It has been an exciting and eventful 2023. We extend a big thank you to all our valued partners and colleagues for the continued support as Clarmondial reached some important milestones.
As we look towards 2024, we want to highlight three key take-aways from the past year:
1. Sound operations are critical to delivering environmental and social objectives
Challenging market conditions including price volatility for important smallholder cash crops, like coffee and tree nuts, and tighter global credit markets amplified the need for good management. We saw first-hand how some companies adapted their engagement throughout the year and made strategic investments to increase resilience in important sourcing regions, including in response to emerging regulations (e.g., the European Deforestation Regulation – EUDR) and new industry initiatives. For example, one Food Securities Fund borrower carried out a biodiversity baseline assessment as a step towards integrating recommendations from Taskforce on Nature-related Financial Disclosures (TNFD). In summary, companies with solid business operations, including risk management and proactive farmer and customer engagement emerged as leaders, including on the delivery of climate, biodiversity, and socio-economic (e.g., farmer livelihoods, gender, and youth) objectives.
2. Transition finance will need more private capital, unlocked by strategic collaboration
The demand for additional finance to transition value chains and strategic sourcing landscapes, including to meet biodiversity and climate targets, became increasingly apparent in our discussions with the Food Securities Fund’s existing and potential borrowers, and with our partners, such as CDP (check this article). It also featured in our advisory mandates with leading consumer goods companies – for example, accelerating the adoption of regenerative agriculture. Transition finance will require solutions that build on different corporate budgets based on shared accountability in value chains and supply sheds (landscapes). We know that financing structures that use corporate commitments to unlock additional private capital exist and can be scaled, the Food Securities Fund has demonstrated this. And with the generous support of USAID, along with our Business Case for Collective Landscape Action partners (Rainforest Alliance, Conservation International, and CDP), we continue working on the development of the Biosphere Integrity Fund in 2024 to address the need for longer-term transition finance. Momentum for strategic collaboration was also created by the SAI Platform and OP2B, the Food Systems Call to Action, and upcoming developments such as the EU’s Carbon Removal Certificate, Corporate Sustainability Reporting Directive, the corporate sustainability Due Diligence Directive and developments in antitrust regulation.
3. Carbon finance remains an exciting revenue driver, but requires specialist expertise & management
Our specialist sourcing, due diligence, contracting and portfolio management support will continue to guide clients on their carbon credit (offset) and insetting (within value chain removals) programs. For example, a carbon credit screening tool and due diligence tool we developed for one client helped them avoid controversial projects. We also saw how financing projects (directly or via funds) at pre-issuance stage required careful contracting and active risk management. Negative press regarding Voluntary Carbon Markets (VCM) spurred much needed methodology upgrades. While these have been helpful in addressing concerns, we remain very concerned about certain project types. We also participated in the Science Based Targets initiative’s Beyond Value Chain Mitigation (BVCM) working group, and discussed financing of within value chain removals (insets), BVCM, carbon credits (including with corresponding adjustments, Article 6.2 emission reductions (Internationally Transferred Mitigation Outcomes – ITMOs), as well as biodiversity claims, with investors and investees in the context of the Biosphere Integrity Fund. Based on this, we remain cautiously optimistic about the role of carbon finance – and Payments for Ecosystem Services (PES) more broadly – in new investment strategies in 2024. These will continue to require specialist expertise and attentive management to realize.
What we’ll be doing in 2024
We will continue to support the Food Securities Fund growth, notably as it celebrates 3 years of investment track record in March. We are also readying new transactions that realize positive environmental and social outcomes in strategic value chains, including in the context of the Biosphere Integrity Fund. And we will continue to support partners and clients on nature-positive investments, with a continued focus on implementation. We look forward to an exciting 2024, and hope to see you at World Economic Forum (WEF) event in January 2024 and beyond.