The Missing Middle

Nicole Etchart, CEO of impact-led manager NESsT, explains how the regenerative agriculture practices of local communities in Latin America hold the key to transforming food systems. 

Food systems contribute one-third of global greenhouse gas (GHG) emissions. In October, in an attempt to address the issue, food systems experts gathered in Rome for the 51st Session of the Committee on World Food Security with the aim of advancing the inclusion of food systems approaches in climate negotiations ahead of COP28 in Dubai later this month.  

The UN Framework Convention on Climate Change’s (UNFCCC) synthesis report ahead of the first Global Stocktake at COP28 highlighted the importance of evolving global food systems in addressing the climate crisis, with the world off track in keeping temperatures to 1.5°C. For the first time, COP28 will see agriculture and food take centre state.  

United Arab Emirates (UAE) Minister of Climate and Environment Mariam Almheiri launched the COP28 food and agriculture agenda at the UN Food Systems Summit in July, in recognition that tackling food systems emissions is vital to keeping the 1.5°C goal alive. At COP28 in Dubai, governments will be asked to sign a Food Systems Declaration, including integration agri-food emissions into nationally determined contributions (NDCs) and other national plans.   

Speaking to ESG Investor, Nicole Etchart, CEO and Co-founder of global impact investing firm NESsT, welcomes the food-focused agenda at COP28, saying it will lay the foundation for a more supportive environment for addressing emissions and their links with agri-food systems.   

“Our work emphasises the importance of having policies, requirements, benchmarks, and KPIs to address the issue,” says Etchart. Government involvement is vital at various levels, she adds, from implementing best practices to fostering private sector investment that is more favorable to the local economy.  

Often, however, regulations can be “complex and bureaucratic”, placing burdens on organisations working locally to support communities and farmers, she says. There is a need to streamline these rules and regulations, adds Etchart, while also offering patient capital, improving infrastructure – especially in remote areas – providing access to renewable energy and supportive policies for agri-enterprises.   

“Good policies and regulations are vital at many levels to prevent detrimental investments, such as dams and infrastructure that harm local communities and their crops,” she says.   

According to research published in Environmental Science & Policy, the construction of thousands of dams for small hydropower plants is leading to biodiversity loss and increased deforestation rates, as well as preventing fish migrating and impacting the lives of Indigenous Peoples.  

“Encouraging the right kind of investments for community and local development is essential,” says Etchart, noting that ‘bioeconomy companies’ – businesses engaged  in the use of biotechnology and biomass in the production of goods, services, or energy – play a key role in producing and selling local products, including nutritious food.  

“We should focus on agri-food communities, where community-centric agriculture is vital,” she says, adding that barriers preventing capital from flowing into these communities must be addressed from a policy perspective.  

“Incentives, such as procurement policies, should encourage governments and the private sector to purchase from bioeconomy companies, promoting a more holistic, local, and sustainable economy,” she says, adding that the removal of these barriers is essential to support agri-food communities and ensure a thriving, sustainable future. 

NESsT has been at the forefront of this effort for the last 20 years – driving money to the most impacted and underserved communities in Latin America, a region that is the largest net exporter of food and which accounts for 14% of global agricultural and fishery production. Yet, the region is one of the most food insecure, globally, and in critical need of action to drive sustainable solutions.      

Blended finance rethink 

Despite being the fourth-largest food producer globally, Brazil faces a concealed annual bill of US$300 billion for its agricultural output. This expense is a consequence of a system where producers, investors, traders, and the public sector optimise resources individually, leading to environmental degradation, adverse effects on public health, and the perpetuation of rural poverty. 

In 2021, the Blended Finance Taskforce, in collaboration with SYSTEMIQ and Partnerships for Forests – an initiative funded by the UK government – unveiled the ‘Better Food, Better Brazil’ report which serves as a guide on utilising finance to reshape Brazil’s food system into one that positively impacts both people and the planet.  

The report recommended that Brazil provide better de-risking strategies in early-stage project development to support nascent business models throughout their expansion stages. It also called on the government should work to strengthen the provision of public and private green credit, simplify its application and reduce knowledge gaps through business correspondents that share information and better assess risk. 

“Overall, there is a general lack of blended finance with friendly terms and longer repayment periods for enterprises in what we call the ‘missing middle’,” explains Etchart, adding that the enterprises in need of support are not start-ups; they have been selling products and services in the market, but they are “stuck in the middle”.  

“They are unable to access commercial capital, that is generally more risk averse, or impact investor capital, which is looking for higher returns,” she says, noting that these companies are crucial because they are creating innovative solutions, especially in the agri-food sector. 

The need to reduce both the carbon and nature footprints of food production is driving change globally. This week, investor network Ceres released a report highlighting cutting-edge agricultural technologies designed to significantly curtail the major drivers of greenhouse gas emissions within the sector. 

According to Etchart, the existing financial system is not set up to provide debt-friendly capital to many of these companies, especially in their early to mid satages. Commercial banks are reluctant to lend due to the lack of a track record, and private equity and venture capital are typically focused on more advanced businesses. Therefore, a blended finance market needs to be created, she argues, with government intervention, at both the national and international levels, needed to de-risk capital.  

