New Report by AgFunder & ISF Advisors Highlights Investment Opportunities in Climate Adaptation for Smallholder Farmers

AgFunder and ISF Advisors, supported by the Bill & Melinda Gates Foundation, have released a new report titled “Climate Capital: Financing Adaptation Pathways for Smallholder Farmers.” This study sheds light on the pressing need for private investment in climate adaptation within the agriculture sectors of emerging markets, with a particular emphasis on the critical role of smallholder farmers.

The report draws attention to the stark reality that nearly half of the global population, around 3.6 billion people, are highly vulnerable to the adverse impacts of climate change. However, despite this vulnerability, there remains a substantial gap in investment, with only a fraction of the $212 billion needed annually by 2030 for low and middle-income countries being allocated towards climate adaptation.

Key findings from the report indicate that while various private capital sources are involved in smallholder adaptation, the primary financing for small agribusinesses and farmers often comes from financial institutions and microfinance providers. Nevertheless, obtaining precise data on investment levels proves challenging due to loan classification practices.

Encouragingly, the report highlights positive trends. Multilateral development banks, for instance, have doubled their investment in food, agricultural, and ecological resources adaptation in 2021 compared to the previous year, reaching just over $2.4 billion. Additionally, tech investors, including venture capital, private equity, and impact funds, have directed over $5.7 billion towards adaptation tools and services for smallholders since 2012, with a notable focus on digital solutions for farmers.

Identified within the report are six key investment opportunities for addressing climate adaptation, ranging from on-farm/off-farm infrastructure to digital marketplaces. Leveraging data from AgFunder and other industry peers, the research provides an in-depth analysis of tech investment in these areas, offering specific opportunities for funders to make a significant impact beyond technology.

Dan Zook, Executive Director at ISF Advisors, underscores the dual nature of climate adaptation as both a necessity and an investment opportunity. “Adapting to climate change is not just an urgent necessity for our food system but a significant investment opportunity,” he states. The report, he adds, provides investors with a framework to foster resilience among smallholder farmers while also driving financial returns by tapping into underserved markets.

Louisa Burwood-Taylor, Head of News & Research at AgFunder, emphasizes the transformative potential of strategic investments in the agriculture sector of emerging markets. “With the right investments, we can transform the agriculture sector in emerging markets to be more resilient, productive, and sustainable,” she notes.

The report also stresses the importance of collaboration between different types of investors in adaptation projects, advocating for strategic grants, technical assistance, and impact measurement frameworks to enhance the success and scalability of investments.

The full report, including detailed investment opportunities, case studies, and actionable insights for investors, is available here; the executive summary here.