The world is changing rapidly, and the agricultural sector will need to shift toward more sustainable forms of production to remain viable over the long term. Enabling this shift is crucial for a sector that underpins human well-being by remaining the main source of global food security. The financial sector has an essential role in transitioning the agricultural sector to sustainability—as farmers and agribusiness require financing to make the transition happen— while voluntary sustainability standards (VSSs) can act as catalysts for investors to make lowerrisk investments with sustainable development potential. Fortunately, the financial sector is moving toward sustainable investments as a new normal, coinciding with a USD 260 billion investment deficit in agriculture to meet the targets for Sustainable Development Goal 2 (zero hunger) in developing countries—a deficit that has widened due to the COVID-19 pandemic.
This report shows how VSSs can be useful tools for financial service providers (FSPs) to lower their financial risks and enable sustainable development outcomes when investing in the agricultural sector. They do so primarily by requiring VSS-compliant farmers to adopt more sustainable farming practices, monitoring compliance with the standard, and evaluating the sustainability impacts associated with implementing their standard. These measures allow VSScompliant farmers to distinguish themselves in the marketplace by offering consumers more sustainable agricultural products with fewer embedded environmental and social risks, which can result in higher farm gate prices and premiums as well as direct sales contracts with buyers.
Our analysis shows that VSS-compliant farming can result in operational improvements that have the potential to improve agribusiness profitability. VSSs also require the adoption of sound farming business and management practices, such as record-keeping and compliance with relevant regulations, and more sustainable farming practices. According to our analysis, they often provide the impetus for farmers to form associations, cooperatives, or small to mediumsized agribusinesses; improve negotiating power; and facilitate market access—all of which has the potential to lift farmers out of poverty. Support in the form of training, technology transfer, and even access to finance often accompanies the process of becoming VSS compliant. These measures can all reduce financially material business risks while generating sustainability impacts, making VSS-compliant farming operations more attractive investment propositions, as they can