Deputy Head, Sustainable Food Systems, ECDPM Innovative Financing Mechanisms for Climate Adaptation in African Agrifood Systems Cecilia D’Alessandro

#2024ReSAKSS #2024ATOR Outline 1. Overview of Climate Finance Flows to African Agrifood Systems 2. Barriers to leveraging Climate Finance for Food Systems 3. Opportunities for Financing: Improved Mechanisms for Public and Private Finance for Food Systems Adaptation 4. Creating an Enabling Environment for Food Systems Adaptation Financing

#2024ReSAKSS #2024ATOR Overview of Climate Finance Flows to African Agrifood Systems

#2024ReSAKSS #2024ATOR Recent Trends in Climate Finance Flows • Only 4.3% of climate finance flows to agrifood systems globally ($28.5 bn/year) • To meet climate objectives, investments need to increase, at a minimum, seven times • Only 26% was directed towards adaptation ($7.3 bn/year) Current tracked climate finance compared with needs in agrifood systems

#2024ReSAKSS #2024ATOR • Share of climate-related dev. finance to agrifood systems globally is trending downwards • SSA received 16% of the agrifood climate finance flows ($4.4 bn) – mostly from public and philanthropic sources – against an adaptation finance gap of $78 bn/year by 2030 • Gap is particularly large for small- scale farmers Share of climate-related development finance to agrifood systems against global flows Recent Trends in Climate Finance Flows (cont’d)

#2024ReSAKSS #2024ATOR Barriers to leveraging Climate Finance for Food Systems Structural and Financial Barriers Institutional and Governance Barriers Technical Barriers

#2024ReSAKSS #2024ATOR Structural and Financial Barriers • Many African governments are challenged by high debt burdens and limited fiscal space • Farmers and SMEs struggle to access financial resources • Uncertain risk-return profiles and longer horizons discourage private sector investments Project/firm level risks Constraints in financial absorption capacity Country risks Types of risk hindering private sector investment

#2024ReSAKSS #2024ATOR Institutional and Governance Barriers • Legislative and policy gaps (only 1/3 African countries submitted a NAP) • Regulatory risks and uncertainties • Governance and coordination challenges • Limited intersectoral coordination and effective oversight • Limited coordination among development partners and DFIs • Mismatch between donors agendas and recipient countries’ needs

#2024ReSAKSS #2024ATOR Technical Barriers • Complex requirements to access climate funds • resulting in disparities in access (favoring MICs over LDCs) • …and reliance on international partners → reduced country and local ownership • Lack of concrete project pipelines within national strategies such NAPs • Lack of disaggregated, reliable and comprehensive data on climate risks and vulnerabilities

#2024ReSAKSS #2024ATOR Opportunities for Financing: Improved Mechanisms for Public and Private Finance for Food Systems Adaptation

#2024ReSAKSS #2024ATOR Innovative Financing Mechanisms for Climate Action in Agrifood Systems • Global financial and capital markets (valued at $400 trillion) hold great potential to finance the transition to more sustainable food systems. The key challenge is to make the agrifood sector more attractive to investors • Blended finance approaches can help to de-risk investments, lower transaction costs and improve the risk-return profile of investments • Other innovative financial instruments like sustainability-linked loans and green bonds are also promising and becoming more popular • Digital innovation (mobile banking, fintech) is helping farmers and SMEs access credit

#2024ReSAKSS #2024ATOR Creating an Enabling Environment for Food Systems Adaptation Financing Coordination and Collaboration Policy and Regulatory Frameworks Capacity Strengthening, Data and Evidence

#2024ReSAKSS #2024ATOR Strengthening Coordination and Collaboration • Enhance cooperation and synergies among dev. partners, DFIs, and local public and private actors to • prevent duplication • address gaps • catalyze resources at scale • Use the right mix of financial instruments to cater to the diverse needs of of financial intermediaries and agrifood companies at different stages of maturity or with different risk profiles

#2024ReSAKSS #2024ATOR Policy and Regulatory Frameworks • Promote integration of climate and food policies at country and regional levels • Translate climate goals into national and subnational investment strategies and project pipelines • Optimize the use of available domestic resources (incl. by repurposing ag. subsidies) • Mobilize private sector investment by reducing cost of doing business and improving investment environment • Promote national policies to improve rural financial intermediation

#2024ReSAKSS #2024ATOR Capacity Strengthening, Data and Evidence • Enhance the capabilities of national institutions and local stakeholders to access and manage climate adaptation funds • Bolster DFIs capacities to integrate climate and nature into their agrifood portfolios • Provide technical assistance to local financial intermediaries (to set up financial vehicles) and end beneficiaries (to propose and implement viable business plans) • Improve the availability of comprehensive data and evidence for informed decision-making, accountability and transparency

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