In this episode, we speak to Natasha Stromberg and Sajeev Mohankumar from the FAIRR Initiative the importance of sustainable finance in agriculture, the differences between nature-based and tech-based interventions, and the barriers to investment in nature-focused solutions.
Transcript:
Rosie (00:00)
Welcome to the latest episode of the Sustainable Finance Guernsey podcast rated one of the top 10 most useful sustainable finance podcasts by Green Finance Guide. Guernsey is one of the jurisdictions leading the way in green and sustainable finance. And as part of this podcast series, we speak to and learn from some of the leading global figures in the field. My name is I'm Communications Director here at Guernsey Finance. We are the islands promotional agency for the financial services sector.
Today, I am very, pleased to be speaking with Natasha Stromberg, who's interim Director of thematic research and corporate innovation, and Sajeev Mohankumar who is Senior Technical Specialist at the FAIRR Initiative. The FAIRR Initiative is an investor network focused on the material risks and opportunities in the global food sector. The initiative provides research, it facilitates collaboration and coordinates policy action for its members.
With more than 400 members globally, FAIRR represents $75 trillion in combined assets. It's backed by private equity secondary giant Coller Capital, which has a variety of fund structures domiciled in Guernsey. Natasha has extensive international experience in capital markets and sustainable investing across Europe and North America. She oversees FAIRR's thematic investor engagement
in areas such as antimicrobial resistance, protein diversification, biodiversity and climate, also leads cutting edge research in these fields.
Rosie (01:34)
Sajeev is a Senior Technical specialist in climate and biodiversity. He's an agri-food sector specialist with more than 15 years experience working with investors, corporates, consulting firms, think tanks, and academic institutions. Sajeev's published peer-reviewed journal articles and reports. Sits in various high impact advisory and technical working groups, contributes to shaping corporate standards and policy regulations
and supports the world's largest investors and agribusinesses on their climate and nature commitments. Sajeev holds a PhD in environmental systems and MSc in agricultural economics and a master's in environmental engineering. Welcome to both. Today we will be discussing the implications of FAIRR's recent report on the environmental impact and business cases of livestock mitigation interventions.
Natasha Stromberg (02:00)
you
Rosie (02:25)
The report's designed to help investors identify and assess the potential of 22 on-farm livestock mitigation interventions. It also maps public and private capital flows to the interventions to show how current financial investments fall short of supporting sustainable livestock practices. So yeah, thank you very much for joining us on the podcast today, Sajeev and Natasha. It's great to have you with us.
Natasha Stromberg (02:51)
Thank you, Rosie. It's great to be here.
Sajeev Mohankumar (02:52)
Pleasure.
Rosie (02:53)
Thank you. let's start with Sajeev. Can you tell us a bit about why you decided to produce the report and what your aims are in doing so?
Sajeev Mohankumar (03:04)
To backtrack a bit, think, just to put agriculture in context, agriculture is not just a part of the story of climate and nature, right? It's at the heart of it. And the risks from agriculture that we see on climate and nature are very apparent, material and real, and it's already reshaping capital markets. What we essentially try to do with this report is to cut through all the noise around opportunities and provide investors with the required clarity
to be able to make investment decisions and put capital where it counts. So that was just sort of a short line on why we produce a report. But it all started when we undertook this research on regenerative agriculture. And this was back in 2023. And when we did that, there were some key gaps that came out of that piece that not only applies to regenerative agriculture, but applies to the general, know, mitigation landscape around agri-food systems.
And what we tried to do with this report was to address those three main gaps. And in addressing those gaps, I mean, this is not a research exercise, right? We're not trying to address research gaps, but these are actual barriers that prevent the adoption of some of these opportunities and solutions in the agri-food system. So objective was sort of twofold. One was to provide a robust approach in tackling those three main gaps. And two was to generate actionable insights and resources.
for investors to be able to apply them across their portfolios and different asset classes. So I'll touch on the three main gaps that we addressed with this report. The first one was there was limited clarity on specific interventions. So there's a lot of conversations around regenerative strategy, decarbonisation strategy. But what is inside these strategies? What are the specific practices? How do they work? So I think that
information and a whole list of interventions that entail these strategies is something that we provided with this report. We also provided case studies of deployment, how these interventions work and so on, which gives confidence to an investor in terms of understanding the range of options available. That's the first gap. The second gap was looking at, you know, once you have a list of these interventions, investors are interested in how does that cut emissions? How does it improve my biodiversity? Does that make financial sense?
