Unlocking ESG financing in Africa’s agri-business sector

In recent years, global investors have been increasingly focusing on sustainability, with the African Agri-Business sector emerging as a key target for Environmental, Social, and Governance (ESG) investments. The European Union's Supply Chain Act is a testament to this shift, highlighting the importance of social considerations in supply chains that feed into the EU. As Africa aims to boost its exports to major Western economies like the US and UK, the emphasis on ESG practices becomes even more crucial. To delve deeper into these expected trends, CNBC Africa spoke with Ashish Patel, Managing Partner of ESG First Fund at Aavishkaar Capital. Africa's agricultural sector is poised to reach a trillion dollars by 2030, presenting a wealth of opportunities for ESG-focused investments. Patel emphasized the continent's potential to not only produce but also refine and add value to agricultural products, ranging from nuts to cocoa. These endeavors have far-reaching impacts on climate, social welfare, and economic growth, positioning Africa as a key player in sustainable agribusiness. One notable example is the investment in a macadamia nut producer in Kenya, where funds are being used to expand processing facilities and transition to solar energy, thereby enhancing sustainability and improving working conditions. By supporting such initiatives, investors like Patel's fund are not only driving profitability but also fostering positive ESG outcomes. However, integrating ESG principles into agribusiness operations in Africa comes with its challenges. Patel highlighted the lack of coherent government policies, the difficulty in scaling up small-scale farming, and the acute shortage of capital as major hurdles. Unlike some Asian countries where agricultural sectors are prioritized, Africa lacks consistent policies that support the industry and ensure adequate funding flows to small-scale farmers and businesses. To address these challenges and encourage more companies to tap into ESG-focused funds, Patel emphasized the need for proactive funding policies that prioritize sectors like agriculture. By leveraging a mix of financial institutions, private funds, and microfinance institutions, small and medium enterprises can gain access to the capital needed for growth. Additionally, enhancing transparency and providing clear guidelines for success in export-oriented industries will level the playing field for farmers and businesses seeking to embrace sustainable practices. As Africa's agribusiness sector continues to evolve, the interplay between ESG financing and sustainable operations will be key to unlocking the sector's full potential. By driving investments that prioritize environmental and social impact alongside financial returns, stakeholders can pave the way for a more sustainable and prosperous future for the continent's agricultural industry.