India: Agricultural resilience in the face of continuing climate impacts

The expression perfect storm is a cosy sounding oxymoron. It refers to a peculiar juxtaposition of unlikely circumstances that magnify the impact of a misfortune. But the consequences are never perfect. As we see with COVID-19, perfect storms have the potential to lay waste not just to a sector or a geography but to whole economies.

Climate change disruptions and how they will be transmitted to the real economy: farms, transportation of goods, built infrastructure, availability of drinking water and fatally hot summer temperatures are all challenges for India.

It is important to realise that dealing with climate shocks is not merely adapting to a set of changes that can be anticipated but also being resilient to climate variability and uncertainty.

This is of central importance to Indian agricultural systems. Half of the population, which also comprises the most poor and vulnerable, is dependent on agriculture and will face a disproportionate impact from climate change.

Identifying resilient investible agri-measures

Increasing the flow of capital – both public and private – to resilient agricultural measures can be a critical tool for alleviating climate change impacts and chronic distress facing the sector. For this to happen, it is essential to develop a clear understanding of where and how such financing can be directed.

There is a growing body of work internationally and nationally that advocate the establishment of a system of definitions (more commonly known as taxonomies) that make it possible to identify resilient investible measures to ease the flow of finance to them.

In this Blog, we will elaborate on the Climate Resilience Principles (CRP) released by Climate Bonds Initiative in September 2019. These are designed to guide finance to ameliorate the physical risks from climate change by helping sectors devise and invest in measures to increase resilience.

Each of the Sector Criteria under the global Climate Bonds Standard, have the cross-cutting CRP incorporated within them. The CRP ensure the projects that reduce the emissions of greenhouse gases also anticipate and manage the physical risks from possible local climatic change.

Soon after their launch, the European Bank for Reconstruction and Development (EBRD)(link is external) used the CRP to raise money through a 'resilience bond' whose proceeds will be used to fund climate resilient infrastructure for water, energy, business and commercial operations and climate resilient agriculture and ecological system.

What are the Climate Resilience Principles?

The principles set out how to systematically consider climate risk and plan assets accordingly.

The steps include establishing the boundaries of the project under consideration, setting down the specific risks that climate change gives rise to locally (cyclones, flood risk, sea-level rise, heat stress), mitigating these risks through the project, and establishing ongoing monitoring and verification that ensures the projections of physical risks and theperformance of the assets align with plans.

The figure below walks through the thinking process of a proposed climate-resilient project:

-  Understanding the context: the investment project first needs to draw a boundary around the physical space which will become climate resilient from the investment, for instance, the farm boundary, while also ensuring the climate risks are being managed and not simply being transferred elsewhere.

-  Addressing climate risks: physical climate risks have markedly different impacts in different locations. In North India melting glaciers could reduce year-round water availability for farms, on the coast crop damage from cyclones could be a problem. Which ‘climate risks’ is the investment targeting?

-  Addressing resilience benefits: the next step is ensuring that the investment proposed actually addresses the local resilience challenge sufficiently to materially reduce the risk, and ensures the project is not adding to fossil fuel-based energy use for the farm as a whole. For instance, switching to a different agricultural practice like mulching might help improve soil moisture but maybe not enough to offset the expected increase in aridity from climate change (though it might also provide other benefits like enhancing fertility and soil carbon).

-  Monitoring: it is important to measure and report whether the investment is giving rise to the desired improvement both for the farmers themselves, but also for the green investor seeking to replicate good practice across India.

The CRP set out the difference between asset level and system-level measures to mitigate climate risks.

The ‘asset level’ means designing a new or refurbished piece of infrastructure like a reservoir to withstand the likely range of conditions projected in the locality over the design life of the asset.

The ‘system level’ measures invest in procedures like flood-defence warning systems, or drought resistant crops that provide resilience to the wider society.

The CRP, and the sector criteria on agriculture and water, also check that social and non-climate environmental issues are safeguarded, and any trade-offs considered.

SDGs as a useful framework

For a fuller understanding of such environmental, social and economic dimensions of resilient agriculture, Sustainable Development Goals provide a useful framework.

Zero Hunger under SDG 2 prioritises sustainable agriculture. Clauses 2.3 and 2.4 of SDG 2 specifically call for action on productivity and incomes, and sustainability and resilience. SDG 2.A talks about mobilising investment for resilient agriculture.

Sustainable agriculture also links up with other SDGs such as poverty alleviation, climate change, water use, gender equality and sustainable production and consumption.

International Capital Market Association’s (ICMA) Social Bond Principles, EU Sustainable Finance taxonomy, MDB Joint Methodology for Tracking Climate Change Adaptation Finance are among the other prominent international frameworks useful for elaborating a resilient agriculture taxonomy for India.