And oftentimes these questions are addressed in silos and that leads to more questions than answers. So what we wanted to do was to provide them with an integrated framework and we use the planetary boundaries framework, which brings climate and nature together. So investors then can look at these interventions in unison. And we also added a financial viability aspect on top of it. So investors understand the financial impact of implementing some of these interventions, right?
And the last key gap that we addressed was there is a limited understanding of financial flows. So again, when we discuss agricultural mitigation or biodiversity or net zero in agriculture, people say there's less money going towards that, but we wanted to understand where does this money, where is the money going to really? So what we did was with our collaborators, we mapped finance to specific interventions.
And this was able to show investors that, okay, so is the money going towards the right interventions? Are there other interventions or promising solutions that we're not funding at the moment? So again, giving them that spectrum and the opportunity to make that analysis across the financial landscape. And again, this piece is aimed at investors, but obviously the insights and resources generated here is applicable to corporates as well, agri-businesses who are on the net zero and nature positive journey.
but also for landowners and farmers, because the framework that we present here can help them showcase the capability of some of the practices they're implementing on the ground and the benefits they generate for climate and nature. But also because of the extensive list of interventions we have, they can also identify some additional practices which they can deploy on the ground. So again, we address these three main gaps, created a lot of actionable insights, but it's applicable across all stakeholders.
along the agri-food balancing.
Rosie (07:29)
That's so interesting. Thank you. Natasha, why should fund managers be interested in the report? What are the opportunities and risks for investors supporting the outcomes of the report?
Natasha Stromberg (07:43)
Yeah, good question. And as you said in the intro, FAIRR is an investor membership organisation, and we're very focused on our asset manager members and private equity members. And I think it's worth saying that, you know, we talked about livestock, but actually what we're looking at here is the animal derived protein value chain, and investors are exposed to that.
whether they're exposed to supermarkets, food producers, some of the big corporates, the brand names that we know that are in portfolios globally. So this animal derived protein, we're looking at the financial materiality of that across the piece. And as I say, these are companies that are found in portfolios across the world. And we're looking at investor risk exposure to food systems.
and at the same time, looking at potential investable technologies that can help corporates and investors get to their net zero goals. And as Sajeev said, we look at it with an integrated approach. We know that asset managers and financial institutions are quite far along in their climate journeys, but there is another side to this and that is biodiversity. And what this report looks to do is put
both of those together and look at those risks across the animal derived protein chain. So I think it's very relevant to fund managers. And that's what we're trying to do. Show the risks, show the opportunities in this space and actually bring some transparency to this less invested area than other areas in climate and nature.
Rosie (09:28)
Great, thank you. as we've discussed, FAIRR is known for its work in the animal protein space, but also looking more broadly at the changing food system and agri-food chain as a whole. The report finds that on-farm interventions receive only 0.1 to 0.2 % of climate finance, with investors showing a preference for tech-based interventions that primarily address climate change but overlook nature-related.
risks. Jeev, can you explain the difference between the nature-based and tech-based interventions and maybe tell listeners or give them some examples of what they might be?
Sajeev Mohankumar (10:12)
Yeah, no, think there's a lot of interventions in the report. to be just to again, taking a step back, we looked at 22 interventions in total in the report, right? And there were 12 nature-based interventions and 10 tech-based interventions. And we didn't make up these interventions. So we sort of leveraged our own protein producer index, which is sort of a benchmarking index that looks at 60 of the world's
largest protein producers. And we looked at some of the interventions they actually deploy. So it is industry relevant and it's deployed by the industry. But we didn't stop there because we wanted to have a comprehensive list of interventions. So we also looked at emerging interventions and emerging solutions in this space. And again, given these interventions, like Natasha said, it does not cover just livestock production. It also covers animal feed production. So it is applicable.
in general across the agri-food systems for row crops, cereal crops, and so on. So again, quite applicable across the agri-food system. Now, coming back to your question on how we categorize these two different interventions, nature-based interventions are generally those that leverage the Earth's natural capital to reduce emissions, remove carbon, and offer biodiversity impacts. A lot of the nature-based solutions are also regenerative.
