Whether climate change, security of supply or biodiversity. The agricultural sector is characterized by constant change and is increasingly facing new problems that need to be overcome.
As a result, there are both challenges arising from ever more regulations and many new opportunities from new business ideas.
Many of these business ideas are primarily concerned with sustainability. As a logical consequence, more and more impact investors are entering the agricultural sector.
Impact investing is a relatively new way of investing that is often in line with the UN Sustainable Development Goals. In addition to the idea of sustainability, impact investing is also about generating an economic return. First and foremost, it is important that a sustainable impact can actually be measured.
Options for measuring the impact in key figures include, for example, mappingCO2 emissionsand the extent to which the business model reduces them. Certified ESG ratings and indices are also suitable for measuring the positive impact.
However, as many smaller or young companies in particular do not have the financial or bureaucratic means to manage such templates, a transparent business model based on the UN sustainability goals seems to make sense at first glance.
In most cases, impact investors are asset management companies, insurance companies, pension funds, banks, but also private individuals. The reasons for impact investing are changed customer needs of investors or the solution of social problems without achieving a maximum return.
The UN Sustainable Development Goals were adopted in 2015 as "AGENDA 2030". The global community has committed to meeting these goals for a better future. These include ecological, social and economic aspects (Figure 1).
Although impact investing is a younger sector, it is growing strongly and enjoys a social tailwind. Reasons for further growth in the sector include rising international environmental standards.
The European Union in particular has set itself particularly ambitious targets in an international comparison to reduce greenhouse gas emissions. To this end, far-reaching regulatory measures are being introduced, which in turn may change the market behavior of companies and private consumers.
These measures include, for example, an emissions trading system designed to make pollution more expensive, the introduction of sustainable fuels, a clean energy system with its own energy generation and the sustainable renovation of existing buildings.
These market changes alone could make the economic situation for impact investing even more attractive in the future.
The EU has significantly exceeded its emissions reduction target of 20% for 2020. According to the latest estimates, greenhouse gas (GHG) emissions in the EU Member States in 2020 were 32% lower than in 1990 (Figure 2). Nevertheless, the EU member states still need to make significantly greater efforts if the net reduction of 55% is to be achieved in 2030. In addition, the COVID-19 pandemic led to the high GHG reduction in 2020 as a special effect.
The reasons for the long-term GHG reduction are a combination of structural economic changes and a special focus on sustainable energy production.
Internationally, Europe performs particularly well as an investment location for impact investing according to surveys of investors. As can be seen in chart three, the fastest growing regions were Western, Northern and Southern Europe (WNS Europe) and East and Southeast Asia (SE Asia), which saw 25% and 23% compound annual growth respectively in the period from 2015 to 2019.
While the WASH sector has grown the most with the areas of water, hygiene and sanitation supply, the agricultural sector also plays a not insignificant role (Figure 4). Investments in this sector increased by an average of 22% between 2015 and 2019.
Although food and agriculture account for a relatively small proportion of assets under management (9% with no outliers), 57% of respondents have some allocation to this sector and the highest proportion of respondents (54%) plan to increase their allocations in the next five years (2020 Annual Impact Investor Survey).
Klim offers a digital platform that shows farmers regenerative documentation and financing options. The focus here is on regenerative agriculture. For example, methods are used where the soil extracts more CO2 from the atmosphere than it releases. This results in positive side effects such as increased yields and more resilient soil. Overall, this makes agriculture more climate-neutral. There is therefore a particular focus on goal "13" (Climate Action) of the UN Sustainable Development Goals.
Various impact investors, such as the Green Generation Fund and WI Venture, have decided to invest in the young company Klim in recent financing rounds.
Skyseed enables the reforestation of forests with the support of drones and pelleted seeds. This makes sustainableCO2 storage possible. The young company first carries out an analysis of the current situation in order to then transport the pelleted seeds to the right places in the next step. As with Klim, skyseed also focuses on goal "13" (Climate Action) of the UN Sustainable Development Goals.
Skyseed has also been able to enjoy fresh capital from impact investors with the participation of WI Venture and Better Ventures.
In addition to Klim and Skyseed, agriportance also focuses on various sustainability goals. These are primarily the goals "seven" (Affordabe and Clean Energy), "eight" (Decent Work and Economic Growth), "nine" (Industry, Innovation and Infrastructure) and "13" (Climate Action).
With the current media situation leading to more and more calls for independence from foreign gas supplies, biomethane offers a genuine local alternative. Due to the general sharp rise in gas prices, the green alternative biomethane is becoming more competitive.
agriportance wants to make the biomethane market more efficient by helping biomethane producers to cope with the bureaucratic and complex greenhouse gas balance and to find a buyer for the quantities produced. At the same time, mineral oil companies are to be supported in finding the right producer in the highly fragmented market with around 9,500 biogas and biomethane plants in Germany.
The objectives are reflected in agriportance's business model. Biomethane is particularly suitable as an alternative energy source. It is almost climate-neutral, as it releases 85% less CO2 emissions than the fossil alternative natural gas. It is also particularly attractive for use in heavy goods vehicles. There are already around 900 CNG and more than 100 LNG filling stations in Germany. The 9,500 biogas plants are looking for alternatives as the EEG subsidy is coming to an end. Switching to biomethane can be economically promising.
In the future, impact investing will continue to play an important role in the agricultural sector, due to both social will and political changes. This opens up many opportunities for investors and companies to adapt to the changing sector in good time. Agriportance is also making an ecologically, socially and economically sustainable contribution here.