Bridging the Finance Gap for Food & Agriculture Decarbonization

The agriculture sector drives nearly one-third of global emissions, yet it receives only 5% of public climate finance annually – a striking mismatch that threatens both the climate and food security. Transitioning to a low-emission, climate-resilient agricultural model will require an estimated $1.1 trillion in additional investment annually, but current agricultural finance falls far short.

Compared to sectors like renewable energy and transportation, agriculture remains severely underfunded despite its profound impact on emissions, biodiversity, soil health, and water security. The complexity and perceived risks associated with agricultural finance often deter funders, widening the finance gap. However, delaying action will only increase costs for businesses, farmers, and governments as extreme weather events, land degradation, and food insecurity intensify.

Addressing this challenge requires a coordinated effort from both the public and private sectors. In this first part of our new blog series, we explore why closing this finance gap is imperative and what food and agriculture companies can do to accelerate emissions reductions within their value chains.

Multiple challenges contribute to the underfunding of food and agriculture decarbonization.

1. Fragmented agricultural value chains

Unlike centralized industries, agriculture is highly decentralized, with millions of independent farmers operating at different scales. This fragmentation makes it difficult for downstream companies—processors, retailers, and food brands—to implement decarbonization initiatives, track emissions, ensure supply chain transparency, and drive coordinated action.

2. Financial uncertainty and high upfront costs

Many companies struggle to secure agricultural finance for sustainability initiatives, particularly when the returns on investment are uncertain or materialize in the long-term. High upfront costs for regenerative practices, emissions reduction technologies, and value chain transformation deter investment, especially when margins are already tight. Short-term financial pressures, such as volatile commodity prices and shareholder expectations, often push agribusinesses to prioritize immediate profitability over long-term sustainability commitments.

3. Policy and regulatory uncertainty

Inconsistent government policies, shifting incentives, and the absence of standardized frameworks creates hesitation among investors and companies. Businesses operating across multiple markets must navigate a patchwork of regulations, increasing compliance risks and making long-term climate finance strategies harder to develop.

4. Inaccessible traditional financing models

Traditional lending models don’t account for the unique risks of agriculture, such as seasonal variability, climate-related shocks, and fluctuating input costs. Without financial products tailored to those realities, farmers and downstream companies struggle to access the capital needed to accelerate decarbonization efforts.

Investing in sustainable agriculture offers far-reaching benefits beyond emissions reductions.

• Resilient ecosystems: Regenerative farming enhances biodiversity, strengthens soil health and increases the land’s resilience against climate shocks. Healthier soils retain more water, reduce runoff, and improve overall ecosystem function, creating a foundation for more sustainable food production in the long-term.
• Food security: Climate-resilient farming techniques, such as regenerative agriculture, help farmers boost yields while reducing reliance on synthetic inputs, ensuring long-term food stability. Businesses that embed sustainability into their operations are also better positioned to adapt to shifting consumer expectations and evolving regulatory landscapes.
• More resilient value chains: Companies that invest in regenerative practices strengthen value chain stability, ensuring long-term supplier relationships and reducing exposure to market volatility. By supporting sustainable farming communities, businesses secure their raw material sources while fostering stronger partnerships across the agricultural value chain, ultimately driving greater economic resilience.

Innovative agricultural finance models prove that large-scale decarbonization is possible. 3Degrees, a global leader in climate solutions, has successfully partnered with Alga Biosciences and Fiscalini Farmstead to unlock financing for methane reduction in livestock farming – one of the most significant contributors to agricultural emissions.

Alga Biosciences developed a methane-reducing feed additive to significantly lower emissions from ruminant digestion. 3Degrees provided essential project financing, manages monitoring, reporting, and verification (MRV), and commercialized carbon credits generated from emissions reductions. Fiscalini Farmstead, a fourth-generation dairy producer, piloted the feed additive at no cost for non-milk-producing heifers, demonstrating that agricultural financing solutions can enable farmers to adopt cutting-edge sustainability practices without financial strain.

This initiative highlights how private finance and environmental market mechanisms can work together to scale sustainability solutions, while ensuring economic benefits for producers. By leveraging climate-focused financial incentives, producers not only achieve measurable methane reductions but also unlock funding opportunities for adopting climate-smart practices.  

Closing the trillion-dollar finance gap in agriculture requires a combination of financial mechanisms that distribute costs and risks across the value chain. The following four financing mechanisms play a critical role in mobilizing capital for agricultural decarbonization:

1. Corporate Financing

Downstream food and agriculture companies play a pivotal role in financing sustainability initiatives, particularly as they work to meet Scope 3 emissions targets. Corporate financing can take various forms, including price premiums for low-carbon commodities, direct payments for on-farm interventions, and investments in Beyond Value Chain Mitigation (BVCM) within sourcing landscapes.

Instruments such as Impact Units, developed by SustainCERT, allow companies to co-invest in emissions reduction projects within their value chains while credibly co-claiming the impact. Unlike carbon credits, these units are directly linked to specific commodities and value chains, ensuring transparency and alignment with corporate climate goals.

2. Investment Fund Financing

Private equity and debt financing are increasingly supporting agriculture’s transition to climate-smart practices.

Blended finance models combine public and private capital to de-risk investment, attracting private capital to high-impact interventions, particularly in emerging markets. This approach has proven effective in investment funds, and helps align financial flows with broader sustainability objectives, as major shareholders in food corporations demand stronger climate action from their portfolios.

3. Bank Financing

Banks and financial institutions are beginning to integrate sustainability considerations into their lending practices. Green loans, sustainability-linked financing, and value chain financing offer companies and farmers more accessible capital for decarbonization efforts.

An increasing number of banks are joining the Net-Zero Banking Alliance, committing to align lending portfolios with the Paris Agreement. Value chain financing is particularly impactful, as it enables downstream companies to provide suppliers with access to working capital for sustainability improvements, spreading costs across the value chain while ensuring long-term resilience.

4. Public Sector Funding

Governments play a critical role in unlocking private-sector investment by providing incentives and reducing financial risks. Public-sector mechanisms include subsidies linked to sustainability outcomes, results-based payments, and eco-schemes that reward farmers for implementing climate-smart practices.

Reforming agricultural subsidies to align with sustainability objectives could significantly accelerate decarbonization. Policymakers can also support investment by developing standardized frameworks that provide greater certainty for private investors and corporate actors looking to scale climate solutions in agriculture.

Bridging the finance gap in food and agriculture is not just necessary – it’s an opportunity for companies. Meanwhile, delays increase risks to food security, economic stability, and farming communities.

The time for action is now. Innovative financing, clear policies, and bold collaboration can unlock the capital needed for a sustainable transition. Businesses, investors, and policymakers must move beyond pledges and unlock the agricultural financing necessary to transform the sector.

To explore further how collaboration and different financial mechanisms can scale sustainable solutions, stay tuned for the next instalments of this blog series and download our full report on unlocking climate finance for food and agriculture.