FAO’s promotion of sustainability criteria for leveraging finance in agriculture

Achieving sustainable development – and the Sustainable Development Goals (SDGs) – calls for significant investment over the coming years. In the case of food and agriculture, this will need to come from governments, development partners and, on a far greater scale than in the past, from the private sector. Developing new financial models for sustainable development and ensuring harmony with the demanding policy vision and high ambitions of the 2030 Agenda is more than feasible; they are necessary and indispensable elements of our way forward.

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    1. In your view, what is the role and strategy of FAO to attract and accelerate private investments for sustainable development?

    The ultimate objective is sustainability at scale. This means putting the development process – which we now understand as a universal process – on a different pathway. Development must conform to all three pillars of sustainable development: it must be socially inclusive, economically dynamic, and respectful of the needs of our common planetary home. The public funds available now, or even in the past, simply are not sufficient to achieve these transformative ambitions of the 2030 Agenda. FAO, accordingly, is increasingly concerned with mobilizing private sector investment, with a particular focus on transforming food systems, which have a powerful bearing on nearly all of the SDGs. As we know, the SDGs were developed by UN member governments – the main counterparts of FAO – but in consultation with people from all walks of life, and with the intention that they should apply to everybody – producers, including family farmers, small local companies and large multinationals, and consumers, NGOs, philanthropies, experts and individuals. Reaching so many actors requires FAO to move beyond its traditional inter-governmental sphere, and find new ways to make an impact on what is happening on the ground. The challenge is to ensure that food and agriculture sector investments encourage sustainability, based on FAO’s extensive experience and technical knowledge.

    2. Where do you see differences between FAO’s past practice and new ideas and strategies?

    Although FAO is an intergovernmental organisation, the food and agriculture sector – farming and food production in all their variety, along with distribution and consumption – are predominantly private activities. As such, FAO has always interacted with the private sector, though largely indirectly. Traditionally, public investment programmes supported by FAO aimed at small-scale farmers, fishers, pastoralists and forest people. This continues today, albeit with a strong focus on youth and women. FAO’s contribution to public finance came primarily through the FAO Investment Centre, which supported the undertakings International Financial Institutions (IFIs), such as the World Bank and the European Bank for Reconstruction and Development (EBRD), in making investments in food and agriculture. The recently-launched EU External Investment Plan (EIP) provides FAO with a new kind of opportunity, along the lines of the private sector window of the World Bank (WB), to support direct investment in the private sector. The EIP blends traditional development assistance (ODA) to subsidize public funding and encourage lending to riskier private clients. In exchange for this subsidy, it has been proposed that the IFIs should attempt to de-risk their lending activities by explicitly linking their investments to the norms and standards of the 2030 Agenda. In this way, a powerful incentive is created for private entities to behave in ways that are consistent with the aims and aspirations of the 2030 Agenda. In the areas of food and agriculture, FAO is the world’s primary supplier of these norms and standards, and can play a decisive role in enabling this linkage between lending to private entities and compliance with the UN norms embedded in the SDGs and through inter-governmentally agreed normative frameworks.

    3. But how do you ensure that the investments are both sustainable and inclusive?

    This is the crux of the matter. FAO’s normative work, which combines a solid knowledge base with policy dialogue, can help address practical challenges of sustainable investment. Let’s take a practical example – land tenure or land grabbing. In order to tackle these issues, the Voluntary Guidelines on the Responsible Governance of Tenure were developed under the auspices of the Committee on World Food Security (CFS). These guidelines were intended for governments to make laws that embody the notion of responsible governance, including environmental, economic and social sustainability. The technical guide for investors on the ‘Responsible governance of tenure’ derives from the principles in the Voluntary Guidelines, and is a practical tool for potential and future investors to ensure that their investments are sustainable. In this way, a strong UN knowledge base can underpin investment contracts – loans, guarantees and equity – signed by bankers. The same principle can apply to standards in decent employment, in the use of pesticides or other agrochemicals or in the sustainable exploitation of natural resources. Investors can commit (only) to investments which support, or even embody these principles.