So a lot of regenerative practices get clubbed in nature-based solutions. And to give you some examples, I I said there are 12. I'll just say three of them. One of them is hedgerows. So these are essentially shrubs and plants planted around the borders of a pasture or a cropping system, which essentially sequesters carbon, prevents the loss of nutrients from the field outside, preventing pollution and so on. Then you could also look at silvopasture.
which is a process of integrating trees into livestock pasture, so cattle and trees happily existing together. And then you also have something called cover cropping, where you sort of, the interval between the harvest and the planting of a main crop, you plant some sort of a non-cash crop, like an oat or a rye or something, to cover the soils, right? So again, more practice-based in line with nature is what you would get in a nature-based intervention.
On the other hand, when you look at tech-based interventions, these are generally infrastructure, machinery, advancements in technology, and so on, to cut emissions as well as provide nature benefits. Some examples of these would be your anaerobic digesters, I mean, huge infrastructures that take in animal and crop waste and convert them into biomethane and digestate fertilizers. You could also have your synthetic animal feed additives.
So these are additives that are given to animals to reduce their methane emissions, which is a huge problem in the livestock industry. And then you also have sort of your nitrification inhibitors, very technical term, but essentially what it does is that it's just something that you add with your fertilizer that you apply on the field to reduce your nitrous oxide emissions. So you reduce your greenhouse gas emissions. So you see more of the tech base would be like external inputs.
additives and machinery and technology to achieve the same benefits as nature-based. So those are the differences I would say between nature-based and tech-based.
Rosie (13:40)
That's a very, very clear explanation. Thank you very much. So the science behind the report seems to suggest that nature-based interventions can deliver better long-term climate and nature benefits compared with tech-based interventions. And the report also finds that nature-based interventions have fewer negative externalities compared with the tech-based interventions, particularly when looking at planetary boundaries. Sajeev, can you tell me a little bit more about that?
Sajeev Mohankumar (14:10)
Yeah, so think, I mean, the categorisation is great. We had this categorisation. And then the next question was, how do you look at the impact and the differences between nature-based and tech-based, right? So what we did was we took all of these 22 interventions, 12 nature-based and 10 tech-based, and drove it through this planetary boundaries framework. So then we understand the positive impacts each intervention has across the planetary boundaries.
But we also tagged the negative trade-offs, right? Those are the unintended consequences, which might undercut some of the positive impacts from deploying an intervention. But investors we spoke to were also interested in the financial viability. They wanted to look at the return on investment and also the market readiness of some of these interventions. So these are the things we analyzed for both nature-based and tech-based interventions. And when we did that analysis, from a positive standpoint, nature-based interventions on average
impacted five planetary boundaries positively, whereas tech-based interventions impacted only three. And when you come to negative trade-offs, only three out of the 12 nature-based interventions have negative trade-offs compared to seven out of the 10 for tech-based interventions. And from a financial viability perspective, nature-based interventions, generally practice-based, are ready for deployment and are financially viable.
compared to tech-based interventions, which are still undergoing demonstrations, testing, and they require a bit more support to be viable, right? So those are the headline results. But I think it becomes a bit more clearer if I explain an example. So we looked at silvopasture and synthetic animal feed additives, right? So silvopasture, again, know, cows and trees happily existing together, but by planting trees in that system, you are removing a lot of carbon and putting it down in the soil.
So you have your climate benefits, which is important. At the same time, because of the presence of trees, you are holding the soil together, so there's less soil erosion. Because of the foliage of the trees falling down on the soil, you're adding organic matter to the soils, so soils are rich. And then it also provides shade to the animals, plus it provides a habitat for other wildlife. So you see you have climate benefits, but a range of nature benefits as well.
Rosie (16:27)
Mm-hmm.
Sajeev Mohankumar (16:28)
Now let's take the tech-based intervention, which is synthetic animal feed additives. You feed it to the animals. It reduces your methane emissions. But besides that, it doesn't do much. It's not impacting biodiversity. It's not adding to soil health or resilience and so on. So again, see, obviously, it cuts methane emissions, which is a big issue. But then it doesn't add to too much. So this is the kind of differences that came through when we looked at these different kinds of interventions and looked at the planetary boundaries.
Rosie (16:38)
Mm-hmm.
Sajeev Mohankumar (16:57)
And in closing, just want to say something because from our example, the best intervention is something that not just cuts emissions, but works with nature and not against it. So in our analysis, came through. The evidence came through a lot because nature-based solutions works with nature to solve the climate issue as well as delivers a lot of biodiversity.
Rosie (17:20)
So nature really knows what it's doing in short. I think we could probably summarize.
So Natasha, we've touched on the small amount of climate finance that goes towards nature-based interventions, despite the fact they can deliver 37 % of the mitigation required to meet 2030 climate targets, along with significant nature co-benefits.
