Byagatonda Emmanuel applies compost to one of his coffee plants in Nyanza district, Rwanda (Nile Sprague/TechnoServe)
COP27 will once again spur discussions about financing climate change mitigation and adaptation. As those conversations happen, we must not lose sight of the vital need to identify financing solutions that empower smallholders on the frontlines of climate change to make their farms more resilient, regenerative, and profitable.
In 2009, the global community gathered at the COP conference in Copenhagen and pledged to mobilize $100 billion of annual climate financing for low- and middle-income countries by 2020.
It was a historic commitment, and we failed to deliver on it.
While the $100 billion target has been pushed out to 2025, the needs of communities on the front lines of climate change have not become any less urgent. Compounding the problem, the financing that has been mobilized is overwhelmingly directed to climate mitigation; while these investments to reduce emissions or sequester atmospheric carbon are critically important, those affected by climate change also need financing for adaptation and covering loss and damage.
As the world again gathers together, this time on African soil, it’s imperative that we identify practical solutions to deliver financing that helps farmers and others on the frontlines of climate change adapt and thrive.
The need for climate financing for African agriculture
Nowhere is this clearer than in Africa’s agricultural sector. More than 60% of Sub-Saharan Africa’s population depends on smallholder agriculture for their livelihoods, and those livelihoods are increasingly imperiled by climate change. And while Africa’s carbon footprint is small compared to that of wealthier regions, the agriculture, forestry, and other land-use (AFOLU) sector accounted for 57% of the continent’s carbon emissions as of 2016.
A Climate Policy Institute analysis of the Nationally Determined Contributions plans submitted by 51 African countries identified $108 billion in financing needs for AFOLU mitigation and $49 billion in financing needs for AFOLU adaptation. Meanwhile, those countries currently receive just $30 billion in climate financing across all sectors.
Expanding the role of private-sector finance
Closing that gap will require that the private sector take on a much more significant role. Currently, 95% of climate finance for small-scale agriculture comes from public sources. Just 14% of funding for nature-based solutions, such as reforestation and land restoration, comes from private finance, and the global community is currently mobilizing only a quarter of the funding for nature-based solutions needed to reach the Sustainable Development Goals.
Simply put, the public sector alone cannot afford to fund the transition to a regenerative economy.
One challenge to attracting private climate financing has been the difficulty of developing a business case for investors: nature-based solutions for agriculture tend to be piecemeal, small-scale, difficult to price, and hard to understand for financiers.
To address that challenge, we must be creative in developing new financing mechanisms. One area with significant potential is deploying technical assistance to increase the number of investment-ready small- and medium-sized agricultural businesses in Africa. These businesses can play an important role in improving the resilience, productivity, and sustainability of small farms in their supply chains, but they are often deemed too risky for private-sector investment. Currently, just 7% of funding for small-scale agriculture goes to value-chain actors like agri-SMEs.
An increasing number of companies are recognizing the importance of investment in value chains. Just last month, for example, Nestlé pledged $1 billion to scale up regenerative production in the Nescafé supply chain. We need to encourage more of these investments.
The shift to regenerative agriculture must bring financial benefits to farmers, too
Just as climate investments must make commercial sense for investors, they must also make commercial sense for smallholder farmers. Adopting new regenerative agriculture practices can represent additional labor, risk, and–in some cases–expense, so long-term solutions will only work if there is a viable business case for smallholders, too. That means farmers must see some tangible benefits from the new practices, and also that there is a safety net for farmers as they take on new risks.
It’s also crucial that we identify cases where farmers can make the transition to regenerative agriculture with little or no capital investment. For example, an analysis TechnoServe carried out with a major global coffee company found that the average African farmer in the company’s supply chain could expect to increase her income by 46% after several years by shifting to low- or no-cost regenerative, yield-enhancing practices. In cases like that of these smallholder farmers, funding pilot programs that demonstrate the business case of regenerative agriculture can help foster behavior change.
By focusing on financing that makes sense for private-sector investors and smallholder farmers, we can help Africa’s vitally important agriculture sector adapt to climate change and build much-needed resilience while reducing its emissions. We must work together now to identify solutions and truly live up to the spirit expressed in Copenhagen in 2009.