Recent geopolitical crises have exposed the vulnerability of the global food system which was already ill-prepared for the dual shocks of post-pandemic price volatility and the impacts of climate change. Now innovations in blended finance are offering a new glimpse of hope.

In the Global South, the majority of food is produced by micro, small and medium-sized enterprises (MSMEs), which are the first to be impacted by food insecurity and climate change. With more than 70 million smallholder farmers in Southeast Asia alone, these businesses account for 80 percent of agricultural production and are essential to the region’s transition to more sustainable, efficient, and low-carbon farming practices.

Across the region, governments and businesses are piloting public-private strategies to boost yield, reduce waste and build resilience – yet most will agree that the high costs of implementation are simply out of reach for most rural economies due to flaws and inequities in outdated finance models. A much-needed shift is required towards more innovative approaches that offer financial returns alongside longer-term sustainable outcomes for people and the planet. The paradigm shift is slow and acceleration is crucial to tackling climate change and ensuring food security for a growing global population.

Philanthropic capital is a vital part of this finance solution and yet, less than 2 percent of impact funding is currently directed towards climate and environmental mitigation. Traditionally, philanthropy has sought to champion underserved causes where catalytic investment, large or small, can bring about real-world change. This is where the generational opportunity lies for new approaches to blended investment models, where philanthropic capital can serve as the fourth ‘P’, by guaranteeing or de-risking interventions that might otherwise be too risky for public and private partnerships.

Whether it is investing in renewable energy projects, technology-enabled agricultural practices, or climate-resilient crops, the goal is to move towards a more sophisticated blended finance model that reduces the current fragmentation of capital flows across the agricultural sector.

The strategic deployment of philanthropy to address climate change and food insecurity through well-structured ‘PPPP’ impact funds allows for the more targeted leveraging of traditional approaches to public-private financing, delivering more scalable and repeatable returns for small businesses and the environment. Whether it is investing in renewable energy projects, technology-enabled agricultural practices, or climate-resilient crops, the goal is to move towards a more sophisticated blended finance model that reduces the current fragmentation of capital flows across the agricultural sector.

Through harnessing the unique and complementary role of philanthropic capital in collaboration with other like-minded funders such as governments, impact investors, financial institutions, and corporations, there is the potential to deliver a seismic shift in how farmers produce food, embedding sustainable farming principles into their everyday lives and ensuring a resilient food system for the world.

It is however not simply enough to increase the availability of different types of capital of all types within the system for smallholder farmers, the way this finance is blended and deployed is just as important. Adopting new technologies at a farm level typically requires a modest capital investment of less than US$15,000 per farm, and yet access to small-ticket finance on this scale is one of the most significant barriers to participation. While the latest agricultural innovations are disrupting what was once a traditional industry, the same cannot be said for innovations in finance.

As more philanthropists are exploring ways to multiply their social and economic impact, and stretch the value of their gifting, there is an increasing need to utilize philanthropic funds in more flexible and creative ways. Grant-based funding has long remained a mainstay for donors to provide non-repayable capital, but an increasing number of philanthropists are exploring impact investing as an additional tool to find new opportunities to support causes like climate change mitigation. Finding more innovative ways to deploy funding to the agricultural sector is more vital than ever due to a chronic shortage of traditional capital that can de-risk the process for small-ticket lenders and borrowers.

Historically, funders have lacked the convening power to bring the right blend of funders to the table, and with many misconceptions around credit risk, returns, and supply chain capacity, this limits the scope of investment flows. Increasing the amount of available capital, whatever the source, must be complemented with novel approaches to strategic financing. This can include access to long-tenure loans with more flexible repayment schedules, alongside the availability of larger loan amounts and guarantees to allow for upfront capital investments as farmers adopt new climate-proof practices and innovative technology. This is where philanthropy can play an important role by stepping in to de-risk the process while demonstrating the value of sustainable farming projects to other partners who may hold more traditional views on investments.

In Southeast Asia alone, it is estimated that US$800 billion of investment in the agricultural sector is required in the next decade to meet consumer demand and fortify supply chains. It is a social and economic cause that is ripe for greater impact investment. The philanthropic sector can play an important role in accelerating the transition to more regenerative agricultural practices which, in turn can build more inclusive, resilient, and sustainable food systems while supporting a suite of wider economic, environmental, and social outcomes for communities across Southeast Asia.

Beverley Postma is the Executive Director of Grow Asia, a multi-stakeholder platform established by the World Economic Forum and the ASEAN Secretariat to cultivate more inclusive, resilient, and sustainable food systems in Southeast Asia.