Project detail - responsAbility Climate Smart Agriculture & Food Systems Fund, SICAV-RAIF

Who is our customer

FMO’s client is the recently launched Climate-Smart Agriculture & Food Fund (the Fund), A USD 200mln close-ended debt fund targeting food systems transformation. The aim is to provide long-term expansion debt to innovative businesses operating in the food value chain in Asia Pacific, Latin America and Africa with the goal of mitigating climate change, reducing food loss and promoting climate change resilience of smallholder farmers. The Fund has been established by responsibility, a sustainable investment house, in collaboration with CGIAR, a global research partnership for a food-secure future, and anchor investor KfW, a German state-owned investment and development bank. FMO has subscribed up to USD 25 mln committed facility to the fund with senior class shares. In which, USD 21.5 mln was subscribed in the second closing, and the balance of up to USD 3.5 remains to be subscribed in the third closing.

What is our funding objective?

The Fund’s strategy is to provide long-term financing along with technical assistance to Agri SMEs under four investment themes: 1) sustainable intensification of production, 2) value adding and efficient processing and logistics, 3) sustainable and inclusive retail and food brands, and 4) climate technology and solutions providers. The financing will target transactions in agriculture focused on reducing climate change risk and greenhouse gas emissions as well as on promoting sustainable increase in yields. FMO will participate in the senior tranche in the second closing.

Why do we fund this investment?

There is a lack of long-term financing for Agri SMEs with ambition to tackle challenges of climate change and increased demand for food. With the investments from Climate-Smart Agriculture & Food Systems Fund, Agri SMEs can learn and invest in climate smart solutions, in order to be resilient for climate change. Through this financing, FMO can indirectly reach the agri SMEs and the underlying smallholders. These SME’s and underlying smallholders are the backbone of the agriculture sector and local workforce in many low- and middle-income countries, that would otherwise be too small for direct FMO engagement. Both Reducing Inequalities and Green Labels are applicable to this transaction.

What is the Environmental and Social categorization rationale?

Because of the (global mandate, as well as a broad agricultural sector focus (investments are expected in climate technology and retail mostly in Asia Pacific, and production and processing mainly in Africa and Latin America), the Fund’s E&S risk categorization is 'Private Equity risk category A'. This is the category for funds that intend to invest >15% of their portfolio in high risk (e.g. category A or B+ as defined for Direct Investments) according to FMO’s Sustainability Policy. It should be noted, however, that category A investee companies are not likely to be expected, and that the size of investments is relatively small (average loan sizes of USD 6mln). E&S risks most likely to be encountered at the investee companies are expected to be linked to IFC PS 1 to 4 (Risk management, Labor, Resource efficiency, and Community), and PS 6 (Biodiversity) potentially indirectly through the supply chain. In addition, DT does not expect future investee companies to trigger PS 5,7 or 8 in their operations given their nature, however additional mitigation criteria were added in ESAPs. Besides this there are risks related to the human rights contexts in some areas of operations. ResponsAbility, the investment house, has developed a strong E&S management system which will be applied at fund level and requires its team to incorporate and record E&S analysis throughout the entire investment process and aligns with FMO E&S requirements, including compliance with (i) the IFC exclusion list, (ii) local environmental, health & safety and labour laws and regulations, and (iii) IFC Performance Standards and ILO Core conventions.

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Date	Total FMO financing
3/24/2023	USD 7.50 MLN