Morgan Stanley
Institute for Sustainable Investing

Financing Sustainable Food Systems

Dec 19, 2024

Here's how companies, investors and governments can accelerate the transition to a more nature- and climate-positive food system.

Matthew Slovik
Head of Global Sustainable Finance

Key Takeaways

 

  • The world’s food system is one of the largest components of the economy, as well as one of the most significant drivers of climate change and environmental degradation.
  • An estimated $350 billion per year by 2030 is needed for transforming food systems to achieve climate targets, as well as meet other Sustainable Development Goals.
  • Identifying pathways to reach smallholder farmers through innovative financial mechanisms, technology and data solutions as well as cross-sector collaboration can help transition the global food system and scale climate- and nature-positive solutions.

 

Food is more than a human necessity—it’s also a key driver of global economic stability, responsible for more than 12% of global GDP and 40% of jobs.1 But feeding more than eight billion people comes with significant environmental challenges.

 

Today, the global food system is one of the largest drivers of climate change and environmental degradation, responsible for 35% of global greenhouse gas emissions and 70% of biodiversity loss,2 because of unsustainable practices like deforesting and converting habitats to produce food. Yet there are increasingly viable opportunities across the entire food system value chain to transition to more climate- and nature-positive practices. 

 

An estimated $350 billion in annual funding is needed to transform the food system to achieve climate targets, protect nature and meet other Sustainable Development Goals.3  In addition to scale, this transformation will require targeted solutions around the world, as global food systems are complex, diverse and deeply ingrained in the economic and cultural fabric of societies.

There is a role for both finance and technology to play in harnessing capital markets and investing in innovations that scale more climate- and nature-positive solutions.

 

This transformation could contribute to unlocking significant economic opportunities as well—potentially generating at least $5 trillion in annual economic benefits by reducing the costs unsustainable food systems incur on human health and the environment.4 There is a role for both finance and technology to play in harnessing capital markets and investing in innovations that scale more climate- and nature-positive solutions.

 

The Morgan Stanley Institute for Sustainable Investing and the World Wildlife Fund convened key stakeholders, including corporate leaders, investors and civil society, to discuss the business models, innovations and financing needed to reshape the global food system. Here are some highlights of what we heard.

 

Financial Innovations

One of the biggest hurdles to transforming food systems is access to the right financing. Farmers, especially those that produce on a small scale, struggle to secure affordable capital, facing high borrowing costs, limited risk-management tools and subsidies, or insurance practices that disincentivize the transition to more sustainable practices. To change this, we need innovative financial models and tools that reduce risks and costs, such as:

 

  • Concessional capital includes loans, grants and to some extent equity investments that may accept disproportionate risk and/or concessionary returns to generate positive impact. This type of capital—whether from private or public sources—can be deployed to “buy down” both risks for investors and costs for farmers. Concessionary capital can absorb early-stage risk, enabling farmers and other food producers to invest in sustainable and nature-positive practices without bearing the full financial burden upfront. By demonstrating the viability of nature-positive transitions, such investments can ultimately scale business models that generate significant positive environmental outcomes. Concessional capital can also be used to accelerate technology adoption and market entry in sectors and regions with higher risk. 
 
  • Yield-guarantee mechanisms, a type of crop insurance designed to protect against production losses, can help reduce the risks food producers face when adopting new practices and tools, protecting farmers from crop failure or other risks during the transition period. Some corporates have already started to deploy this tool with success within their supply chains. Some insurers are also beginning to incorporate climate- and nature-related risk through sustainability-linked insurance products. By reducing exposure to financial loss, these mechanisms encourage farmers to adopt sustainable farming methods with greater confidence.
 
  • Community-based finance models can be tailored to specific local needs, reducing borrowing costs and increasing accessibility for smallholder farmers. Similar to how Community Development Finance Institutions (CDFIs) in the U.S. provide capital and financial services to underserved communities, localized financing models for farmers can be particularly effective in emerging markets, where traditional financing providers may not be as well-suited.

 

Tech and Data Solutions

Technological advancements are key to transforming food systems, especially as climate risks grow, yet the sector remains one of the least digitized due to data accessibility and quality, high initial costs and skepticism toward new technologies. While artificial intelligence (AI), predictive analytics and other data-driven tools have made rapid strides, many farmers and food producers still lack access to these innovations. This gap presents an opportunity to improve efficiency, adapt existing technology to real-world circumstances, increase market and pricing information, reduce waste and optimize resource use across the entire agricultural value chain.

 

  • AI-driven decision-making tools to help with crop monitoring and management as well as disease and pest detection can help farmers boost crop yields, cut input costs and manage climate risks. By analyzing real-time data on soil and weather conditions, AI tools can provide actionable recommendations to increase productivity with fewer resources. On the supply chain side, AI-enhanced cold storage and logistics systems can significantly reduce the amount of food—currently up to 40%—that is wasted due to inefficiencies.5

 

  • Technical training and support are equally important to ensure that farmers and food producers know how to effectively use new technologies. These programs can help farmers plan, design and implement more sustainable practices or help develop plans to improve the sustainability of their existing agricultural operations. 

 

Cross-Sector Collaboration

No single sector—public or private—can tackle the challenges of global food systems alone. Collaboration between governments, private companies and civil society is key to mobilizing the capital and expertise needed for a sustainable transition. Public-private partnerships can play a crucial role by reducing risks for early-stage investments and directing funding to high-impact projects that might otherwise struggle to attract capital.

 

  • Co-investment models, in which public and private sectors share resources, help lower the financial risk for investors and speed up the growth of effective solutions. Public funding can take on the higher risks first, making projects more attractive to private investors. 
 
  • Transparency and open-source information are crucial for sustainable agricultural practices to scale. Transparently sharing both successes and failures about new practices or solutions helps others learn from mistakes and adopt best practices more quickly, driving faster progress toward sustainable food systems. More accessible information can help farmers make better decisions. 
 
  • Pre-competitive partnerships or collaborations allow companies to work together and with supply chains on common goals, like cutting food waste or increasing supply chain transparency to ensure ethical sourcing. By partnering appropriately on shared initiatives, companies can drive progress while keeping their unique value in the market.

 

 

The transformation of global food systems presents a unique challenge, but also a significant opportunity, for corporates, investors and civil society. Tailoring financial innovation, technology and collaborations to address the unique complexities of the global food systems can balance resilience and profitability. 

 

 

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Sources & Disclosures

Sources

1 The Future of Nature and Business, World Economic Forum, 2020

2 Increasing global food sustainability and resilience, World Wildlife Fund, 2024

3 Global food policy report: Climate change and food systems, International Food Policy Research Institute, 2022

4 The Economics of the Food System Transformation, Food System Economics Commission, 2024

5 Food Waste FAQs, U.S. Department of Agriculture

 

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