Sustainable Investment in Agriculture: fighting climate change through regenerative finance

There has been a noticeable shift in understanding within the investment community about finance’s influence in driving sustainable outcomes. Given that the financial markets are hugely impacted by external factors and barely a week goes by without news of another natural or man-made disaster, there is a widespread realisation that investing in sustainable practices means investing in the survival of our planet. 

However, while traditional financial institutions are moving at a more temperate pace, regenerative finance focusing on climate change is finding momentum in the blockchain space. Within that, the historically sleepy agricultural sector is suddenly becoming a hotbed of activity as investors recognise its potential in boosting the carbon markets. 

The carbon market conundrum 

Carbon credits are already big business with the market having increased by nearly $470m between 2019 and 2021 to $750m and is expected to grow 100 fold in the next 8.5 years. This is because increasingly, it is not an option, but a necessity for corporations to put ESG into the heart of their operating models due to societal, economic and legislative pressures. That being said, companies looking to offset their residual emissions are struggling to find high-quality carbon projects. 

At the same time, the carbon offsetting market itself is unable to rid itself of the stigma of greenwashing. The question of additionality of carbon projects is a key concern alongside two other contentious areas - transparency and measurement. Would this wind farm have been funded regardless of it receiving investment through an offsetting programme? Have the promised number of trees really been planted, and if so, will they help or hinder biodiversity? As a customer booking a flight and agreeing to offset my emissions, how can I be certain that is actually what is happening?  

Agriculture is an industry incredibly well suited to be part of the carbon offset ecosystem and will be able to help clean up the carbon markets with high quality, measurable and additional projects that truly help fight climate change. Taking up 11 per cent of the globe’s land surface, arable land used for crop production represents a crucial component for ensuring our life on earth. Unfortunately, the exploitation of soil through pesticides, fertilisers and overworking is causing immense damage to our ecosystem. However, soil sequestration techniques have the potential to turn this aspect of agriculture, which currently causes immeasurable harm, into an ecosystem preserver instead. 

The trouble is, moving to sustainable practices requires a large amount of upfront capital that many farmers do not have. Access to finance, for small hold farmers in particular, has been an age-old problem the world over. At the same time, under today’s leading carbon credit quality framework, the Verra Registry, it can take up to five years to become carbon certified, an investment that many farmers are unable to even contemplate. 

Pre-financing agricultural offsets 

Today’s carbon market is split into two opposing factions: on the one hand the tightly regulated, high-quality offsets that have high barriers of entry, and on the other hand those offsets of dubious quality, non-transparent and minimally measured. It’s time to break down the barriers and flood the market with the former. Enter carbon-credit pre-financing. 

What is needed is a bridge that connects the two; a pre-financing mechanism that allows farmers to onboard onto a carbon programme and receive income in order to adopt sustainable practices whilst being measured throughout the programme. This way carbon investors can be assured their offsets are additional, transparent, of high-quality and have the potential to improve the livelihoods of many farmers while boosting conservation efforts. 

Whereas traditional financial mechanisms have failed many generations of farmers, the emergence of blockchain and Web3 technology is enabling concerned individuals to come together quickly to finance a good cause that requires urgent attention. This is exactly what we are now witnessing with exciting developments in the carbon markets through regenerative finance, where a number of blockchain-powered platforms have sprung up to bridge the gap, with pre-financing being a crucial ingredient to properly kick-start the market. Increasing the availability of high-quality offsets will drive the dubious offsets out and build a strong carbon market that is a win-win for everyone - investors, farmers, corporates, governments, society and most importantly of all, mother nature.