World Agri-Tech caught up with Mark Thompson, EVP, Chief Corporate Development & Strategy Officer at Nutrien and Robyn O’Brien, Co-Founder at Replant Capital on investing in sustainable ag and food technologies and making the agtech sector more resilient.

What would it look like if capital is aligned to the initiatives on climate, soil health, biodiversity and sustainability? What is the business case for investing in sustainable ag and food technologies?  

Robyn O’Brien, REPLANT CAPITAL

RO: In almost every industry beyond finance, we’ve embraced new metrics to address climate challenges. It is past time for the financial industry to do the same. When capital is aligned with climate, soil health, biodiversity and sustainability,  there will be new metrics in the  capital markets to reflect it. Currently, terms of capital are set by the financial institution based on metrics relevant only to the financial institution, using narrowly defined metrics. What would it look like if terms of capital were tied to metrics around soil health, soil organic matter, carbon sequestration, water conservation and water infiltration? For example, the stronger the soil’s ability to capture carbon, the lower the cost of capital to an agricultural partner. Or the higher the water infiltration levels on farm, the lower the cost of capital to a farmer. Set terms of capital that align with climate goals.

MT: We should continue to work towards an understanding of sustainability as a strategic action for agri-food sector companies ensuring their long-term viability. Not an initiative, not a project, and not simply CSR, but foundational to the corporate strategy and directly tied to business performance. The agriculture industry has a long history of innovation that has created significant economic and societal benefits over time. Today is no different. Our industry is focused on addressing some of the most consequential challenges facing our world – reducing food insecurity, increasing the resilience of agricultural production and shaping a stronger global food system, all while improving environmental and social outcomes. These represent real catalysts for competitive differentiation and material drivers of business performance. Looking at the magnitude of this collective opportunity, there’s a clear and compelling thesis for the allocation of capital and attractive long-term investment returns in agri-food.

Mark Thompson, NUTRIEN

How should investors think about the time horizon for investment returns in early-stage technologies and start-ups in the sector? Will this accelerate with the rise of ESG investing?

MT: The majority of early-stage Ag/Food-Tech investment is being deployed as private capital today. These investments are primarily through dedicated venture funds, institutions focusing on earlier-stage opportunities in agri-food as part of a broader investment strategy, and leading sector strategics. Much of the investment opportunity in this space is still nascent, which is why we are seeing this approach.

As a result, there’s a very typical multi-year time horizon for capital deployment and a subsequent return realization period that’s well understood to be necessary for companies at this stage. This is true of early-stage tech investments in agri-food, which require patient investment capital. COVID-19 has been an unexpected catalyst to test the appetite of funders to stay the course. We’ve seen this go both ways the past several months amid the more uncertain environment. High-conviction, patient capital has shown a willingness to fortify high potential portfolio companies, while some of the marginal, low-conviction capital coming into the space has dried up.

Similarly, ESG investing isn’t about arbitrage, market timing or near-term earnings expectations. And the success of ESG as an investing strategy won’t be evident over months or quarters. It will be driven by the ability to identify and invest in companies that recognize and action an integrated sustainability strategy to address their most material risks and opportunities, driving the potential for out performance over time. In the case of early-stage agri-food technologies, opportunities will exist to invest in those that are complementary to this process. This is also a multi-year journey that requires capital willing to be patient, targeted and focused on long-term value creation.

RO: The financial industry lacks diversity, and diversity is critical for resiliency. The lack of diversity in the financial industry is not only reflected in the homogeneity of the industry’s predominantly white male profile, but in the industry’s lack of creativity and innovation when it comes to setting terms of capital. The financial industry was designed to extract not regenerate. Share buybacks, at over $1 trillion in the U.S. last year, are a leading indicator of that. And you can’t fix an extractive agricultural system with an extractive financial system.  So what does regenerative capital look like? It embraces inclusion, from senior leadership to cryptocurrency, in order to build a resilient financial system. A resilient financial system is diversified across capital platforms from blockchain to farm credit and across demographics from women to people of color.

To hear more insights from both experts, join the virtual World Agri-Tech Innovation Summit and tune into Mark Thompson’s panel discussion on ‘The Rise of ESG: Aligning Profit with Impact in Ag & Food Tech Investment’ and Robyn O’Brien will chair the session on ‘Soil Health: Can Farmers Become Part of the Climate Change Solution?’ during a dedicated Sustainability Track on Wednesday 15 September.