Industry

Agri-Food Criteria Will Offer “Fresh Filter” for Bond Investors

New criteria will outline pathways and benchmarks for agricultural production to align with net zero and other green goals, says Climate Bonds. 

Climate Bonds Initiative (CBI) has begun work on its Agri-Food transitions criteria development, hoping it will provide investors with a “fresh filter” for forward risk, according to Sean Kidney, CEO of CBI.  

“If investors are addressing both mitigation – specifically carbon and methane – and resilience issues successfully, then they are less likely to be negatively impacted by both climate impacts and policy changes and are going to have better credit risk going forward,” Kidney told ESG Investor.  

The updated criteria will be expanded in scope to allow for certification of entities and sustainability-linked bonds (SLBs) in the crop and livestock production sectors – the process will result in the development of separate sets of criteria for ezch.  

The new criteria will build on existing agriculture criteria developed several years ago, which can already be used to certify assets and activities. However, the existing criteria was “too generalised” and required “too much interpretation”.  

“We didn’t make it easy enough [for investors]. With capital markets, the secret is to make it easy to judge and assess an asset,” Kidney said.  

To develop the criteria, CBI will involve the consultation of technical and industry experts in crop and livestock production. These experts will ultimately determine the form and relevance of the new criteria.  

Kidney was unable to elaborate at this early stage on the specific KPIs or KPAs the certifications will focus on, as this will be left to members of the technical and industry working groups.  

However, he stressed the agricultural sector needs frameworks to ensure its climate mitigation, climate transition, climate adaptation and resilience, as well as land use change, biodiversity, water use and food waste plans are adequately ambitious. 

Interest in the development of the new criteria is high, with Netherlands-based Rabobank and food security research group CGIAR participating in CBI’s Agriculture Technical Working Group.  

The new criteria aim to address the climate and environmental impacts of crop and livestock production, which is part of a wider CBI programme to address the transition in agri-food systems that will also develop standards for commodity procurement strategies and other elements of the sector’s value chain.  

Protected agriculture, forestry and biofuel crops are currently out of the scope of the existing criteria.  

CBI forecasts to publish its initial discussion paper in March, with the final publication of the crop and livestock production criteria expected by the end of 2023. 

Agri-food industry needs improvement 

Agri-food systems account for 31% of global greenhouse gas (GHG) emissions, 70% of all water withdrawals, and are the main driver of global biodiversity loss. 

According to data from the UN, the global population is projected to hit 10 billion by 2050, resulting in food demand doubling.  

Food security, therefore, must be secured through climate adaptation in the agri-food industry by accessing capital to spur the development of sustainable farming practices, improve soil carbon and maintain food production with less inorganic fertilisers.  

For this to occur, green definitions, like the new criteria being developed by CBI, are required to facilitate financial flows to companies that can demonstrate their contribution to the transition of the agri-food sector. 

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