What do you think is holding back investment into nature-focused on-farm livestock interventions?
Natasha Stromberg (17:51)
So I think, as Sajeev alluded to, tech-based solutions, they are very much plug and play. You've got anaerobic digesters. Investors know how much they cost. They know what the outputs are going to be. It's an individual unit. You can price per unit. You can work out how that would be scalable, all the kind of transparency that investors like. They want their capital to go to something that is
the outcomes are fairly secure. And the difference with nature-based solutions is that they are less, they are less, I don't know, quick, I'm trying to think rapid is the right word in their effect. So the capital that needs to go into nature-based solutions has to be much more long-term. It could involve higher interest rate loans.
long-term equity partnerships and commitment of capital into solutions, not just one standalone solution like animal feed, but a range of solutions that work together on farm. And in order for those solutions to work together on farm, that takes time. You've got seasons, as you said, nature knows what it's doing, but it takes a long time. So I think it's lack of, let's say,
It's not transparency, but we're getting to a point where we're starting to be able to price natural capital. And that is what investors are looking for. They're looking for a natural capital price. And I think when we get to that, we will see a lot more investors coming into this space. But right now, tech-based solutions are easy to price, lower risk. And that's, think, why we're not seeing capital coming in. But I think
Organisations like FAIRR have a job to do in investor education when it comes to natural capital and nature-based solutions and that it's exactly what we're trying to do with this report. Educate investors, have that discussion on nature-based solutions.
Rosie (20:03)
And it's so important. What action do you think needs to be taken to redirect investment into nature focused solutions and to support nature as an emerging asset class?
Natasha Stromberg (20:15)
I think we need, like I say, we need a price on nature and we are, there are data sets such as the TNFD that are working towards that, actually opening up the price of nature. We need that. We need really transparent pricing, but also we need leaders.
Rosie (20:18)
Yeah.
Natasha Stromberg (20:40)
to take risk. One of the most innovative areas of finance is private equity, on-farm private equity partnerships, leading the way actually investing in natural capital assets, so farms. And I think when we see, we are seeing some very innovative asset managers. I was listening to a podcast at the weekend.
We've got asset managers like Regenerate Asset Management. We're going to talk a little bit about Cibus that are listed in Guernsey, their fund. I think we are seeing first movers, but it will take those first movers to chart that path forward for us and then actually start pricing natural capital. And the market loves to see that. And I think we will see natural capital price with things such as biodiversity credits, the carbon credit market taking off.
And I think then we'll see capital being put up.
Rosie (21:37)
so hopeful for the future. Excellent, that's what we like. Natasha, can you give me some examples and good practices of fund managers and investor members that you're working with who are already supporting natural capital investment?
Natasha Stromberg (21:39)
I think so. Yeah.
Well, you may, think we have a contact in common. We've got Nattergal as a member here that is led by Ben Goldsmith. That is encouraging investment through rewilding. It's not quite the same as On Farm Solutions that we're talking about in this report, but again, is a pioneer in natural capital, biodiversity, credits and carbon. So they are a member of FAIRR. We've got TK Howe. They have a regenerative agricultural fund.
which is co-invested with Unilever and Cibus. Obviously, they are at ADM Capital. They are listed within Guernsey. And I think the infrastructure in Guernsey around the Green Fund is excellent. We need those wrappers for these kind of financial vehicles. that's where I think we're working with members
who are in this natural capital space. have private equity members and we'll be doing a lot more work in the coming months and years on that.
Rosie (23:00)
That's great. We shall look on with interest. Now, the next question is for the both of you, but Sajeev, could you answer first? What in your eyes is the most pertinent finding from the report that the investor community should take away?
Sajeev Mohankumar (23:17)
just want to touch on what Natasha said. We see a huge appetite in terms of investor community, not just looking at immediate returns, but looking at the long-term resilience and health of their portfolios. And I think climate, nature, food security, all of these aspects are important parts of this equation. And Natasha also touched on TNFD, which is important because they only released their final framework in September 2023, so a year and a half from now, let's say.
they already have 129 financial institutions worth 18 trillion US dollars as early adopters. I mean, that shows the investor appetite in this space. And then also the rising interest in natural capital and so on, right? So it's not sort of like a passing trend. It seems like investors have woken up to it and it's more of signals of market shift, right, in a way. So that's that context. And I think what the report says is that, you know, there is a...
