Responsible Investments in Agriculture. In Practice Case Study Review

EBG Capital was appointed by the German Development Agency (GIZ) to obtain case studies from selected agricultural investment funds (predominantly private equity investors) to determine “best practice” in Responsible Investment (RI) in agriculture and the use of international RI principles and guidelines to achieve this. We requested a case study of a practical (“on-the-ground”) investment in farmland from 33 agricultural investors from around the world. Questions related to international RI principles and guidelines, due diligence, consultation with local communities, impact, and impact monitoring. Of the 33 investors contacted, 24 either declined or failed to respond to our request before the deadline of 9 November 2014.

Our eight respondents were a diverse group of investors with total assets under management (AUM) north of US$ 2bn, and covering Latin America, Africa, Asia and Central & Eastern Europe. Their case studies covered a wide range of farmland project-types from bananas and citrus fruits to tea and grains. Investment strategies varied from debt financing and prepayment/financing to investments in equity and direct acquisition of farmland assets (land, land leases and equipment). In some cases, investors selfoperated newly acquired farmland, in others they subleased the operations to a corporate entity or individually sub-leased parcels of land to local farmers.

All investors are signatories to one or more international initiatives – guidelines or principles – such as the Principles of Responsible Investment (PRI). IFC Performance Standards were frequently used as RI guidelines. However, respondents identified the challenges they face in the more practical, “on the ground” implementation of these RI guidelines. At best, these guidelines offer a checklist against which investors compare their own internal environmental, social and governance (ESG) criteria (which take into account both high standards and practical constraints).

Our report finds that all investors in agriculture are concerned with securing adequate, reliable and defensible land tenure. This forms the primary focus of their preinvestment due diligence and ongoing investment monitoring. Securing “free, prior and informed consent” (FPIC) seems to be a challenging part of the investment process and only a few respondents have conducted a structured FPIC process. The agriculture investors in this survey tend to acquire existing farmland operations – with many processes in place – rather than greenfield projects. This makes sense from a risk management point-of-view and helps to ensure compliance with RI guidelines. 

In terms of social impacts, these vary across the specific projects and investor ‘ESG Commitment.’ The reporting of social impacts tends to be identified as either improved livelihoods or improved community development. The measurement and reporting of social impact varies across investors and is difficult to assess.

Overall, the case studies provide exceptional detail into best practices in RI in Agriculture that can and should be emulated across the sector. In addition, this review identifies opportunities for improved RI practices ‘on the ground’ (e.g. a framework on what guides to be used under which conditions or have a more flexible version of the IFC Performance Standards for smaller scale projects). The study also identified areas for additional research such as investor mapping based on the Land Matrix database or broaden the survey by including feedback from local stakeholders (360 degrees feedback).