Axa, Tikehau Capital and Unilever have joined forces to launch a new regenerative agriculture fund, showing increased interest in a sector which can play a major role in tackling both land degradation and climate change
- Regenerative agriculture seen as key to boosting food production, protecting livelihoods and combatting climate change.
- Degraded land globally could expand by area the size of South America by 2050, says UN
- Private equity fund set up by Axa, Tikehau Capital and Unilever seeks to kick start investment
Regenerative agriculture is fast becoming a focus for investors, attracted by the sector’s potential to boost food production, improve the livelihoods of those in the world’s most vulnerable agricultural communities and make a climate change impact.
Reversing land degradation is a pressing problem, which is being exacerbated by climate change, population growth and rising demand for agricultural produce.
Around 20-40% of the world’s land area – including agricultural land, drylands, wetlands, forests and grasslands — has been degraded to some extent, affecting almost half the world’s population. If current rates of deterioration persist, additional degradation by 2050 would cover an area nearly the size of South America, according to the United Nations’ Global Land Outlook, published in April. Business as usual is not a viable option, the UN says.
Tackling land degradation requires huge investment, though proponents say that, as with climate change, the cost of action is not as large as the future costs of doing nothing.
G20 nations have committed to restore a billion hectares of degraded land – an area roughly the size of the US – by 2030, a task with an estimated price tag of $1.6 trillion.
Regenerative agriculture is one of the key methods being used to tackle the problem. It employs techniques and inputs that improve soil fertility and biodiversity, and limit soil pollution, while preserving water resources and removing carbon from the atmosphere by fostering the presence of carbon-processing microbes and fungi and increasing vegetation cover.
“Sustainable agriculture is a first step, but it is often limited to reducing the negative impact of agriculture on water or the impact of pesticide on pollution levels, when what you really need is for the soil to regenerate. The techniques used in regenerative mode are that bit more sophisticated,” Alice Legrix de la Salle, head of agriculture financing at Axa Climate, subsidiary of global insurer and asset manager Axa, told Impact Investor.
Private sector investment and expertise will need to play a key role in financing this agricultural transition, either through public-private partnerships or private initiatives, if the required spending is to be mobilised.
To that end, the announcement by Axa, Tikehau Capital and consumer goods conglomerate Unilever that they are putting together a private equity impact fund with a target size of €1bn to invest in regenerative agriculture companies and projects is welcome news.
The three partners say they plan to invest €100m each in the fund, and use their industry, risk, and financial expertise to “drive structural change”.
“Unilever, AXA and Tikehau Capital share the common belief that a partnership between industrial and financial players is key to transforming the food value chain on a large scale. The strategy of the private equity impact fund is to holistically shift agriculture and food value chains towards regenerative practices, in close collaboration with stakeholders,” Pierre Abadie, group climate director at Tikehau Capital, said.
Tikehau Capital will manage the fund, which will contribute to its target of raising €5bn dedicated to climate action by 2025. AXA Climate will act as ESG and impact advisor to the fund, bringing its knowledge of climate, environmental and agricultural risks management, and impact monitoring, including satellite technology. Unilever says it will provide its expertise on global supply chains, local markets and sustainable sourcing practices.
The initial €300m investment and a more detailed framework for the fund should be finalised by September 2022. Tikehau Capital will then seek to scale up the fund to €1bn with further investments over the following months.
“We are seeing strong traction from institutional investors, and corporates are also showing interested, though their tickets would probably not be as large,” said Legrix de la Salle.
Collaboration across value chain
The fund’s focus is on three areas: protecting soil health to enhance biodiversity, preserve water resource and help fight climate change; contributing to the supply of regenerative agricultural ingredients; and seeking to provide a catalyst for technological solutions to speed up the transition to regenerative agriculture.
The aim is to nurture close collaboration between farmers, producers, manufacturers, retailers, technology providers and financial investors.
Three quarters of the fund will be devoted to private equity investments. Typical targets will be companies with a proven first business model that need investment to scale up, said Legrix de la Salle.
Among these could be agribusiness companies that produce crops, or graze livestock in a regenerative way, companies that monitor and track regenerative agriculture impact — such as soil health monitoring data companies — and firms contributing to biosolutions, which include alternatives to chemicals-based fertilizers and pesticides
The remaining quarter of the fund is designated for investments in specific projects.
“When it comes to funding projects, we want to help farming communities to make the transition to regenerative agriculture, by adopting the right inputs, but they also need to de-risk the transition. So, we will put money into some projects where the farmers will be trained, we could finance equipment, and there will also be some finance to protect their revenue over the transition,” said Legrix de la Salle.
Changing dietary habits to alleviate pressure on the land is another area of interest, for example by developing new plant-based foods, marine foods and deriving protein from insects.
“We hope regenerative agriculture can become a new asset class. We really want this initiative to be a market pioneer showing that investing in regenerative agriculture can provide financial and impact return,” she said.