Authors: Isabella Wedl and Hermann Kam
A transition to sustainable agriculture is essential for achieving environmental health and climate resilience across the EU. But public funding alone will not suffice to drive this transformation at the necessary scale and pace. This paper explores how private finance can be mobilised to close the funding gap and what is needed to make that happen.
The European agricultural sector is at a critical juncture. Decades of intensification have degraded ecosystems, reduced biodiversity, and increased the vulnerability of farming systems to climate change. A large-scale transition to sustainable agriculture – one that ensures adequate, nutritious food production while safeguarding natural resources – is urgently needed. However, this transformation must happen within the next decade, and current levels of public funding are far from sufficient. Accelerating progress will require a significant increase in financial support during this period. Mobilising additional public and, crucially, private capital will be essential to bridge the investment gap and drive the transition at the necessary scale and pace.
Drawing on key informant interviews, real-world case studies, and a stakeholder workshop, this paper explored how private financial actors—agribusinesses, banks, institutional and impact investors, insurers, landowners, and others—can support that transition. It maps current barriers and motivations, reviews financing solutions in use or development, and outlines practical steps to scale promising approaches.
Findings show that farmers face numerous barriers to transition, including:
- High upfront costs for new practices and equipment
- Temporary yield declines and income insecurity during the transition period
- Limited access to technical knowledge and trusted advice
- Structural disincentives such as insecure land tenure and ageing farmer demographics
- Social and institutional inertia, including policy frameworks that continue to incentivize conventional practices
Private capital providers face their own set of barriers, such as unclear return prospects, data and credibility gaps (especially around monitoring environmental outcomes), small and fragmented investment opportunities, and high transaction costs.
Despite these challenges, a growing number of agribusinesses, financial institutions, institutional and impact investors, insurance providers, landowners, and technology intermediaries are engaging in the transition. Their motivations vary but include:
- Enhancing supply chain resilience
- Meeting corporate sustainability targets (e.g. Scope 3 emissions)
- Improving long-term asset values
- Achieving environmental, social, and governance (ESG) investment objectives
- Unlocking market premiums for sustainably produced goods
The report identifies four main categories of instruments that can unlock private finance, including:
- Capacity-building and knowledge transfer
- Innovative lending models
- Carbon and biodiversity credits
- Blended finance tools like transition insurance
Yet, many of these approaches remain small-scale, underutilised, or uncoordinated.
To widen the uptake of effective financing instruments, such as favourable loan terms, long-term purchase agreements, and transition insurance, the following actions are needed:
- Aligning data and standards through shared MRV systems
- Creating one-stop regional support hubs for farmers
- Aggregating investment at the landscape level
- Using blended finance to de-risk high-impact tools
- Reforming EU subsidies to reward environmental outcomes
- Setting clear, binding policy targets to drive certainty and confidence
Issues that warrant further research include the accessibility of private financing instruments for small farms, the potential environmental trade-offs associated with carbon credits, risks of double counting and lack of additionality, and the legal and institutional barriers that hinder coordination between public and private funders.
Photo by Manu Reyes on Adobe Stock