Green finance models : Adaptation and Resilience features

Indian financial and market regulators are aware of the need to maintain confidence in sustainable finance. The Securities and Exchange Board of India (SEBI) has published disclosure requirements for green bonds; this uses broad categories like ‘Renewable and sustainable energy’, ‘Energy efficiency and green buildings’ and ‘sustainable land use’.

The SEBI guidelines do not provide specific guidance or principles for deciding whether or not an asset makes a meaningful contribution towards climate resilience (or mitigation).

Detailed taxonomies such as that promulgated by the European Union and China go beyond broad headings and define performance thresholds to ensure green investment meets national climate goals.

These developments are providing direction and momentum for future regulations for finance to flow into sustainable economic activities.

On adaptation and resilience, the EU taxonomy advocates that mitigation measures apply the ‘Do No Significant Harm’ principle to screen investment. It advocates undertaking a climate risk assessment to understand the local projected climate risks over the lifetime of the asset and ensuring there is no adverse impact from the project.

The Ministry of Finance, Government of India, has set up a Sustainable Finance Task Force comprising regulators and relevant ministries which will be working with expert working groups on taxonomy and climate risks to develop definitions and a framework that can deliver for India.

These efforts are highly welcome and timely. They will also hopefully result in a systemic and coherent enunciation of financing pathways for green transition and provide identifiable and measurable sector-level indicators to guide it. Adaptation and resilience are poised to be a central consideration in these policy developments.

Putting Adaptation and Resilience first in India - Examples

The Government of India’s Economic Survey 2021 reiterates  the case for putting ‘adaptation first’ for India’s climate change strategy as it emphasises the “criticality of having institutions and mechanisms that can facilitate the country to absorb exogenous shocks well.” It also points to the need to tap additional sources of financing, including thematic capital market instruments like green bonds to help grow investments in the real economy that also address mitigation and adaptation goals.

Adaptation and resilience in agriculture has been a running theme in India’s flagship National Mission on Sustainable Agriculture, whose focus is on “enhancing food security by making agriculture more productive, sustainable, remunerative, and climate resilient.” But the progress under the mission has been modest at best.

State-level action plans on climate change are essentially adaptation plans but need a far greater injection of capital than they currently receive through central grants and funds, such as the National Adaptation Fund for Climate Change, or multilateral funds like Green Climate Fund (GCF) or Green Environment Facility.

The National Bank for Agriculture and Rural Development routes these grants and funds and has sanctioned 30 projects (including two multi-state regional projects) worth INR 847.5 crores in 27 states in agriculture, water, forestry, urban, coastal sectors, marine system, etc.

The Ministry of Agriculture and Farmers’ Welfare aims to increase efficiency in water use; promote organic farming and conservation agriculture practices; and agro-forestry to make the agriculture sector more resilient to a changing climate. A few state governments like Andhra Pradesh, Himachal Pradesh, Sikkim, Karnataka have also initiated programs to promote natural and organic farming practices.

The Reserve Bank of India (RBI), analysing the potential impact of climate physical risks concluded that the concentration of greenhouse gases “has increased causing the average temperature to rise over time. Importantly, the rainfall pattern, particularly with respect to the South West Monsoon, which provides around 75 percent of the annual rainfall, has undergone significant changes. This has a direct bearing on the growth and inflation outlook. Moreover, the occurrence of extreme weather events like floods/unseasonal rainfall, heatwaves and cyclones has increased during the past two decades and data reveal that some of the key agricultural States in India have been the most affected by such events.”

Resilient agriculture taxonomy to unlock finance flows

The strain climate change will put on agricultural productivity has yet to translate into comprehensive strategies and enhanced investments to risk-proof the sector and the economy while ensuring food and livelihood security.

Most of India’s adaptation is financed through its National budget. In the annual budget 2021, agriculture’s allocation is not making the necessary investment to protect against climate change, and is largely stagnant, barring some increase in farm credit, support for fisheries, farmer producer organisations and recapitalisation of regional rural banks.

Private sector investment in the sector stands at less than 2.5 percent of the total according to the estimates by the policy think-tank NITI Aayog(link is external). In its SDG Investor Map Report 2020, NITI Aayog identifies opportunities for greater private investment in logistics, digitalisation and storage but doesn’t differentiate between conventional and climate-resilient practices or technologies.

This is anomalous with NITI Aayog’s engagement and advocacy around the merits of natural farming as a potentially resilient business model for Indian agriculture on account of visible reduction on input costs and improvement in soil health, crop productivity, water conservation and farmer incomes.

The Last Word

A taxonomy of resilient agriculture built on scientific principles and informed by the mounting evidence is an essential starting point for unlocking finance and matching the growing opportunities to suitable capital instruments.

We are collaborating to map and unpack the international and national frameworks into measurable and relatable practices on the ground. This will make it easier to identify and check what constitutes resilience – both in terms of hard and soft infrastructure (including training and capacity building for farmers) in the context of Indian agriculture. This is planned to be a scientific and practicable set of parameters, developed in consultation with experts, practitioners, financiers.