Rising food prices, increasingly erratic weather patterns and mounting supply chain disruptions are making one fact impossible to ignore: food systems are under growing pressure, and the financial risks are spreading. As climate impacts become more frequent and severe, agricultural volatility is driving inflation, affecting livelihoods and creating ripple effects across financial markets.
Food systems, which account for 10 per cent of global gross domestic product (GDP) and 40 per cent of jobs, are highly vulnerable to climate shocks. The sector is already responsible for 90 per cent of global deforestation and 30 per cent of global greenhouse gas emissions, while also bearing a disproportionate share of the damage from climate-related disruptions.
Extreme weather events currently cause a loss of 5 per cent of total agricultural output – a figure expected to rise with climate change. This is particularly concerning, as the global population is projected to increase by 2 billion by 2050, intensifying pressure on food systems.
The magnitude of the problem and its impact on financial institutions and markets shouldn’t be underestimated.
Food systems are particularly vulnerable to climate shocks
Food systems remain highly vulnerable to climate shocks, consequently exposing financial institutions to significant risks across their portfolios. Climate vulnerability on food systems translates as a financial risk as it can directly impact loan performance, asset values as well as insurance claims.
Additionally, environmental volatility can impact financial risks when food system actors face supply chain disruptions, price shocks or productivity. Financiers with exposure to the food sector therefore have a vested interest in supporting client resilience to climate and operational shocks, which in turn improves long-term creditworthiness.
Financing food systems presents a unique set of challenges due to the sector’s complexity, fragmentation and risk profile. Financial institutions can act as key enablers through targeted lending strategies and investment mandates.
Lending, whether through working capital solutions, sustainability-linked instruments or transition finance, remains a critical lever to influence outcomes across the value chain. Yet food systems are highly diverse and capital can be deployed at multiple points – from direct financing at farm level to corporate lending that cascades downstream.
Tailored finance options for impact across the food value chain
There is no one-size-fits-all approach, but this complexity also unlocks a wide spectrum of financing innovations and structures that can be tailored for systemic impact. The World Economic Forum briefing paper Putting Food on Financial Balance Sheets, produced in collaboration with Bain & Company, explores these in further detail, deep diving into six different types of innovative financing models that can lower investment barriers and unlock new private capital.
What we found is that a growing set of financing models are emerging to respond to this complexity, from indirect lending through food corporates to blended finance structures and direct support to farmers and agribusinesses.
The above framework illustrates a select few models that showcase how targeted de-risking strategies, catalytic capital and value chain collaboration can help overcome structural barriers to investment.
A financial institution, such as a bank, can provide direct balance sheet financing to farmers or agri-businesses, although this can be perceived as risky….
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Cover image from World Economic Forum.
