The global food system will need to produce food more efficiently and sustainably to achieve the Sustainable Development Goals (‘SDGs’) and meet the 2°C climate commitments of the Paris Agreement. Agriculture, forestry and other land-use (‘AFOLU’) already contribute roughly 24 percent of total GHG emissions – of which net deforestation is responsible for approximately 10 percentage points and agriculture accounts for the other 14 percentage points.1 By 2050, an increasingly depleted natural resource base and a growing global population – with per capita income increases and changing diets – will require the food system to deliver 50 percent more food.2As climate change affects food systems, governments, food and agriculture companies, and public and private investors need to better identify and address the numerous climate-related risks they face.

A 1°C increase in average temperatures can lead to a 5-10 percent decrease in the yield of major food and cash crop species.3 Additionally, more frequent extreme weather events and natural disasters are expected to severely impact food systems least-equipped to handle these shocks: between 2003-2013, 25 percent of the impact of climate-related disasters were absorbed by the agriculture sector in low-income countries.4 Climate impacts are also expected to cause significant price increases of staple crops: 37 percent for rice, 55 percent for maize, and 11 percent for wheat by 2050.5 This will require actors to assess the exposure and risk profile of their portfolios and design innovative strategies to address these critical challenges.This can also be an inflection point to take advantage of new investment opportunities that the transformation to low-carbon and resilient food systems presents.

In 2016, the Business and Sustainable Development Commission estimated that business opportunities in the implementation of the SDGs related to food could be worth over US$2.3t annually for the private sector by 2030. Investment required to achieve these opportunities would be approximately US$320b per year, including use of technology, waste reduction and developing or expanding markets.6Climate-smart investments to transform food systems, however, are not yet at scale. This will require addressing core market failures to unlocking private sector financing from food and agriculture companies, domestic and international financial institutions, and specialised investors.

The progress in building climate-smart financial systems is still slow; and resilient and low-emissions agricultural supply chains, including zero net deforestation commitments, are not being supported by investment at scale. Indeed, climate finance has disproportionately flowed to mitigation finance, with renewable energy, energy efficiency, and sustainable transportation accounting for the overwhelming majority of investment; and, total adaptation finance – which is fundamental to transforming food systems – represents c.US$22b (of which, only c.US$4b for land use) of the c.US$455b in total climate finance mobilised in 2016.7In order to increase climate mitigation and adaptation finance to transform food systems, there is a need to both: (i) embed climate considerations into the underlying financial system architecture through effective government policy and regulatory frameworks; as well as (ii) address core market failures to create new sustainable investment opportunities that incentivise private capital flows and strengthen the underlying economics of making financial systems climate-conscious.