To what extent are funds that invest in food and agriculture in East Africa designed to contribute to transforming food systems? TIFS worked with 23 fund managers to identify gaps and opportunities and strengthen the field of impact investing for food systems transformation.

TIFS, the Transformational Investing in Food Systems initiative, today announced a seminal report to assess the role of impact funds in investing in agroecological Innovators in East Africa. The project focused on funds that invest in food and agricultural businesses in Kenya, Rwanda, Tanzania, and Uganda.

• Agroecological and regenerative companies in East Africa operate at all stages of the value chain and include farmers that produce for the market using agroecological, organic, and traditional practices. These farmers and entrepreneurs favor natural processes, local knowledge, seeds and crops, and pursue farming, aggregation, processing, food production, and nutrition underpinned by a commitment to ecology and food sovereignty.
• Impact investors find it difficult to invest in companies that require small ticket sizes, operate in markets that are unfamiliar to the investors, and have business models and motivations that may be considered unconventional.
• Investing in the agroecological and regenerative sector through local intermediaries offers a pathway for investors to allocate appropriate capital to an emerging asset class that delivers transformational impact returns.

TIFS assessed 23 funds based on five impact themes: 1) Environment; 2) Life & Biodiversity; 3) Livelihoods; 4) Human Health; and 5) System Sustainability.

Some Opportunities for Investment Funds

The report identifies opportunities to help investment funds strengthen their investment process and better align their processes with a regenerative, equitable, and climate-resilient food future.

Improve the Impact Thesis or Theory of Change. While most of the funds have a clearly developed Theory of Change (TOC), it is usually not explicitly backed up with scientific evidence. In 65% of the cases, the assumptions underlying the TOCs are not made explicit nor are peer-reviewed or self-generated research results documented to justify the TOC. We also believe that there is an opportunity and a need to create an agroecological or regenerative impact thesis.

Strengthen governance structures. Most funds can strengthen their governance structures and policies. A large part of the sample are newer and smaller funds. For stakeholder engagement, beyond the investment committee, only 43% of the funds have a formal stakeholder engagement plan and have well-defined mechanisms in place for incorporating and acting upon stakeholder feedback.

Avoid negative impacts. Just 48% of the funds have a due diligence process that includes well-defined methods for identifying both existing and potential negative impacts. While most funds implicitly manage an impact risk reduction strategy, the measurement and reporting on negative (potential) impacts should clearly be strengthened.

Field-Building Recommendations

While providing key insights, the study also gives rise to new questions regarding how to build the field of food systems investing in East Africa. To address these questions, TIFS makes several recommendations for supporting agroecological and regenerative investments, which will be explored with regional and international partners.

Develop an Investment Thesis for agroecology, regenerative approaches, and Indigenous foodways. When working with fund managers who are interested in investing in agroecological and regenerative innovations, we recommend creating an overarching investment thesis that leverages existing studies to articulate the financing needs, the financing gap, and the economic opportunity of investing in agroecological, regenerative and Indigenous business sectors.

Organize a community of food systems investing fund managers. Fund managers are interested in sharing insights about realistic steps they can take with their investees to improve impact performance and grow the pipeline of values-aligned businesses.

Catalyze collaborative actions to increase investing in food systems. Balancing impact performance and financial returns is a challenge for food systems impact funds. These funds are venturing to serve new markets, finance new business models and technologies, and back new businesses.

The impact investing community is often not mobilized to engage with other stakeholder groups that could help create more favorable investment conditions. As impact investors, fund managers, and companies build the evidence for the financial viability of their impact solutions, they could engage governments, international donors, insurance companies, and institutional investors (e.g., pension funds) who can build on that evidence to create an enabling environment for agroecological and regenerative solutions.

ABOUT TIFS AND OUR PARTNERS

TIFS, the Transformational Investing in Food Systems (TIFS) Initiative, is an impact network of investors, funders, intermediaries, and enterprises building a market for a regenerative, equitable, and climate-resilient food future.

We are grateful to our partners Shona, a business development service provider in Uganda, and research and strategic advisory firm ISF Advisors.