ImpactAlpha, July 22 – Farmers are building soil health to mitigate climate change and foster resilience on farms and in rural communities.
Regenerative farming can also reduce agriculture investment risk, creating investment opportunities across food and agricultural value chains.
That calculus has spurred the creation of at least 54 U.S.-based investment vehicles, with nearly $50 billion in assets, that incorporate regenerative practice in their ag investment strategies. Practices that improve soil health include rotational grazing, outdoor pastures for animal welfare and fair working conditions and pricing for workers and consumers.
The regenerative funds are a subset of the sustainable investment strategies included in “Soil Wealth,” a comprehensive analysis of private investment in food and agriculture.
“Investors speak the language of risk,” says Delta Institute’s David LeZaks, a lead author of the report. “When you start to manage systems for increasing soil health and having bigger stocks of carbon in the soil, those systems are inherently less risky and more resilient to extreme weather and climate change.”
The report, from Croatan Institute, Delta Institute and Organic Agriculture Revitalization Strategy, challenges the perception that regenerative agriculture lacks investable deals.
Iroquois Valley Farmland REIT, Farmland LP, Equilibrium Capital and Beartooth, for example, are among almost 30 farmland investors managing $22 billion in regenerative real assets.
Foodshot Global, Arborview Capital and Patagonia’s Tin Shed Ventures are among a dozen private equity and venture capital funds with nearly $7 billion backing companies that supply, equip and buy from regenerative farmers. Last year, the founders of Blue Hill Farm and Blue Hill at Stone Barns in New York launched Almanac Investments, a $30 million regenerative agriculture fund.
Soil Wealth identifies 17 private loan funds with some $2.8 billion making investments in farms and firms, including Foodshed Investors in Austin, Pioneer Valley Grows in central Massachusetts and RSF Social Finance in San Francisco. The report also identifies investable regenerative strategies in cash and cash equivalents, public debt and public equities.
Regenerative agriculture investors are making connections between investment risk, return and impact. Projects that manage soil-born risk, for example, are attracting investors.
Covering soil with cover crops or increasing rotation reinvigorates soil biology. Healthier soil helps sequester carbon. Carbon in the soil not only mitigates climate change but also cushions against extreme events. Farm operations able to manage too much water, or not enough water, for example, are better able to manage risk.
“Many of those who can value the differentiated risk of regenerative agricultural systems, businesses and approaches throughout the agricultural value chain sit on the financial side of the aisle,” says LeZaks.
Better soil health can also reduce the amount of fertilizers and other inputs needed on the farm, reducing costs and putting more money in the pockets of farmers and farm communities. “Less money going off the farm means more money staying on,” says LeZaks.
Loan guarantees, low-interest loans, patient capital and other financial mechanisms have been used in conservation finance. Such approaches to lower investment risk and increase returns are needed to attract private capital to scale regenerative approaches, according to Soil Wealth.
At least $700 billion over 30 years is needed to realize the carbon sequestration and climate mitigation potential of regenerative agricultural practices, say the report’s authors. At scale, such practices could mitigate nearly 170 gigatons of carbon and generate a net return of nearly $10 trillion by 2050.
The U.S. Department of Agriculture, through the Natural Resource and Conservation Services, has provided about $300 million into 715 conservation innovation projects over the last 15 years. In the past few years the department has increased its focus on catalytic finance for conservation efforts for natural landscapes, forests, wetland prairies, and grasslands in an effort to draw in private capital, says LeZaks. Little attention has been paid to agriculture.
Until now. Soil Wealth, which was funded by NRCS, identifies more than 60 “regenerative ready” financial mechanisms, instruments, and approaches that could mobilize capital to scale regenerative approaches. A few of the mechanisms are ready to scale with further formalization, according to the report.
“Aggie Bonds”, for example, have been used by state governments to subsidize loans to new farmers. Requirements could be added for regenerative practices. “Slow Money” networks of local investors with patient capital could make more low-interest loans available to regenerative food entrepreneurs.
Research has linked economic health at the county level to organic agriculture. “We’re not quite at the point where we’re calling for a massive rural revival, where people leave the cities and come back to the land,” says LeZaks. But as regenerative agriculture spreads, “We already seeing signals that people are better off and livelihoods are improved.”