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7. Financing agroecology transitions
Securing access to finance is essential for farmers to invest in agroecological transitions. In addition to direct financing and support, policymakers must adjust financial and investment regulations and instruments at both national and local levels within ASEAN.
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The ASEAN RAI provides critical guidance to ensure that private sector investments do not exacerbate inequality, harm smallholders' livelihoods, or deplete natural resources. These guidelines offer key principles for financing institutions and funding entities when formulating their loan and grant policies, country’s investment portfolios, and co-financing with others.
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Green and responsible finance are rapidly growing, with diverse funding sources and instruments. Policymakers play a crucial role in guiding and piloting innovative approaches to harness the potential of sustainability finance. This supports the transitions on the ground, improves farmers' and rural livelihoods, and addresses needs and commitments related to climate action, health and nutrition, land restoration, biodiversity and ecosystem conservation.​
Three guidelines are outlined to finance agroecology transitions:
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Guideline 7.1
Create an enabling framework to repurpose public and private fundings towards the transitions
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Foster public private partnerships and multistakeholder engagement to strengthen commitments and joint actions towards financing the transitions (see guideline 1.4 and guideline 5).
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Reform national agricultural and food subsidies together with import/ export schemes and price policies to better reflect the full costs and benefits of agrifood inputs and outputs. This entails comprehensive cost assessment of different farming systems and value chains, including agroecological ones (see guideline 3.6 and guideline 6.1).
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Support the domestic banking sector in its capacity to develop sustainable finance standards and instruments adapted to the transitions and to access green and responsible finance.
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Engage the local banking sector and microfinance actors into financing the transitions (e.g. to help decrease the minimum size of funds and ease the access of local organizations and communities to finance).
To achieve this, AMS may consider:
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Promoting performance-based instruments in legislative reforms and modifications of banking sector legislations (e.g. using ASEAN Green Financial Instruments Guide).
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Fostering partnerships between the domestic financial sector and development finance institutions operating in the agricultural sector to help establish good practices and standards and build in-country capacity on conditional finance (promote Transformative Land Investment).
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Supporting local banks to function as aggregators of agroecology-based green projects and develop green securitizations, to help provide indirect capital market access for SMEs.
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Strengthening environmental offsetting regulations and channel compensations from large investing agrifood companies to finance agroecology transitions programmes.
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Building on enhanced landscape-level policy planning to support the decentralization of agricultural financing to subregions (see guideline 1.3).
Guideline 7.2
Build a coherent national agroecology strategy and accountable framework to direct international funding into the transitions
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Create a coherent strategic national roadmap and associated accountable framework for agroecology transitions – aligned with government priorities set in the Nationally Determined Contributions (NDCs) and national biodiversity strategies and action plans – thereby improving the capacity to attract and orientate sustainable finance and impact investment - from the many varied public and private sector entities - into supporting local agroecology investments and agroecology promotors and innovators.
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Identify, or create, a high-level multistakeholder taskforce (e.g. ministry officials, United Nations agencies, NGOs, donors) in charge of establishing a financing strategy to respond to the agroecology strategic roadmap and identify appropriate financial instruments.
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Negotiate funding for local paths to agroecology transitions with sustainability funds and investors, such as through leveraging climate finance - covering mitigation and adaptation goals as well as biodiversity credits.
To achieve this, AMS may consider:
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Setting clear targets and indicators for agroecology transitions through inclusive policy planning and M&E (see guideline 1) to establish the coherent strategic agroecology roadmap and accountable framework – including considering the target 10 of the Kunming-Montreal Global Biodiversity Framework and quantifiable outcomes both for mitigation and adaptation activities-.
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Incorporating agroecology targets into the country’s plans e.g. National Determined Contributions, and National Biodiversity Strategies and Action Plans, adding health, social, and other environmental targets and indicators, including those related to food systems; and ensure consistency with national agricultural development planning and zoning tools.
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Presenting agroecology targets (and associated funding needs) as a strategic demand that is high on the agenda of negotiation on a bilateral level (e.g. Free Trade Agreement, commercial agreements, negotiation of public aid programmes) and international (e.g. Conference of the Parties), where applicable.
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Fostering the use of environmental and social impact assessment procedures to decide on large public and private agrifood investments and incorporate agroecology criteria/ indicators into them.
Guideline 7.3
Develop innovative financial models that address the needs of smallholder farmers for transitioning (in various contexts), while leveraging global sustainability finance
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Uncover the diversity of financial sources and models and assess their capacity to provide adaptive financial solutions to different stakes and local needs.
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Foster experimentations of transition finance models and instruments fitting global finance models into locally tailored support to the transitions, adopting a holistic approach that answers the needs of farmers and local stakeholders to transition while responding to impact monitoring, certification needs and national and global sustainability target achievements.
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Task and capacitate a government body to steer and oversee the piloting of innovative transition financial instruments (as described above), ensuring alignment with national targets and the fueling into an agroecology-based financing strategy (see guideline 7.2)
To achieve this, AMS may consider:
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Orchestrating efforts and expertise from different stakeholders, including development institutions, research, and NGOs to design, test and progressively adapt transition financial instruments. This should be done by combining: 1) tailored support adapted to smallholder transitioning in different local contexts; 2) reliable monitoring and quantifiable environmental and social outcome measurement; and 3) institutional arrangements answering the needs of different financial models; and 4) providing adapted reward systems to different transitioning farmers, including innovative risk mitigation strategies (see for example the Dei Meas pioneering sustainability finance initiative in Cambodia).
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Designing and piloting financial tools based primarily on appropriate support, answering the varied needs of farmers and local stakeholders to transition.
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Supporting long-term projects and programs led by local communities, who are closest to the daily lives of smallholders, ensuring the initiatives directly address local needs. Leveraging research expertise and innovative technologies to build suitable metrics able to quantitatively measure the environmental and social outcomes of different agroecological transition paths (see guideline 6.1), thereby fueling the design of innovative measurement, reporting and verification systems. This serves to not only answer growing demands from sustainability finance for impact monitoring and reporting, but to also adapt these to effectively finance local transition paths.
Case studies:
To go further: