Impact investors focused on climate and the environment are increasingly looking at regenerative agricultural practices as investable, leading-edge solutions for decarbonizing the planet while providing needed food for the world’s 8 billion people.
Instead of funneling capital to solar panel manufacturers and wind farms, some investors are achieving their climate goals by investing in approaches to farming that improve soil health, ecosystems, biodiversity, and promote fair labor practices, according to Brad Harrison, co-head of impact AlTi Tiedemann Global, a global wealth management firm headquartered in New York.
Regenerative agriculture, as this approach is known, falls within a broad category of nature-based solutions that “have the ability, if activated, to sequester—actually absorb—CO2 and methane from the atmosphere,” Harrison says.
Family offices and wealthy individuals who invest for impact—and who are AlTi Tiedemann Global, clients—are excited about a range of nature-based solutions including forestry, wetland mitigation, and regenerative agriculture because “they want to show up in places where their capital can be catalytic,” Harrison says. “If it weren’t for their investment, the investment wouldn’t occur.”
A decade or so ago, such “impact-risk capital” invested by wealthy individuals and families was channeled to solar and wind development and manufacturing and to battery technologies, he says. Today, with a boost from the 2022 U.S. Inflation Reduction Act, or IRA, institutional money is flowing into a range of renewable energy projects.
That “opened up this lane for the impact-investment community to focus on nature-based solutions because they’re often overlooked and misunderstood by the institutional investors,” he says.
Soil is “one of the largest living species,” Harrison says, and enhancing its health is “a key to the broader climate puzzle. Agriculture is somewhere between 20% and 30% of all emissions and that’s when you stack it up against the built environment and electricity generation and other things.”
By investing in regenerative forestry and agriculture, investors also are putting their money in real assets “that in a world of high inflation have uncorrelated benefits from a portfolio perspective,” he says.
Many investors may be more familiar with the term “sustainable agriculture,” or organic farming. In a 2021 report, Pathstone, an independent advisory firm based in Englewood, N.J., explained the difference using definitions provided by Farmland L.P., a Larkspur, Calif.-based investment fund that converts conventional land to sustainable.
Organic is a term for products grown without non-organic compounds and that meet a range of U.S. Department of Agriculture standards; sustainable is a looser term that implies “continuity and maintenance, rather than the continuous improvement implied by regenerative agriculture,” the paper said.
No standards exist for regenerative agriculture either, but that’s largely because “it’s a relatively new concept that is still being defined and debated,” the paper said, but essentially it involves “regenerating the land for future better use by fundamentally improving the soil health, rather than simply maintaining the land for its current crops.”
It’s also about the technologies and practices to assist farmers—primarily small, family farmers—in improving crop yields and profitability, “while also supporting biodiversity and improving soil health on their lands,” Harrison co-wrote in an October article for clients. It’s “based on the principle that supporting human and environmental health can coexist harmoniously.”
UNDERSTANDING THE CONTEXT IN REGENERATIVE AGRICULTURE
These practices include planting cover crops, rotating crops, planting without tilling the soil first, and reducing or eliminating synthetic fertilizers and other soil inputs. It also includes integrated crop and livestock practices where land is rotated between crops and pastures.
Farmers, entrepreneurs, and investors cite access to capital as the “Number one challenge facing the transition to regenerative agriculture,” the authors wrote. Farmers need money for buying land, but also for planting and harvesting, and for equipment and sophisticated technology for making the transition and monitoring progress.
One way the shift will happen is through policy changes. “Food and agriculture is shaped by a mix of federal, state, and local regulations, with many different streams of public funding,” according to Pathstone’s 2021 report, which argued that food entrepreneurs, workers, and residents all need to be involved in shaping policies that promote sustainable practices.
On a federal level, the IRA provided one key policy boost by authorizing US$18 billion in funding for “climate-smart agriculture and forestry” activities that cut greenhouse gas emissions and sequester carbon.
But the regenerative agriculture transition is also a financing issue because farmers need cash to convert from traditional practices, a multi-year process that can be cost prohibitive. But the payoff—from the ability to charge premium prices for sustainably grown food—is huge, Harrison says.
Impact investors can step in with a range of financial support, from philanthropic capital for developing the regenerative agriculture movement, to market-rate-of-return investments into advanced technologies such as drones and satellite systems that can track improvements in soil health and in carbon sequestration, Harrison says.
Investors can assist, too, by providing farmers with short-term debt to buy equipment or with first-loss capital that could absorb losses before reaching investments made by a farmer or other outside investors, he says.
“Where it gets interesting in the private markets is when you’re investing directly into farms, essentially buying land,” Harrison says. “That land that can be converted to regenerative agriculture practices—no-till, cover cropping, and soil dynamics, integrating livestock—all those principles of regenerative agriculture can be measured in pretty interesting ways when you focus on just the land, just owning the property, owning the asset, and then incentivizing the farmer to convert to regenerative [practices].”
Though there are some large, publicly traded food conglomerates that are investing in regenerative agriculture practices, most opportunities for impact investors will be in these private transactions through direct land purchases or in private equity, private credit, and venture capital funds that are buying land convert and investing regenerative agriculture technologies, he says.
There are several impact funds that focus on sustainable agriculture within a broader climate mandate, and there are funds that focus on restoring land, both for forestry and agriculture.
“We see that quite a bit,” Harrison says. “Those are interesting because if you think about landscape-scale land management, a coordinated approach is often a good one.”
The paper Harrison co-wrote points out the risks of investing in a sector that is still evolving. “There is work to be done in standardizing processes to measure and verify what’s happening on farms and avoid adopting practices that don’t have much scientific basis,” the paper said.
There’s also the risk of laying out capital for a farm that may not reach full productivity for several years. But, as Harrison’s paper notes, the transition is a critical one for addressing greenhouse gas emissions:
“When farmers are relieved of their financial constraints and equipped with the means to adopt new technologies and more sustainable methods, we can begin to imagine a future where we don’t have to choose between combating food insecurity and preserving our ecosystems.”
