Measuring the impact of agricultural financing: a headache or the start of a virtuous circle? 

Following on from the 2024 edition dedicated to the challenge of financing the transformation of agriculture, the FARM Foundation organized an international conference on Tuesday, January 28, 2025, focusing on the crucial issue of impact measurement in agricultural investments. For this first round table, moderated by Philippe Guichandut (Grameen Crédit Agricole France Foundation), various financial actors discussed the tools, methods, and challenges for measuring environmental and social impact, aligning their practices with climate objectives, and developing transparency in reporting systems.

Measuring the impact, between regulatory obligations and strategic interests

Maya Atig, Director of the French Banking Federation, opened the roundtable (LINK) by outlining the banks' vision for impact measurement and regulations. She reiterated the commitment of the Banking Federation and its members to the objectives of the Paris Agreement and also emphasized the need to halt certain polluting activities while promoting constructive cooperation with customers for a sustainable future. "We challenge the overly coercive approach of certain rules that create too much anxiety for customers. We need to work cooperatively on trajectories. (…) Data collection must be based on simplified language and collection methods so that everyone can better understand each other, engage in dialogue, and focus on solutions." Maya Atig described the regulatory requirements imposed on banks, deeming them sometimes contradictory: taxonomy, principles of transparency and vigilance and risk management, not only financial but also environmental and social. Regarding the agricultural and agri-food sector, the director of the FBF recommends designing impact indicators at the value chain level. To launch the day's work, Maya Atig calls for "preferring action to anxiety, shared knowledge and dialogue to coercion!"

Alexandra Veidner, Senior Technical Manager for Sustainability Reporting at the European Financial Reporting Advisory Group (EFRAG), first echoes Maya Atig's concluding remarks: "Yes, action matters and we need to speak the same language!" Reacting to the French decision of 20 January 2025 asking the EU to suspend the CSRD (Corporate Sustainability Reporting Directive), she recalls the origin and purpose of this European directive, which came into force on 1 January 2024 and is linked to the European Green Deal. The companies concerned must communicate annually on their information relating to CSR issues, i.e. both financial and extra-financial informationThe goal is to develop a more comprehensive view of business performance and also to understand the links between the company and its environment. According to the expert, taking into account dual materiality allows us to understand not only how environmental and social issues affect the economic performance of companies, but also how their activities impact the environment and society.

Asked how impact measurement can be an effective way to increase investment, particularly in the agricultural sector, Gautier Quéru, Director of Natural Capital at Mirova, emphasizes that there are multiple possible dimensions to lead an investor to take an interest in non-financial impact. He also points out that there is a wide variety of financiers committed to impact and financing methods, both public and private. In the private sector, the theme of impact investing has seen strong development with foundations and certain institutional investors (pension funds, retirement funds, etc.) who will seek both a positive impact on environmental and social aspects and a balanced financial return. The main challenge, according to him, is to find one's way in this "increasingly complex and protean" universe.

For his part, Claude Torre, Project Team Manager at the French Development Agency (AFD), insists that in terms of support for public banks that finance agriculture, AFD seeks two types of impact: on financial inclusion, particularly for women and young people, and on the environment, in terms of mitigation and adaptation to climate change.. Echoing Tanguy Bernard's remarks in the conference's introductory session, Claude Torre also pointed out that public banks cannot do everything: other services must be offered on the ground (training, consulting, etc.). He also highlighted the great diversity of banks. For small, often more fragile, AFD support focuses on their primary role and compliance with prudential standards; for medium-sized banks, on improving their services. The largest are more interested in the issue of impact. Claude Torre reiterated the importance of considering public agricultural banks as public policy tools, taking the example of the Uganda Development Bank, which has established an accountability system to strengthen political dialogue with the government. For him, It is the medium and large public banks that the AFD supports that are the most involved in impact issuesThey will be interested in the dual materiality and the risks that environmental changes pose to their activities, for example, how fewer water resources will impact irrigation programs, how excessive soil degradation or extreme events will impact yields and consequently generate risks on loan repayments. They will also be interested in the other materiality described by Alexandra Veidner, that is to say the impact of banks on the environment and society via financing opportunities such as green bond issues, etc.

The speakers at the round table supported these elements by recalling that impact measurement must be a means of establishing and verifying the alignment of financial actors' strategies with national commitments, particularly in matters of climate and biodiversity. “More than a system for verifying compliance, impact measurement must be seen as a tool for development over time (…). For producers, the notion of a minimum price is important: the guarantee of a stable income is reassuring,” Alexandra Veidner also emphasizes.

What methodologies, in the era of new technologies?

After having explained the reasons which push the different actors to take an interest in impact measurement – beyond the regulations which are being put in place – the speakers debated the methods and tools developed, in particular by presenting concrete examples.

André Albuquerque Sant'Anna, Head of the Climate Department at the Brazilian National Development Bank (BNDES), explains why the bank has long invested in impact measurement in agriculture. The latter recalls that 16 % of Brazil's surface area is forest and that 200 million hectares are devoted to the agricultural sector., with equipment and machinery needs financed in particular by the BNDES. In this context, "it is necessary to evaluate, learn, communicate better and redesign public policies to better allocate public funds."

