Clarmondial is supporting Bioversity International on the design and structuring of financial instruments based on the Agrobiodiversity Index1. By linking scientific research to risk assessment tools and funding mechanisms, investors can catalyze change at scale and shift global markets towards resilient agricultural systems.
Supply chains based on a single genetic variety may not deliver the expected outcome 2
What do potatoes, bananas and cocoa have in common?
They are all globally important commodities that have suffered major losses due to over-reliance on a very narrow genetic base, with significant consequences for countries, economies and communities:
- The Irish potato blight, resulting in the Great Famine, decimated ca. 25% of the Irish population in the mid 1800’s. 3
- In the 1950’s, the market-dominant Gros Michel bananas (Musa acuminata (AAA Group) Gros Michel) were practically wiped out by the Panama Disease. They were replaced by the Cavendish variety, which is now also under serious threat. 4
- In the 1980’s, 70% of Brazil’s cocoa production was decimated by Witches’ Broom, resulting in catastrophic economic impacts that affected the livelihoods of some 2 million people. 5
Despite the social unrest, company failures and fortunes lost from underestimating the importance of agrobiodiversity, we still neglect the risks associated with poor agrobiodiversity.
The reality is that our food systems are not fit-for-purpose and are not ready to handle environmental and socio-economic changes. The consequences of this are already staggering:
- Malnutrition affects one in three people on the planet. 6
- Agriculture contributes around 24% of the world’s greenhouse gas emissions. 7
- Agriculture is the single largest user of fresh water on the planet. 8
- Sixty-two percent (5’407) of IUCN globally threatened species are adversely affected by agriculture. 9
- Global diets are increasingly homogenous10. Just three species (rice, wheat and maize) provide more than 50% of the world’s plant-derived calories11. This has consequences for both human health and the environment.
What are we doing about it?
Bioversity International, the leading international research-for-development institute focused on scientific agrobiodiversity research, is developing the Agrobiodiversity Index (“ABD Index”). Scientific evidence paints a clear picture of material operational (and economic and financial) risks associated with over-reliance on a narrow set of genetic resources, at the local, landscape and supply chain level. This includes risks linked to poor soil quality, loss of pollinators, and impacts on local livelihoods. An affiliate to the Consultative Group on International Agricultural Research (CGIAR), Bioversity International’s research is coordinated with the leading global agricultural research institutes on food security issues.
As we continue to improve the science basis, the key challenge is how to translate the evidence of material risks into actionable strategies. In this context, the ABD Index will enable governments, corporates, investors and the public to consistently assess and track agrobiodiversity in food systems, and monitor impact on related issues in agricultural supply chains. It will also enable assessment of agrobiodiversity’s role is meeting multiple interconnected global targets including the Sustainable Development Goals (SDGs) and the United Nations’ Convention on Biological Diversity (UN CBD).
To ensure the relevance of the ADB Index to the investment community, Bioversity International has engaged Clarmondial to support the design and structuring of financial instruments based on the index.
The essence of the ABD Index is translation and packaging of scientific research and insights into actionable strategies that can be utilized by governments, corporates and investors. It helps these actors plan for and manage, for example, their exposure to extreme climate events (e.g. drought or new pest migration) that could trigger a harvest crisis and affect production for a few agriculture seasons / cycles.
For corporates, agrobiodiversity should be assessed from an operational risk perspective (as well as a potential reputational risk). Organizing a supply chain around a single species (or sub-species or hybrid) brings process efficiencies and consistency, but exposes the entire chain to greater risks from pest and disease outbreaks and extreme weather events. Information about agrobiodiversity-related risks and opportunities for corporate operations can support more strategic internal capital allocation decisions, including to Research & Development (R&D) and procurement strategies, and make new opportunities visible, both in terms of revenues and acquisitions.
The Agrobiodiversity Index should also be considered as an operational risk management tool for governments. Over-reliance on a narrow genetic base for primary exports, or within a landscape, poses risks to economic stability and local development. At the same time, understanding the role of agrobiodiversity and diversification strategies can help in stabilizing the national and local economic base and create new, more resilient, revenue and financing pathways. Governments are also greatly concerned with food and nutritional security (and associated healthcare costs) and these may be exacerbated in low agrobiodiversity landscapes.
In our discussions to date, we see significant interest from investors in the assessment and integration of ESG / SRI / Green / Impact factors, including agrobiodiversity, as a risk metric and decision-making tool across asset classes (from listed equities and bonds to private equity).
Financial instruments and next steps
The ABD Index is based on a scientifically sound agrobiodiversity assessment methodology developed by Bioversity International, and will be used to rate corporates, countries and regions, and supply chain interventions. As a result, it can inform various financial decisions in the public and private arenas, such as:
- Portfolio allocation criteria for listed equities or fixed income funds
- Standard for the issuance of green-labeled bonds
- Support marketing and fundraising (e.g. crowdfunding) claims
- Inform budget allocation
- Grant assessment tool
- Government policy design
While Bioversity International further develops the ABD Index, in partnership with leading corporates and national governments, Clarmondial has tested the concept with leading stakeholders in the financial community and collected valuable feedback. The response of financial service providers (e.g. banks, insurance companies) and institutional investors has been positive.
In parallel, we continue to advance on the Food Securities Fund and our other mandates, including a securitization instrument, designing a crowdfunding project and other initiatives we’re not yet allowed to disclose. It’s been a busy year!
For more details about Bioversity International: www.bioversityinternational.org
For more details about the Agrobiodiversity Index: www.bioversityinternational.org/abd-index
And a big thank you and acknowledgment to the Bioversity International team for most of the figures used in this article.
NEW: investor-focused paper about the ABD Index published in June 2017, available here.
1 Agrobiodiversity (agricultural biodiversity) refers to “…the variety and variability of animals, plants and micro-organisms that are used directly or indirectly for food and agriculture, including crops, livestock, forestry and fisheries.” (FAO, 2005)
2 Photo source: Solid Brix Studios (David Hall) Clone Army (TBC)
6 IFPRI (International Food Policy Research Institute) (2016) Global Nutrition Report 2016: From Promise to Impact: Ending Malnutrition by 2030 (Washington, DC)
7 IPCC (Intergovernmental Panel on Climate Change) (2014) Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change
8 Rockström J, et al. (2016) Sustainable intensification of agriculture for human prosperity and global sustainability. Ambio, pp 1–14
9 Maxwell SL, Fuller RA, Brooks TM, Watson JEM (2016) Biodiversity: The ravages of guns, nets and bulldozers. Nature 536, pp 143–145
10 Khoury CK, et al. (2014) Increasing homogeneity in global food supplies and the implications for food security. Proceedings of the National Academy of Sciences 111(11):4001–4006
11 FAO (Food and Agriculture Organization) (2015) The second report on the state of the world’s plant genetic resources for food and agriculture. (Commission on Genetic Resources for Food and Agriculture, Food and Agriculture Organization of the United Nations, Rome)