A comprehensive study released this month has identified state and federal income tax credits for conservation easements as the only regenerative agriculture investment strategy that is currently established to scale in the US.
Soil Wealth: Investing in Regenerative Agriculture Across Asset Classes was the result of a three-year effort supported by the US Department of Agriculture’s Conservation Innovation Grant and 19 additional partners. The research was led by the Croatan Institute, the Delta Institute and the Organic Agriculture Revitalization Strategy.
It stated that 127 investment strategies were currently being used to manage $321.1 billion of assets devoted to sustainable agriculture. Within this group, 70 strategies – managing a total of $47.5 billion of assets – were pursuing investments that included criteria associated with “regenerative” approaches to agriculture.
The report acknowledged that the precise meaning of regenerative was “highly in flux”. Its own definition encompassed approaches aimed at restoring, improving and enhancing biological vitality, carrying capacity and the ecosystem services provided by farmland.
The report attempted to map the current market and help identify new potential investment strategies and mechanisms for financing regenerative agriculture at various scales. It described financing conditions within six subsectors: cash and equivalents, public debt, private debt, public equity, private equity/venture capital and real assets/farmland.
“Real asset investments in land, private equity investments in companies supporting regenerative agricultural value chains, and private debt investments in farms and firms are currently the leading assets classes, giving the fullest expression to regenerative agriculture as an investment theme,” the report’s authors wrote.
Within each subsector, the report categorized conditions for potential approaches to financing investment in regenerative agriculture. It placed approaches that had yet to be applied in the “future” and “emerging” categories, and categorized others as “growing rapidly”, “ready to scale” or “established”.
“Of the 67 mechanisms, instruments and approaches we inventory, 43 percent are classified at a seed stage for future development, 31 percent are emerging, 19 percent are growing rapidly, and only four percent appear ready to scale,” wrote the report’s authors. “Only one seems firmly established to support regenerative practices, namely, state and federal income tax credits for conservation easements.”
Specifically, the report highlights USDA’s Natural Resources Conservation Service as the largest supporter of conservation on private land. It also cites third-party suggestions of ways such initiatives might engage investment capital.
Among private investors, insurance companies have played the main role in financing the broader sustainable agriculture investment market. Faith-based institutions, philanthropic organizations and family offices have also been particularly active investors.
The report distinguishes the increased appetite for agricultural investments in recent years from an earlier wave of institutional capital, led by wealthy college endowments, that was aiming to make “opportunistic” investments in the wake of the US farming crisis in the 1980s.
“Managing climate risk, pursuing positive impact or transforming food systems were simply not part of the rationale for deploying capital into agricultural investments,” wrote the report’s authors. “However, in recent years, sustainability and the incorporation of environmental, social and governance factors into investment processes have become increasingly important even among major conventional food and agricultural investors.”