Gautier Quéru (Mirova) emphasizes the wide variety of indicators used by the impact fund teams. They analyze three main categories of indicators on three impacts: carbon (mitigation, adaptation, sequestration, avoided emissions, etc.), biodiversity (number of hectares certified under sustainable management or area under conservation, etc.) and social (number of jobs created, increase in income, gender equality, etc.). While carbon impact measures are among the most requested by stakeholders, the manager emphasized the growing importance of biodiversity-related indicators following the adoption of the Kunming-Montreal Global Framework (2022) (https://www.youtube.com/watch?v=eIV8_ZxEpxA). Specific indicators have been developed for the Land Degradation Neutrality Fund (https://www.unccd.int/land-and-life/land-degradation-neutrality/impact-investment-fund-land-degradation-neutrality) developed in partnership with the AFD and the United Nations Convention to Combat Desertification. They take into account the organic carbon content of soils, the use of plant cover, and productivity. These combined indicators make it possible to assess the progress of soil degradation or, on the contrary, restoration.

Claude Torre of the AFD points out that the agency uses a wide variety of tools to measure impact. The methodology varies depending on the banks' capabilities, knowing that the measure of impact is, according to him, even more complicated for the agricultural sector. "There is no miracle instrument in terms of tools and we have to find a compromise between cost, robustness of results and implementation capacity," he emphasizes. "First, we work by establishing a taxonomy to evaluate what the bank is doing in terms of impacts, then we identifies easy wins, that is, actions that are easier to implement quickly, to scale up financing with positive impacts » (adaptation programs, irrigation, renewable energies) ».

The AFD project manager also highlights other tools such as financing of certified sectors by relying on third-party certifiers allowing indicators to be obtained from specifications (fair trade, Rainforest Alliance). Depending on the operational dimension of the banks, it is also possible to work on parametric approaches (which use mathematical and statistical models to make assessments and estimates), but these are limited in the agricultural sector as practices are so diverse. However, for Claude Torre, it is necessary to automate impact measurement solutions so that they are not too expensiveThis is particularly relevant for small loans to small farms, whose management costs are already high. It was recalled that it is possible to ask the beneficiary of the financing to collect and share data, but this requires verification mechanisms and therefore entails control costs, which are once again significant for small amounts of financing or investment.

According to the speakers, the most promising tools are those that use satellite imagery, such as ABC-map developed by the FAO with the support of the AFD (https://abc-map.fao.org/). This is a geospatial application for holistically assessing the environmental impact (biodiversity, climate in particular) of projects in the agriculture and land use sector. There are many players involved in fintech that offer impact measurement solutions but have insisted on the fact that their methodology is often insufficiently transparent. For the panelists, there is still a long way to go with the need to geolocate plots for precise evaluation and to be able to integrate a wide variety of financed activities.

A need for clarity, transparency and incentives

The speakers reviewed the issues and main levers for improving the quality of impact measurement and its use for future investments.

According to Alexandra Veidner, who echoes Maya Atig's introductory remarks, "yes, efforts still need to be made to consolidate the systems of existing reporting frameworks." EFRAG is currently working on sector standards for the 11 sectors with the highest impact, including agriculture and food and beverage. The ESRS standard covers information across the entire value chain, and the sector-specific standards will be even more targeted, covering the most likely topics for the sector. “These standards are not just a compliance exercise but a management tool, and an exercise for discussing with the private sector, which will also be part of the solution!” she emphasizes.

For his part, Gautier Quéru raises two fundamental issues and challenges. First of all regulatory clarity and taxonomy with clear definitions of what agroecology and regenerative agriculture are in order to be able to share consistent indicators and measurements. The second issue is that of costs of impact measurement which are still too high. Artificial intelligence and digital could help control these costs. However, the speakers insisted on access to data, which must remain free and easy. While digitization and automation are presented as promising avenues, they will not solve everything for Claude Torre, who insisted on the need to work with stakeholders, beyond the publication of reports. According to the AFD expert, it is necessary work with stakeholders to gradually shift investments towards green/social financing by changing the price signal through subsidies or regulations. The voluntary efforts of some will not be enough, one way to move faster would be to "reward green and social, or even sanction brown as part of concerted approaches." Claude Torre cites the example of public banks in this regard, such as those in Brazil or Bangladesh. In Brazil, as part of the National Rural Credit System, quotas are put in place to support agricultural development by offering credits at preferential rates: 20 % of credits must be allocated to the agricultural sector and 40 % of rural savings must be used to support family farming. These quotas could be expanded with environmental objectives as proposed for example by the central bank of Bangladesh which imposes 5 % of green assets for the banking sector. Other countries (China, India, Colombia, etc.) use these mechanisms to increase financial inclusion.

Questioned at the end of the discussions with the public on the most urgent or effective lever to activate so that the impact measurement can create concrete effects among producers, each speaker provides their answer :

• Alexandra Veidner emphasizes the importance of the CSRD directive and ESRS standards, which must cover value chains on a global scale with a harmonized vision to enable comparisons within a transparent framework and to facilitate the transformation of the food system.
• For Claude Torre, the main levers remain regulatory issues and good incentives that will shift the lines, with, for agriculture, adaptation and agroecology as the direction.
• Gautier Quéru, for his part, insists on the right combination of impact and business models that work and create value, in a virtuous circle, to ultimately increase investments.
• André Albuquerque Sant'Anna calls for promoting mixed finance, with the public sector being able to help the private sector.

To watch the replay of the international conference and round tables, Click here.