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The ESG Interview: Sowing the Seeds of Sustainability

Julia Wakeling, Head of Impact and ESG at SilverStreet Capital, explains how investors can help African smallholders secure a sustainable future.

Africa has the fastest growing population on earth, increasing at an annual rate of 2.89%. Today the continent has 1.36 billion inhabitants; a figure predicted to reach 2.5 billion by 2050.

This compares to Europe where population growth has not exceeded 1% since 1950, and was just 0.4% last year. The rates are similar in the US where the population grew by 0.36% last year.

Perversely, food production in Europe and the US vastly outstrips that in Africa. The US produces 11,863.9kg of maize per hectare each year, while in Tanzania the yield is just 1460kgs per hectare. As well as lagging significantly its European and US counterparts, Africa is also behind Russia, South America and Asia in agricultural production.

Addressing this disparity and ultimately diverting catastrophic food poverty are the goals of UK-based impact investors SilverStreet Capital.

Julia Wakeling, Head of Impact and ESG at SilverStreet, says: “Africa‘s population is going to exceed two billion people by 2050. In order to feed them there are two options: clear more land to plant more crops or increase crop yields from existing poor levels.”

Taking the former route would, according to research from Edinburgh University, mean clearing one billion hectares of land, the result of which would have devastating consequences for carbon emissions and biodiversity.

Wakeling describes this as a “terrifying” prospect and one that is entirely at odds with the UN’s Sustainable Development Goals (SDGs).

SilverStreet’s alternative solution is to improve yields on existing agricultural land using investment from private wealth offices, pension funds and other institutions via its Silverland funds.

“Our challenge is to increase the yield on existing land so that farmers don’t need to employ damaging ‘slash and burn’ practices,” Wakeling says.

SilverStreet’s focus is on the many thousands of smallholders across southern and east Africa, offering training on sustainable farming and conservation techniques, as well as improving the seeds and livestock on which farming communities rely.

Sowing the seed

Changing the seeds used by smallholders has been a key element of SilverStreet’s work so far. Moving to seeds specifically created to mature early and withstand droughts and certain pests can increase yields without the need for environmentally harmful pesticides, explains Wakeling.

“If you use right seed, you can improve yields by one tonne per hectare, and if you consider a baseline production of 1.5-2 tonnes per hectare, that is a massive increase.”

And Wakeling notes that it is far easier to make an investment case based on moving to a hardier more productive seed varietal than persuading backers to finance more fertiliser.

“Obviously we have to overlap [our impact goals] with what is attractive from an investment perspective. The seed sector is more attractive to us as investors than the fertiliser or chemicals sectors for example and it is very valuable for farmers,” she says.

Smallholders have also been encouraged to rotate crops and move away from maize which offers US$180 per tonne to higher value soya beans at US$400 per tonne.

Not only does this increase incomes, but crop rotation also breaks disease cycles and a move to soya means more nitrogen in the soil to improve fertility.

SilverStreet also trains farmers to use less tillage and increase mulching, neither of which are high tech practices that require significant financial input.

“You don’t need expensive technologies to increase yields. You just have to expand these conservation farming practices and increase accessibility to good seed to really move the needle on crop production.”

She adds: “Looking very conservatively, one can double yields from practising conservation farming and using better seed. We know we can go way beyond that figure which is really exciting.”

But to say SilverStreet has eschewed technology would belie the notable investment in the infrastructure needed to support farmers improve yields. These include a grain silo park in Tanzania, irrigation projects such as the Kakushi Farm dam in Zambia, as well as supporting renewable energy sources such as solar power.

More than chicken feed

The firm has also financed the reinvigoration of Tanzania’s chicken population, replacing low yielding, slow maturing village chickens with a multi-coloured, dual-purpose French breed called the Sasso.

Not only is the Sasso tastier and heavier at maturity, it is more productive than local breeds laying over three times more eggs.

Wakeling says that by rearing dual-purpose breeds, smallholder farmers can increase their incomes two to threefold while improving the health and wellbeing of local communities.

She says: “Protein is critical for nutrition for early childhood development and if you don’t have that nourishment in the first five years, then your growth can be stunted for life.”

Alongside contributing to SDG2, which targets zero hunger, Wakeling is keen to emphasise how investment in farming can meet other goals such as gender equality and the empowerment of all women and girls (SDG5).

“We target smallholder farmers and the majority – 60% – are women. They are producing low value subsistence crops like maize and cassava to feed their families, but it doesn’t earn them very much. Projects like Silverlands Tanzania enable women to augment their and their children’s diets with eggs and sell chickens, raising their incomes materially,” she says.

Impactful investing

To maintain investment flows, SilverStreet needs to demonstrate benefits both environmentally and socially and with cold hard returns.

In terms of the environment, the company estimates it has saved 181,000 hectares of land from being cleared which in turn prevented the release of 54 million tonnes CO2 into the atmosphere.

On the social side, the company reports that the SIlverland I and II funds have improved average incomes by US$299 a year for 386,000 local people.

Wakeling says: “The two funds have increased total community income by US$116 million dollars per annum. This annual earning by others is ongoing each year which makes it enormous when compared to our once-off investment – we have close to US$500 million in assets under management.”

For investors the picture looks healthy, too. SilverStreet’s flagship Silverland I fund returned 19% in 2020.

Perhaps it is for this reason that Wakeling is one of the few investors who claims to be “excited” about the influx of ESG regulation designed to end greenwashing in the asset management industry.

Wakeling is particularly enthusiastic about the Sustainable Finance Disclosure Regulation (SFDR), which came into force this March requiring asset managers to provide information about their investments’ ESG risks to enable greater comparability.

SilverStreet’s funds are among just 3.7% of products, according to Morningstar data from July this year, to have received an Article 9 classification which means they have a sustainable investment objective.

Known as ‘dark green’ funds, those with an Article 9 badge are in high demand among investors under pressure to demonstrate their ESG credentials.

“When SFDR was announced we thought it was great; it removes some of the greenwashing effect and will enable us to demonstrate our leading position in sustainability in the market. Almost instantly, people wanted to have calls with us because they can’t access this type of investment elsewhere,” Wakeling says.

However, Morningstar predicts many more funds will receive Article 9 classification in the coming two years. To compete in an increasingly crowded market, SilverStreet will need to build on the progress and momentum the manager has achieved far.

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