Opinion: Make climate finance inclusive for just transition to net zero

The Summit for a New Global Financing Pact taking place this week has the ambition to deliver new solutions for increased financing, fiscal effectiveness, indebtedness, and private sector engagement. It is paramount that international cooperation efforts at the summit targeted at interventions in the food sector define what a just transition is and how innovative financial instruments and capacity building can achieve sustainable food systems. The French-hosted summit will bring together stakeholders across climate, development, and finance. The impact of these decisions will have significant impacts on the rural poor, especially smallholder farmers. These farmers, who cultivate only a quarter of the world's agricultural land, are responsible for producing approximately one-third of the world's food, thereby supporting around 2 billion people. Equity must be built into the DNA of any proposed policy solution from the beginning. We know that global crises disproportionately impact the poorest in society and that roughly 67% of the populations of low-income countries and 60% of lower-middle-income countries are rural. This is why it’s vital to focus a considerable portion of climate financing toward the food sector, which contributes more than a third of global emissions and supports a significant number of livelihoods. As such, transitioning to net zero and resilient agriculture must consider the burden of immediate costs that rural populations will bear. Yet, today, global climate finance falls short of bearing the costs of these transitions for vulnerable countries and populations, making climate finance exclusive rather than inclusive. Let’s consider the case of environmentally sustainable goods: international sales of organic food and drink reached $187 billion in 2021, with future growth projections pointing to a market size of $531 billion by 2030. We know that limited capacity and infrastructure, limited access to technology, complex and costly certification systems, and a lack of financial markets pose barriers for rural farmers. These factors make them particularly ill-equipped to meet the demands of net zero and resilient transitions and lock them out of accessing this market. To fix this, we must first define a founding approach to a "just transition" within food systems, which must meet minimum conditions, including: • Effectively consider both the benefits and costs of nonmarket and nonpriced barriers, recognizing the value of agroecological and regenerative practices by rural farmers, while also acknowledging the consequences of not having collateral for loans. • Avoid worsening inter-group and intra-group inequality and focus on maintaining or better still, improving people’s relative positions, in terms of assets, income, and power. • Ensure that new or changed policies do not burden countries with additional debt. • Aim to significantly and measurably reduce overall vulnerability, empowering stakeholders and enhancing system resilience, ensuring they are less susceptible to extreme events. • Guarantee effective participation of relevant stakeholders, including communities in low- and middle-income countries, women, and Indigenous people. It is then incumbent on countries to take forward these conditions as they transition toward sustainable food systems. To do so will require full integration into countries’ Nationally Determined Contributions, a key instrument for implementing the Paris Agreement. An analysis of 167 NDCs found that 92% of LMICs make references to food in their mitigation, adaptation, or cross-cutting measures. However, less than a third of these countries specify their financial requirements for implementing these measures. Among high-income countries, well over half do not include any specific measures targeting food systems. Evidently, while countries continue to prioritize agriculture and land use in their NDCs, limited attention has been given to the appropriate and equitable financial mechanisms necessary to create sustainable food systems. To remedy this at French President Emmanuel Macron’s convened summit, here is a five-part action plan to consider: First, food system transitions must be integrated into NDCs and then costed. As it stands, merely one-fifth of NDCs provide these financial specifics such as projected costs, budgetary requirements, and sources of funding. A transition to a globally sustainable food system should put the multilateral and financial systems on the hook, encouraging international funders to embrace risk and shift their funding approach toward support for innovative, high-impact, and people-centered projects within the food sector. A key step toward achieving this goal is to reduce liquidity requirements and lower reserve ratios, recognizing the value of callable capital and the agencies’ high credit rating. Second, our financial systems need to prioritize improved accessibility and transparency to facilitate a just transition. Collateral requirements in rural banks should be lowered, with governments taking on increased guarantees. Microfinance and group insurance, as well as public banks, and international finance institutions can help a lot here. Third, there's a need for finely calibrated, innovative financial instruments that aid risk management. Such instruments could include first-loss instruments, guarantees, or smartly targeted subsidy schemes. Fourth, there should be incentives for countries that implement policies fostering market creation and contribute to global public goods, such as climate and food system resilience. Multilateral development banks should adopt policy-based lending incentives to encourage countries in building such markets and systems. Fifth, and of equal importance, is support for LMICs in strengthening their abilities to access climate and food finance. This assistance should extend to fostering robust investment pipelines and establishing efficient measurement systems to support transition plans backed by data and evidence. By doing so, we can ensure that rural communities, particularly small farmers, can actively contribute to a sustainable and resilient global future while reducing inequalities and fostering inclusive growth. A just and equitable transition in our food systems lies at the heart of a sustainable, climate-resilient world for all.