The AGRI3 Fund aims to mobilize USD 1 billion of financing by providing credit enhancement tools and technical assistance to enable a transition to more sustainable practices in agricultural value chains and avert deforestation.
The Fund provides guarantees to commercial banks and other financial institutions, and subordinated loans to customers of these institutions, which become known as ‘partner-banks’, to mobilize financing by de-risking and catalyzing transactions that actively prevent deforestation; stimulate reforestation; contribute to efficient sustainable agricultural production; and improve rural livelihoods.
A Technical Assistance (TA) facility was also established to accelerate the development of investable opportunities and maximize their impacts. The TA Facility is managed by IDH The Sustainable Trade Initiative and works closely with the Fund Manager and Investment Advisers.
The Fund was born out of a partnership between the UN Environment Programme and Rabobank, who came together in 2017 to announce an ambitious partnership with the aim to unlock at least USD 1 billion in finance towards deforestation-free, sustainable agriculture and land use. The partnership has since expanded to include the Dutch Development Bank (FMO) and IDH The Sustainable Trade Initiative.
Financing Instrument: Risk mitigation products (partial guarantees), liquidity instruments (subordinated loans)
Project scale: The typical contribution by the Fund for each investment is in the range of USD 3 to 15 million to enable projects from 5 to 50 million USD. Exceptions may apply, in case projects are larger than these limits, or pilot-projects that are smaller but scalable, provided they demonstrate significant impact.
The AGRI3 Fund aims to invest an estimated amount of capital of around USD144 million during the 5-year period from 2020-2024. The Fund expects to complete 50 deals in this time period, based on available funds and eligible investment opportunities.
Recipient countries/ regions/ country groups: The AGRI3 Fund has a global scope and ambition, but with a focus on middle income (MICs) and lower income countries (LICs), as defined by the OECD. The Fund will initially focus on Brazil, Indonesia and India, but with the ability and ambition to work across South-East Asia, Sub-Saharan Africa and Latin America.
Recipient entities: Commercial banks, Development Finance Institutions (DFIs), Impact investors and Institutional investors
The Fund aims to undertake transactions in a wide range and combination of crops and agricultural commodities. In the first instance, these are likely to be sugarcane, cattle, dairy, rice, soy and cotton. But other impactful sectors, such as palm oil, cocoa and livestock will also be considered. Investment criteria will guide the selection of bankable projects that are likely to fulfil the impact framework.
The following are the key criteria for assessment of the Fund:
- Impact criteria: Eligible projects should focus on at least one of the first two objectives (Forest Protection and reforestation, and Sustainable Agriculture) of the funds E&S Impact Framework and always contribute to the third (Improved Rural Livelihoods). For each project, to the extent possible, the Fund will apply all relevant primary KPIs per identified objective, with a minimum of one KPI per objective that has to be met. Depending on relevance, project size and data availability, one or more of the secondary KPIs are to be applied as well.
- Eligibility and Exclusion list: Transactions should not be on the funds exclusion list and be eligible for funding. A schedule of indicative eligible projects and a schedule of excluded activities will guide the selection of bankable projects that are likely to fulfil the impact framework.
- Alignment with the ESG framework: Transactions should identify, manage and mitigate E&S risks in line with the funds E&S impact framework.
- Financial assessment: Transactions should have an attractive risk return profile and align with the AGRI3 Pricing Policy.
- Additionality: any application for financing must pass a strict additionality test. This comprises of two additionality tests: (1) Beyond business as usual, demonstrating that in the impact fields targeted by the client’s use of funds are beyond BAU practices for the company/country/sector; and (2) there is a lack of available commercial finance to support the project.
- Project economics and business case: Critical to the sustainability of any transaction is a sound economic, business model or investment case related to the use of funds supported by AGRI3.
- Legal: The project will need to demonstrate it has a legal basis to operate as planned and meets all relevant local and international legislation and regulations.
Transactions will largely be sourced with existing clients of partner-banks, such as large traders and corporations in the agricultural value chain. Once a potential transaction has been identified, partner-banks of the fund will discuss initial concepts with the AGRI3. It is expected that at this stage an initial Project Opportunity Note (‘PON’) will be presented to the AGRI3 Investment Advisers, outlining the key details of the deal. The AGRI3 Investment Adviser team will then assess the eligibility of the investment against the alignment of the AGRI3 Investment Policy, E&S and financial assessment framework. Should the concept be eligible then the Investment Advisers will provide initial feedback on the structure, pricing and impact potential of the transaction and key considerations for the application stage.