INOKS Capital: Supporting agri-food on the road to net zero

INOKS Capital’s Nabil Marc Abdul-Massih discusses the role of agri-food investment in achieving net zero.

Nabil Marc Abdul-Massih
Nabil Marc Abdul-Massih

This article is sponsored by INOKS Capital.

Agriculture accounted for at least a quarter of global emissions in 2021. There is no doubt, therefore, that the agri-food sector has a crucial role to play on the road to net zero. Nabil Marc Abdul-Massih, CEO of INOKS Capital, speaks about the role of agri-food in tackling climate change, as well as how SMEs in emerging markets fit into the big picture.

Abdul-Massih also discusses the availability of data and how pricing affects the ability to implement sustainable, technology-enhanced farming tools and techniques. He stresses that asset managers need to focus on supporting resource-efficient and sustainable agri-food activities in emerging markets.

How can agri-food contribute to net zero?

We’ll always need to feed ourselves, so agriculture is a sector that’s here to stay. But there are substantial emissions along the various segments of the value chain. The way products are farmed and brought to market around the world always involves a footprint in terms of energy use and emissions.

Simple changes in how food is produced, transported and distributed can make a significant contribution towards net zero. Food needs to be produced more efficiently and sustainably to avoid expending resources unnecessarily. In certain value chains, up to 25 percent of food is lost or wasted before it reaches the consumer. Mitigating these losses will automatically reduce energy use and emissions on a per unit of consumption basis, which has a multiplier effect towards net zero. Being a catalyst for the development of shorter agri-food value chains also means supporting resource efficiencies. Producing and consuming locally, through circular value chains, is the optimal way to move forward.

How can asset managers support agri-food companies towards net zero?

The first thing an asset manager can do is identify what is tangible. The tangible aspect corresponds to providing capital where it’s most impactful: such as specifically targeting companies that are working towards net zero. There are also many intangibles, mostly around the technical assistance that asset managers can put together to support companies in tackling operative and functional challenges.

“Combatting climate change is not some kind of penalty, but something that is part of the quest towards efficiency”

Two years ago, INOKS Capital launched dedicated technical assistance programmes, along with financial assistance, for some of the small and medium-sized agricultural enterprises that we support in Sub-Saharan Africa and Central Asia. We collaborate with external consultants and development agencies to deliver technical and agronomic training or provide suitable machinery for women co-operatives. We ensure the intervention benefits the investee and is aligned with the sustainable development of the wider industry.

Our technical assistance to portfolio companies helps them assess where they stand within net-zero initiatives, and to define how they can reduce emissions, use their resources better and generate less waste. We also encourage them to become propagators of such approaches.

How can SMEs in developing markets be convinced to help tackle climate change?

INOKS encourages farmers to work towards soil regeneration and practice sustainable agriculture. It’s a no-brainer to explain to them that by using such farming practices, they benefit from long-term advantages such as avoiding soil erosion and deprivation.

They can be convinced to implement such approaches by explaining that combatting climate change is not some kind of penalty, but something that is part of the quest towards efficiency. The more the SME is efficient and competitive, the better it is equipped for volatile weather patterns, market disruption, and ready to identify and profit from opportunities.

One misperception that we hear often is that people in emerging markets aspire to consume as much as they want, because richer economies have had the luxury of doing so for a couple of centuries, and that it’s a question of fairness. On the contrary, there are practical conversations that can be had with SMEs around improving business and operational efficiencies, which in turn have positive impacts on tackling climate change. The engagement must educate on climate-related topics while considering the business realities of the SMEs to convince them to adapt.

How do you overcome challenges in collecting data in the agri-food sector?

We generate a substantial amount of data through our own research, and all along our investment process, from sourcing to divestment. This data is important in helping us assess the status of the corporates and investees that we work with from different angles. But we also use data to support them along their improvement curve, when measuring results, and in becoming proponents of change.

For the agri-food sector overall, it’s much more complicated as the data is often unavailable. International organisations are making substantial efforts to use new technologies in agtech to collect and measure data. Yet data remains a vastly unaddressed need, especially for SMEs across emerging markets.

For example, you may have heard about the upsides of precision farming, generating statistics on soil usage, using satellite imagery, or deploying AI to automate farm surveying – but these services are not readily available across the board. It’s due to the cost, not only of machines like satellites, but also of having professionals on the ground to deploy these services. We need to invest in resources in emerging markets to enable SMEs to access those benefits.

What needs to happen to further support and scale impact investments in agri-food?

Supporting impact investments in agri-food requires an understanding at the structural level as well as a mindset shift regarding investment duration. Structural because when investing in agri-food, historically and pragmatically, we refer to investing in emerging markets. And when we talk about impact investing in emerging markets, we talk about private capital being channelled directly to SMEs and larger corporates along these value chains.

In that sense, there are numerous barriers to channelling capital towards emerging markets, especially to companies from the agri-food sector directly. None of the structural players, like banks or regulators, are willing to work on this as it’s too costly for them. They’d rather the market invested in places like Europe, the US or Japan. But that’s not going to be valuable in terms of agri-food supply chains globally. This represents an enormous structural inefficiency.

The second aspect refers to timing. Investors haven’t traditionally been inclined towards investments that take time. They’re accustomed to having substantial liquidity at any given moment. Yet, this is where a mindset shift is critical. Impact investors who make a medium- or long-term commitment to sustainable agri-food value chains will reap the benefits. There’s a long way to go, but we believe we’ll get to a world where agri-food is more efficient and sustainable.