Decarbonising agriculture

Several actors in the UK’s farming and food manufacturing sector highlighted that the UK’s policy uncertainty, particularly around subsidies, taxes, and the delivery of environmental targets, has created an unpredictable landscape. This in turn hinders long-term investment in a sustainable food value chain. For instance, there is so far a lack of clear, consistent policy on the creation, integrity, and use of carbon credits and biodiversity credits. Requiring farmers to sell food, carbon, and biodiversity credits separately is overly complex.

Participants also highlighted that the UK’s regulatory system needs to be streamlined to attract innovative companies. For example, alternative protein companies are struggling to access the UK market due to its genetic modification regulations. Meanwhile, the existing version of the EIP, while welcome, does not yet offer a sufficiently comprehensive policy suite (regulations, incentives, etc.) to meet existing nature and biodiversity restoration targets under the Environment Act. The number of nature restoration goals under the Environment Act also remains limited.

Demand-side signals for sustainable agricultural products are also inconsistent and fragmented, discouraging investment.

Implementing nature-based solutions like reforestation or peatland restoration has high upfront costs, while their positive impact takes years to materialise (see Figure 2, where capital costs are upfront, while the benefits accrue over 100 years).⁷ This is a significant barrier, and the question of who bears these costs (farmers, food manufacturers, retailers, or consumers) is crucial.

In that regard, the Environmental Land Management scheme is not yet fit for purpose. Its design allows for double payments (i.e. receiving two subsidies for the same initiative) and a pick-and-mix approach to initiatives, prioritising financial outcomes over the transition to holistic, nature-based farming practices.

Tax revenues from levies on agricultural products could also be used to support the sector’s transition – but are currently not. For instance, the Extended Producer Responsibility scheme imposes a £2 billion cost on the food sector but does not channel funding into circularity initiatives. This puts additional pressure on food manufacturers already grappling with record-high commodity prices.

At the same time, there is a persistent financing gap for projects in the scale-up phase, where venture capital enthusiasm fades and infrastructure capital remains scarce. This is particularly evident in the alternative protein sector. 

Farmers face parallel financing challenges: many lack access to the capital required to invest in new equipment or transition to nature-positive practices. 

Many farmers are already adopting more sustainable practices, though others have expressed concerns about the transition to “net-zero” farming. In some cases, this reflects a lack of trust – often shaped by past experiences with poorly supported or unsuccessful initiatives. For these farmers, the absence of a clear business case and tangible results can lead to understandable scepticism. Even those who are willing to adopt nature-positive practices may face barriers such as limited resources, insufficient training, or unclear guidance on how to begin.

The carbon footprinting tools used by retailers and corporations can be inconsistent, leading to discrepancies (see an example in Figure 3).⁹ That creates confusion and complicates decision-making for farmers, who may be held accountable for unreliable and varying results.¹⁰

Participants also noted the need for clearer data ownership. Farmers want assurance that they retain control over any environmental data collected via such tools, particularly when retailers or tech providers are involved.

Immature data systems and the absence of comprehensive digital solutions to assess sustainability outcomes continue to undermine efforts to scale credible sustainability-linked investment.

Fragmented value chains mean there is little coordination between farmers, suppliers, and retailers. That makes it difficult to ensure sustainability practices are integrated effectively from farm to market. And without sufficient coordination, farmers also don’t receive the full value of the ecosystem services they provide, such as carbon offsets and biodiversity contributions.

But fragmentation may also present opportunities: for example, digital platforms and logistic providers could play a role in consolidating data flows and sustainability practices – unlocking potential investment themes.

We used the roundtable discussions to deepen our investment insights. They confirmed our view, which also emerged at Biodiversity COP16, that the private sector will need to provide most of the financing for the transition to sustainable agriculture. However, private investors are desperately calling out for a more comprehensive and co-ordinated policy framework to enable this. 

Unlocking investment opportunities in sustainable agriculture and food will also require more collaboration across the value chain, and on an international scale. This will not be easy, and we remain cautious.

For example, farmers need more help to deal with all the issues they face beyond farm management – from carbon credits to biodiversity credits or subsidies. But they also need an incentive to feed their data back up the supply chain for validation. This could be a significant opportunity for a software company – and for investors to back it up. 

There could also be a need for an intermediary or an exchange to package and sell carbon-sink projects to help corporates meet their net-zero targets. The size of a potential market for this remains to be assessed, but it could create an opportunity. We will be watching those two spaces – software solutions and a carbon-sink exchange – with interest.

But other barriers remain. For example, fast-moving consumer goods companies (FMCGs) seem reluctant to put a premium on carbon-neutral products that could incentivise more farmers to adopt sustainable practices. 

The lack of standardised definitions for “regenerative agriculture” also complicates capital deployment. Whilst farmers understandably value flexibility, the absence of a shared framework makes it harder for corporates and investors to identify strong performers or design incentives that reward sustainability outcomes. This is a barrier not only to scaling best practice but also to channelling investment effectively.

On other specific opportunities, alternative protein manufacturers are still struggling to convince farmers and potential buyers of the positives of the product. This is reflected in the sector’s lacklustre growth over the past few years, and the roundtable discussions reaffirmed our view that growth in this segment remains subdued, with near-term upside constrained by cost barriers and consumer adoption. 

On the public policy front, we continue to engage with policymakers to improve market conditions. For example, we recently responded to the UK Government’s Land Use Framework consultation, highlighting the need to coordinate land-use policies and broaden revenue streams to support commercially viable nature-based projects. 

In the longer term, we will continue to encourage collaboration both within the food and agriculture sector and with other areas such as energy and transport. This can help catalyse sustainable transformation while unlocking investment opportunities across sectors as value-chain interdependencies deepen (see Building bridges to net zero).¹²