    4. What is your comparative advantage and role?

    FAO is not a financial institution and does not have the mandate to leverage directly any finance; this is left to our development finance partners. However, what we can do – in accord with our mandate – is support our member countries in ensuring that public and private investments are compliant with sustainability principles. In particular, FAO is responsible for leading the work to define the SDG indicators relating to sustainable food and agriculture, which will provide a basis to assess the quality of investment. This is part of a UN process bringing together statisticians and technical experts to define indicators of sustainability which are both meaningful, and affordable for countries to collect.

    5. Nevertheless, how do you do this, ensuring sustainability in such investments?

    Here again, the example of land tenure is an interesting one: from a policy document meant for governments, we have derived a technical guide destined for investors. Further, we can then derive an instrument, a checklist of two or three pages, that should become the technical specification of any loan contract. This practice transfers the knowledge on sustainability from regulatory frameworks into concrete practical action. That is extremely interesting, because the principle can apply not only on land tenure but also on fisheries, soil management, decent employment, child labour, carbon trading, sustainable supply chains, etc. By doing so, the knowledge built up in FAO over decades can serve a very practical purpose, informing and influencing financial transactions and investments. Exploiting more effectively the extensive knowledge capabilities here at FAO in this way is a new and exciting prospect. Ultimately, it will enable our member countries to ensure effective and sustainable investments are made which achieve impact at a scale.

    6. So where does the FAO’s complementarity towards other actors lie and how is such sustainability being monitored?

    Turning norms, standards and knowledge into practical aspects of contracts and using the regulatory environment to enhance sustainability are essential and natural complements to existing areas of FAO’s mandate. But financial institutions have a complementary role to play. FAO interacts with a wide range of organisations – development banks, private equity funds, private banks, etc. As a UN body we cannot give some sort of competitive advantage to one company over another, through endorsement by FAO. Our work is rather to provide sector-wide guidance on the sustainability issues raised by proposed classes of transactions. And in this context, monitoring is crucial. It is all very well to create a system to transform complex guidelines on sustainable management of soil, water, forest etc. into contractual obligations. But there needs to be follow up to ensure that these contractual obligations are actually met by the parties to the loan. That is where the custodianship of the SDG indicators entrusted to FAO means developing methodologies – and new partnerships – for monitoring, not only at country level with governments, but also at the individual investment level. To avoid conflict of interest, we will need to work with reputable service providers in the field of third-party verification, civil society organizations, universities and, of course, governments.

    7. Looking at the Rome-based agencies, how does FAO’s role relate to the International Fund for Agricultural Development (IFAD) in mobilizing private investments?

    We, FAO and IFAD, work closely together, and in a complementary manner. FAO supports smallholders through policy, programming and technical advice that helps governments and their partners provide improved and more sustainable livelihood options. IFAD looks at financing smallholders and agribusiness entrepreneurs through governments to achieve a broader rural transformation with specific economic objectives. We are natural complements.

    8. Where does differentiation between big companies and smallholders come in?

    One thing is also clear: because they have more capacities, larger players have more obligations to ensure that development is sustainable in all dimensions. That said, smallholders are key agents of change, and so we must have a framework that is local and relevant. The example again, from FAO, would be fisheries, which are critical for sustainable food security. Drawing upon extensive knowledge and experience at a full range of different scales, FAO provides practical suggestions on how to achieve and maintain sustainable use of the world’s fisheries. We have a global code of conduct for responsible fisheries – with a strong emphasis on the sustainable exploitation of resources; but we also have voluntary guidelines for small-scale fisheries with emphasis on local governance and the social inclusion.

    About the author
    José Graziano da Silva has worked on issues of food security, rural development and agriculture for over 30 years. He led the team that designed Brazil’s “Zero Hunger” programme and was responsible for its implementation in 2003. Between 2006 and 2011, he headed FAO’s regional office for Latin America and the Caribbean. Jose Graziano da Silva became FAO’s eighth Director-General on 1 January 2012.

    Graziano da Silva holds a Bachelor’s Degree in Agronomy and a Master’s Degree in Rural Economics and Sociology from the University of São Paulo and a Ph.D. in Economic Sciences from the State University of Campinas. He has post-Doctorate degrees in Latin American Studies (University College London) and Environmental Studies (University of California – Santa Cruz).​​​​​​​

    Read the full magazine issue

    Leveraging private investment for sustainable development – Volume 7, Issue 2 (Spring 2018)
    24 May 2018
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