Monday, December 11, 2023

$7.3 Trillion Investor Coalition Presses G20 for Change in Agricultural Subsidies


A coalition of investors controlling $7.3 trillion in combined assets is urging G20 finance ministers to transform agricultural support to align with climate and nature goals by 2030.

In a statement, the group — the latest move from the FAIRR Initiative, backed by a $70 trillion investor network — stresses the significant financial risk to portfolios if climate goals are unmet.

Around the globe, subsidies and incentives form about 15 percent of the total value of agricultural production. Such incentives can promote the excessive production and consumption of greenhouse gas-intensive agricultural commodities. For instance, despite accounting for 50 percent of the European Union’s agricultural emissions, livestock obtains almost 20 percent of E.U. agricultural subsidies.

The United Nations has pinpointed nearly $470 billion of annual subsidies that distort prices and are damaging to both the environment and society. These subsidies make up 87 percent of all agricultural subsidies worldwide and are estimated to cause $4 to $6 trillion in economic damages per year due to harm to nature.

Investors urge for action on animal agriculture subsidies. | Photo courtesy Jill Dimond

Speaking to the urgency of the matter, Jeremy Coller, Founder of FAIRR Initiative, said that governments around the world are setting bold climate and nature goals, “but in the same breath are undermining those ambitions with almost $500 billion in harmful agricultural subsidies for high-emitting commodities such as red meat.”

“It’s time for the G20 to listen to investors’ call to support a sustainable food industry and offer reassurance that governments’ left-hand knows what the right hand is doing. We need to realign subsidies to nature goals to support a transition for farmers and to ensure a level regulatory playing field for alternative proteins and other sustainable solutions,” Coller said in a statement.

A case in point is the E.U.’s Common Agricultural Policy (CAP), which occupies a third of the entire E.U. budget. Despite allocating €100 billion specifically for climate mitigation and adaptation, the European Court of Auditors has detected minimal progress in reducing emissions, which have remained largely unchanged since 2010.

‘Governments are subsidizing a broken food system’

The statement issued to the G20 finance ministers recommends four practical actions to reform subsidies: linking financial aid with environmental obligations; redirecting current incentives from the production of climate-damaging agricultural products towards those that value sustainable agriculture; shifting subsidies from products with high greenhouse gas emissions like dairy or red meat; and augmenting funding for workers affected by reforms, to secure a just transition.

Dr. Helena Wright, Policy Director at FAIRR Initiative, emphasized the scale of the problem: “Governments are subsidizing a broken food system which is the primary driver of biodiversity loss globally,” she said.

“Given that an estimated $44 trillion of economic value relies on natural services like pollination and fresh water this presents an enormous material risk to the value of long-term investment portfolios,” Wright continued.

boat on river
Fresh water is at risk from climate change Photo: Getty Images

“The Kunming-Montreal Global Biodiversity Framework agreed at COP15 last December sets out clear and timebound targets for reforming subsidies in a just, fair, effective and equitable way. Investors are calling on the G20 to lead by example and ensure these commitments are met — to the benefit of the climate and nature,” she said.

Representatives from 32 major investment firms including BNP Paribas and Legal & General Investment Management (LGIM) have backed the call for reform. Alexander Burr, ESG policy lead at LGIM, highlighted the potential for positive change: “It is clear that we must work together to rapidly accelerate action if we are to meet the global commitments on nature and climate by 2030 and 2050. There is a real opportunity for governments worldwide to transform their vast, environmentally harmful, agricultural support programs in a manner that supports a just transition to net zero and the restoration of nature.”

The financial community’s call for subsidy reform comes at a critical juncture as governments grapple with the challenge of balancing climate commitments with agricultural policies. By aligning financial incentives with environmental obligations and sustainable practices, the G20 has the potential to make meaningful strides in the global efforts to mitigate climate change and restore nature.

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