Carbon credit proceeds to liberate long-term finance for investment in climate resilience

This was the question at the heart of the first Community of Practice for Food System Finance meeting. The meeting brought together Dutch financial institutions, financial experts, and climate experts from NGOs to explore the opportunities and obstacles in this area.

Smallholder farmers are facing two interrelated challenges in the face of climate change: the impact on their livelihoods and the need for long-term financing for investment in climate resilience. To address these challenges, there are two opportunities: the growing carbon markets and the long-term interest and track record of Dutch impact investors in inclusive finance. This meeting provided a space for the participants to explore these challenges and opportunities.

The added value of the Carbon Credit market for smallholders was illustrated by presentations from Fair Climate Fund (FCF) and Acorn (Rabobank), who showed how they channel carbon credit income back to farmers and households.

An example of how future carbon credit proceeds can contribute to securing long term climate finance investment, is the new Acorn Cooperative Carbon Finance Fund (CCFF) which is expected to kick-off in Q1 2023. This fund foresees the pre-financing of climate-resilient investment, while the pre-finance is repaid through the future proceeds of carbon credits generated by the climate-resilient investment. To make this type of pre-financing more widely available the CCFF needs to grow and other similar financial initiatives need to emerge. In the discussion between the participants a/o the following obstacles for growth and replication were put on the table:

• Regulatory uncertainties in the carbon market:

• Is there a solid business case for climate resilient farming?

• Risk transparency

• Risk mitigation

In conclusion, the meeting was a valuable opportunity to bring together a diverse group of experts to explore this important topic. While there are still many obstacles to overcome, the discussion showed that there is a shared commitment to explore opportunities and solutions. Keep track of the next steps of the Carbon Credits as Collateral working group under the NFP CoP Food System Finance.