“Philanthropic and concessionary capital can be leveraged to make capital more accessible,” Etchart says, noting increased levels of discussion about the need for blended capital. Examples of organisations implementing it, however, are still limited.  

“Development finance institutions (DFIs) and the official development assistance (ODA) communities need to provide friendlier and more flexible capital,” she says. “The current approach often involves excessive requirements and a lack of trust, which hampers the growth and investment of these companies.” 

To address this, Etchart says that KPIs should focus more on long-term outcomes rather than short-term outputs.  

“Recoverable grants can be repaid, as evidenced by an 85% repayment rate even post-Covid-19,” she says. The lack of trust embedded in the system is unwarranted, Etchart insists, as it has been proven that high-impact SMEs and cooperatives can repay their loans. 

NESsT offers investment packages up to US$150,000 in the form of grants, patient working capital loans and recoverable grants over a five-year period. 

However, there is an over-dependence on grants, which should be reduced in favour of building sustainable, market-driven enterprises, according to Etchart.  

“This transformation necessitates business support services, coaching, peer learning, and governance structure set-up,” she says, adding that collaboration among different investors is also crucial to avoid burdening entrepreneurs with conflicting requirements. 

“To scale this approach, more friendly capital is needed, and governments and the global funding community can play a vital role in achieving this,” she says.  

“The current efforts have mostly remained local and small, but with increased support and collaboration, the ‘missing middle’ enterprises can thrive and contribute to innovative solutions in various sectors, including agri-food.” 

Local lens 

The food-focused agenda at COP28 also complements work that Etchart and her colleagues are doing to address climate changes and sustainable agriculture and food systems in the Amazon.  

“What we’re fostering, which involves promoting the bioeconomy and investing in companies that work with local communities implementing sustainable agricultural practices, serves to generate livelihoods while protecting the forest from destruction. This approach is exactly what is needed, a holistic and very local one,” says Etchart. 

NESsT’s Amazonia initiative addresses regenerative forest conservation by supporting climate-smart solutions that grow sustainable value chains while improving livelihoods in the Amazon basin. The programme incubates and finances small businesses, cooperatives and associations that establish sustainable value chains through bioeconomy approaches including forest management practices, agroforestry, and land restoration.   

“In the last five years, since we’ve been deepening our work in the Amazon, we have seen how climate change affects the communities,” Etchart says, adding that these are some of the most vulnerable and marginalised communities in the Amazon, yet they are also the most effective in addressing the challenges. 

“Unfortunately, sometimes, their efforts have had to be dedicated to preventing further land destruction,” she says.  

“However, when freed from this burden, these communities are able to manage their companies in a sustainable way, implementing practices to regenerate the land and keep the forest standing.”NESsT aims to not only invest in its bioeconomy portfolio but also document the stories from the ground. These stories highlight the impact of climate change and investment in the Amazon on the local communities and suggest clear actions that can and should be taken to address these issues. 

“We are collecting this documentation to provide recommendations for COP28, from the ground up, in order to address these challenges effectively,” she says.  

The tale of Associação dos Trabalhadores Agroextrativistas da Ilha das Cinzas (ATAIC) serves as a compelling illustration of how bioeconomy SMEs can positively impact local communities. ATAIC, based on Ilha das Cinzas in Pará, Brazil, is dedicated to creating income opportunities for local families. Run by island residents, the association gathers Amazon oil seeds containing essential fatty acids like patauá, andiroba, muru-muru, and ucuuba, along with fruits from the community. 

ATAIC ensures fair prices for these products and provides farmers with training, sustainability education, and business guidance. Presently, the association collaborates with 280 collecting families, including 120 led by women. Their Amazon oil products are exclusively sold to a Brazilian biocosmetics corporation.  

Etchart emphasises the the importance of gender inclusion and equity. “It has been shown time and again that including women in the food value chain is critical because they value food and are often the ones responsible for feeding their families,” she says. 

NESsT has been actively promoting gender inclusion as a gender lens investor, measuring the impact of its portfolio companies on women at all levels. 

“We encourage companies to bring more women into management and ensure equal pay, and many of our companies have made strides in this direction,” she says. “Gender inclusion is not only the right thing to do but also has a direct impact on these companies and their local communities.” 

In the Amazon, NESsT also works closely with Indigenous-led enterprises.  

“Respecting the voices of Indigenous communities and supporting their sustainable practices is of utmost importance,” she says, adding that  collaboration with federations in countries like Brazil, Ecuador, Peru, and Colombia ensures that their perspectives are taken into account. 

The transformation of the agri-food sector, according to Etchart, is vital not only to address the climate crisis, but also due to the immediate need to feed hungry and impoverished people. 

“Private and public partnerships must come together to scale existing solutions in a impactful way,” she says. “The goal is to see bigger changes in the next five years, and while progress is made on a day-to-day basis, there is a recognition that scaling up is essential to address the challenges effectively.”

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