It is now well established that financial flows to agrifood systems need to increase significantly to pay for the necessary transformation. The State of Food Security and Nutrition in the World 2024 lists the costs of not bridging the financing gap, including millions of people who will be hungry, food insecure, malnourished and unable to afford a healthy diet, with socioeconomic and health repercussions beyond 2030.18 Many promising initiatives by the finance sector are increasingly incorporating environmental and social responsibility into their operations (as discussed in Chapter 3). Scaling these up sufficiently to achieve global agrifood systems transformation, however, seems to be bound by “hidden constraints”. These include the fragmentation of the current food security and nutrition financing architecture and lack of coordination between local and global actors,18 partly driven by the disconnect between hidden cost producers and cost bearers and the trade-offs between multiple objectives of agrifood systems transformation.
It is feasible to implement some of the levers discussed in this report with national budgets, but this needs to be complemented by private and international financial flows to put global agrifood systems on a sustainable transformation pathway.18, 19 Where the burden of financing the required actions must fall (on national or international budgets) can be identified using a TCA approach that documents the spatial and temporal separation between the beneficiaries of the status quo and the bearers of hidden costs. This can help scale up successful initiatives, such as the results-based financing achieved through the framework of reducing emissions from deforestation and forest degradation in developing countries (REDD+) in Ecuador and Ghana, highlighted in Box 31. The global cost of transformation is estimated to be within global financial means; however, as its distribution between countries is highly uneven, financing may be necessary. Especially countries affected by multiple drivers of food insecurity and malnutrition, climate extremes and conflict have limited access to financing, which calls for innovative and collaborative financing partnerships to ensure a just transition.18
Box 31Reducing emissions from deforestation and forest degradation – reducing hidden costs by financing economically viable and sustainable practices
Reducing emissions from deforestation and forest degradation in developing countries (REDD+)* is a highly relevant United Nations Framework Convention on Climate Change programme that helps address the hidden costs of agrifood systems.20 It promotes a paradigm shift in land use, towards sustainable practices that ensure forest protection, enhanced livelihoods and sustainable development. By achieving emission reductions and fulfilling the requirements of the standards, countries or subnational jurisdictions can receive results-based payments that need to be reinvested in further action towards reducing deforestation, contributing to the achievement of the country’s nationally determined contributions. Approximately one-third of tropical forest countries making efforts to access REDD+ results-based finance have received payments so far. Some of these countries are using the payment of proceeds to fund direct interventions in sustainable agricultural production models, boosting a virtuous cycle in land use and sustainable development.
A concrete example of REDD+ in action to support transformation to a sustainable agricultural supply chain is the Ghana Cocoa Forest REDD+ Programme (GCFRP). Cocoa farming, crucial to Ghana’s economy, has put pressure on forests. Through the GCFRP, Ghana is reducing carbon emissions from cocoa expansion and other agricultural activities by promoting a climate-smart cocoa production system and establishing landscape management that focuses on sustainable farming, forest protection, community governance, and multistakeholder collaboration. The GCFRP also supports other tree crops and nature-based livelihoods within the cocoa forest Hotspot Intervention Areas. In 2023, Ghana received USD 4.8 million from the World Bank for reducing carbon dioxide emissions by 972 000 tonnes, with 69 percent of the payment going directly to cocoa farmers. Furthermore, the private sector recognizes REDD+ as a positive mechanism and vehicle for achieving its sustainable agricultural supply targets.
Another inspiring example comes from Ecuador’s PROAmazonía initiative, led by the Ministry of Environment and Water and the Ministry of Agriculture and Livestock. Through efficient management, gender equality, and effective communication among stakeholders, it has successfully led to policies and strategies for natural resource conservation and sustainable commodity production. PROAmazonía has trained local technicians, community leaders and landowners in forest and non-timber forest product management, strengthened the National Forest Monitoring System, and implemented community and protective forest management plans. It has transitioned significant areas to sustainable production, conserved large forest areas, and restored numerous hectares of land, benefiting over 80 000 people.
SOURCE: FAO. 2022. Halting deforestation from agricultural value chains: the role of governments. Rome. https://doi.org/10.4060/cc2262en
Nevertheless, a lot can be achieved within national borders and budgets if there is the political will to bring all stakeholders together to implement incremental steps, such as redirecting agricultural support, reforming tax systems, creating reporting standards for private investors and agribusinesses, and incentivizing consumers to transition to healthier and more sustainable diets. Box 32 showcases a recent manifestation of political will at the European Union level with the adoption of the Corporate Sustainability Due Diligence Directive (CSDDD), which aims to foster sustainable and responsible corporate behaviour for a just transition towards a sustainable economy. It aims to go beyond voluntary standards through binding mandates for companies, including those in the agrifood sector, which is among the high-impact priority areas.
Box 32Levelling the playing field: European Union Corporate Sustainability Due Diligence Directive
The Corporate Sustainability Due Diligence Directive (CSDDD) is a new piece of legislation of the European Union aimed at promoting sustainable and responsible business practices across global value chains.21 Both the European Parliament and the Council of the European Union adopted the directive in 2024 and it came into effect in late July of the same year. It mandates companies to implement robust due diligence processes to identify, prevent and mitigate adverse impacts on human rights and the environment throughout their operations and supply chains. It deters companies from neglecting due diligence to gain competitive advantage. The CSDDD provides a uniformity often lacking in voluntary agreements where only some companies may choose to participate. Notably, the agrifood sector is identified as a high-impact, priority sector.
The directive applies to large companies – both EU companies and non-EU companies with significant business in the European Union – specifically those with more than 1 000 employees and a turnover in excess of EUR 450 million. This focus on the largest companies is designed to ensure significant impact without overburdening smaller enterprises. Companies must continuously identify and assess actual and potential adverse impacts on human rights and the environment. This involves mapping out entire value chains to highlight risk areas and implementing measures to prevent and mitigate those impacts. Regular monitoring and annual reporting on due diligence efforts must additionally be conducted.
Companies are also required to adopt transition plans to align their business models with the Paris Agreement, aiming to limit global warming to 1.5 °C. These plans must be updated regularly to reflect ongoing improvements and adjustments. Meaningful stakeholder engagement is a critical component, ensuring that affected parties, including employees and communities, have their voices heard in the due diligence process. Companies must also establish effective remediation mechanisms to address any adverse impacts that occur.
Each EU Member State appoints authorities to oversee compliance, and companies failing to meet the directive’s requirements may face significant fines and civil liabilities. Non-compliant companies may also be excluded from public procurement processes within the European Union. Member States have two years after the CSDDD officially entered into force (on 24 July 2024) to transpose the directive into national law. The directive includes a phased implementation approach, with companies required to start applying the new rules in stages based on their size and risk profile.
The CSDDD is potentially a landmark piece of legislation because it establishes a legally binding framework for corporate accountability and sustainable business practices across global supply chains. However, implementing the CSDDD is likely to present several challenges due to the complexity of global agrifood supply chains. Gathering reliable and verifiable data, conducting comprehensive due diligence and implementing remediation measures associated with the environmental and human rights impacts of suppliers and subcontractors can be a challenging undertaking for companies in terms of resources. At an institutional level, ensuring consistent enforcement across EU Member States and harmonizing the CSDDD with existing national laws and regulations will be crucial to its effective implementation.
Despite these challenges, the CSDDD is a significant step towards promoting sustainable and responsible business practices globally and holding companies accountable for their environmental and social impacts throughout their value chains. As the CSDDD takes effect, it promises to transform corporate accountability by establishing a level playing field in which responsible business practices are the norm.
