This discussion paper was produced as abackground documentfor the 2016 FAO State of Food andAgriculture (SOFA) report. It was produced through deskresearch and analysis of existing agricultural and climatefinance literature. Moreover, qualitative interviews withkey experts representing different stakeholder groups in theagriculture, climate, and financial sectors were conductedto inform the potential opportunities and innovations thatshould be further explored to make climate finance work foragriculture. Finally, a collection of supporting casestudies were provided by different stakeholders to showcasesome of the most successful and innovative examples alreadybeing implemented in the climate finance community.It isimportant to note that this is a discussion paper that aimsto explore the intersection between climate and agriculturefinance by generating dialogue. Hence, the paper explores arelatively new field and proposes innovative interventionsthat either are being tested or could be tested to increasethe leverage of private capital and strengthen the linksbetween financial institutions on the one hand andsmallholder farmers and SMEs on the other. The objective ofthe paper is to generate discussion around this topic and,therefore, no blanket recommendations or descriptiveinterventions are proposed. A growing population andchanging diets are driving up the demand for food.Production is struggling to keep up as crop yields level offin many parts of the world, ocean health declines, andnatural resources— including soils, water andbiodiversity—are stretched dangerously thin. Climate changeis critically interrelated with agriculture. On the onehand, agriculture is extremely vulnerable to climate change.This paper proposes three different avenues to use climatefinance to achieve this goal: a) Designing and adaptinginnovative mechanisms to leverage additional sources ofcapital, from both public and private sources, that can bedirected towards climate smartinvestments in the agriculturesector. b) Identifying entry points for directing climatefinance into agriculture and for linking FIs to smallholdersand agricultural SMEs, including through capacity buildingand technical assistance. c) Providing technical assistanceto increase investments in agriculture. Finally, this paperpresents several suggestions to contribute to theachievement of the ideas presented in this paper, includingthe need for increased knowledge on innovative financialinstruments and mechanisms, bridging information gaps,identifying opportunities, promoting dialogue andcooperation, and designing an action plan to move thisagenda forward.
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