There are a lot of solutions that have really good impacts across the planetary boundaries, makes nature and climate benefits, and also are viable from a financial standpoint, but then still underutilized and underfunded. And investors have a huge role to play in this, right? Because they are the ones who can close those funding gaps and scale these promising solutions. They're the ones who can align some of the financial returns with the planetary health.
And they're the ones who can unlock long-term resilience of their portfolios. And this can only happen if they identify and appreciate the fact that there are solutions out there that can mitigate some of the climate and nature risks that is detrimental to the planetary health, as well as the long-term resilience of their portfolios.
Rosie (25:01)
for sure. Natasha, what's your view?
Natasha Stromberg (25:04)
So I think this idea of long-term time horizons is one of the main takeaways. We know that natural capital takes longer to return on investment. So I think that's a key takeaway from the report. We spoke a little bit about the difficulty of measurement and data. We do need that adoption of data sets and transparency. And also we've spoken about employing
you know, the difficulty in employing traditional financing instruments. So we need to get creative with the kind of finance that we're going to see, blended finance. And really there are a lot of opportunities in this space for innovative financiers. And the planetary boundaries is a fantastic framework to look at investments in climate and nature and that nexus together.
and look at a portfolio and say, what are my risks across the piece, nature and climate, across the value chain, from production to food manufacturing. And I think that's the main takeaway. There are a lot of opportunities in this space for first movers.
Rosie (26:20)
Superb final question, how can international finance centres and communities like Guernsey facilitate effective flows into supporting sustainable farming practices?
Natasha Stromberg (26:39)
Certainly. I think we've spoken a little bit about Guernsey's trail raising role in sustainable finance, obviously the Guernsey Green Fund regime. You've got Cibus, we spoke about that particular fund, which was one of the first ones to actually be given that wrapper, I think providing these wrappers like Guernsey does, you've got your natural capital wrapper as well,
encourages funds to be confident in the regulatory space that they can be in jurisdictions like Guernsey supported and then list on sustainable exchanges. I think Guernsey has that infrastructure from your sustainable funds regime to the international stock exchange sustainable listing.
and your position as the UN sustainable finance city. So I think all of those things together provide an ecosystem for natural capital funds to list and for investors to trade. And I think we need to see more of that.
Rosie (27:51)
Wise words. Sajeev, what are your thoughts on how Guernsey can support a move to more sustainable agricultural practices?
Sajeev Mohankumar (28:00)
Yeah, it's difficult to follow up that answer from Natasha, but I'll put a different reference pin on it. I Guernsey obviously, know, sustainable funds and so on, but it's also known for its rich agricultural heritage, right? I think in terms of the dairy production and then the fantastic, like, you know, cheese and milk and other products that come from Guernsey. And besides that, I mean, also, you know, from an environmental commitment point of view, Guernsey does have certain policies.
Rosie (28:01)
Yeah, absolutely.
Sajeev Mohankumar (28:29)
So you have the strategy for nature where you think about putting natural capital and nature strategies in decision making. You have the sustainability Guernsey initiative, which looks to cut greenhouse gas emissions by 37 % by 2030 and a whole host of other sort of commitments and targets and so on. And given agriculture is such a key part of the island's economy and society and so on, the results that we present in this report is directly applicable to that sector
and directly speaks to the farmers and landowners who are implementing some of these practices. So the regenerative agricultural practices, the nature-based practices and so on is something that farmers and landowners in Guernsey can adopt in their own operations. And this not only helps them in terms of producing the product sustainably, but also contributes to the islands commitments and targets on climate and nature. And along with a strong sustainable finance backing
and with the practice on the ground, I think it can only set up the island to be a leader in the space for the foreseeable future.
Rosie (29:32)
That's great to hear. Thank you so much. Well, it's been lovely chatting with you today, but that's all we have time for, I'm afraid. Thank you so much for joining us on the podcast today, Natasha and Sajeev. And thanks to you two for listening. If you'd like to find out more about what Guernsey has to offer, do visit our website, guernsiefinance.com. If you'd like to learn more about Guernsey's success in other sectors, you can tune into our sister podcast, the Guernsey Finance podcast.
We have an extensive back catalog of interviews and panel discussions, which you can also find on the website. And you can check them out by searching for sustainable finance, Guernsey, wherever you get your podcasts. And if you enjoyed today's episode, please subscribe so that you never miss an episode. If you have thoughts about today's show, do get in touch. We love to have your feedback and we'll be back soon with another episode of the sustainable finance Guernsey podcast. Thanks for listening.
