Perspectives is a series that highlights emerging issues in the area of agri-SME and smallholder finance from the perspective of practitioners and thought leaders within and outside the SAFIN network. In this interview, Dr. Barbara Buchner, Global Managing Director of Climate Policy Initiative, talks about the climate finance gap for small-scale agriculture and how more climate finance can be directed towards small farmers and agri-SMEs.
Please tell us about Climate Policy Initiative (CPI) and your role there.
CPI was founded in 2010 to help governments, businesses, and financial institutions drive economic growth while addressing climate change. CPI is known as a leader in tracking sustainable investment trends, identifying innovative business models, and supporting the solutions that can drive transition to a low-carbon, climate-resilient economy. As CPI’s Global Managing Director, I oversee our more than 90 analysts and advisors located in six offices around the world in Brazil, India, Indonesia, Kenya, the United Kingdom and the United States.
CPI and the International Fund for Agricultural Development (IFAD) recently released a joint report on the climate finance gap for small-scale agriculture. What were the main findings of this research, and which ones were the most surprising?
Our analysis shows that climate finance for small-scale agriculture reached nearly USD 10 billion per year in 2017/2018. This means that less than 2% of total climate finance goes to small-scale farmers, despite their vulnerability to extreme weather and their crucial role in feeding billions of people.
While the exact volume of funding needed for small-scale agriculture in climate finance is hard to determine, the total financial needs of small-scale farmers and agri-enterprises are in the order of hundreds of billions annually. Therefore, finance directed to small-scale agriculture has a major opportunity to mainstream climate, and particularly to meet the immediate need for increased climate resilience of small-scale producers and their communities.
What are the preconditions for more climate finance to flow towards agriculture in your view?
Climate finance can play an instrumental role in increasing prosperity and climate resilience for the world’s most vulnerable populations. However, this finance must be scaled. Collaboration between the public and private sectors to mitigate the risk associated with investments in the agricultural sector should be enhanced. For example, blended finance instruments, subsidies, and fiscal transfers all represent an opportunity to step up support for small-scale agriculture and build back rural economies sustainably amidst the current economic recession. International and domestic flows should stimulate the transition of agri-businesses and financial service providers towards low-emission supply chains.
What are the areas of innovation where you see greater promise in climate finance in relation to agriculture today?
I have seen many innovative solutions to attract capital to the agriculture sector through the Global Innovation Lab for Climate Finance (the Lab), a public-private expert initiative managed by CPI that unlocks private investment in low-carbon, resilient development at scale.
Innovations in financial technology, such as embedding blockchain smart platforms into financial instruments have the potential to provide low cost and transparent solutions for farmers and agri-businesses. These can reduce the transaction costs for financial institutions, which is one of the main barriers limiting investments in the agricultural sector. An example of such an instrument is the Blockchain Climate Risk Crop Insurance.
I am also happy to see conditional lending starting to gain ground. In addition to financial conditions, loan contracts can commit farmers and agri-business to implement climate-smart practices and technologies, therefore incentivizing their adoption. Two such instruments were endorsed by the Lab: The West African Initiative for Climate-Smart Agriculture and the Climate-Smart Lending Platform. The Lab is also currently seeking proposals for innovative financial instruments that support sustainable food systems.
Dr. Barbara Buchner is the Global Managing Director of Climate Policy Initiative, and also the Executive Director of its widely renowned Climate Finance program. Named one of the 20 most influential women in climate change and one of the 100 most influential people in climate policy, Barbara advises leaders on climate, energy, and land use investments around the world.