recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), an initiative mentioned frequently at the NY RIF and highlighted at June’s Berlin RIF as a potential gamechanger.

Similar to how California’s Sustainable Groundwater Management Act has provided a framework to address water challenges, the TCFD seems set to force an appreciation of the financial implications of climate risk that can only increase attention on agriculture. The most substantive discussion of ag at the New York RIF, for example, came from the manager of a strategy focused on companies standing to benefit from predictable changes in climate that are likely unavoidable.

Regardless of whether this appreciation finds its way to agricultural investors from within or outside of their fund structures, there seems little doubt the ongoing effort to respond to strengthening calls for transparency and action on climate change will impact which opportunities they can pursue.