Investing In Change: Reducing Pesticide Risks for People and the Environment

Pesticides remain a central tool in global agriculture, used by both large companies and smallholder farmers to protect crops and ensure food production. Yet the widespread use of certain chemicals, especially those classified as Highly Hazardous Pesticides (HHPs), raises serious concerns about their long-term impact on human health, ecosystems, and water systems. 

In this episode, we explore how the investment community can contribute to addressing these challenges through clear standards, responsible financing, and support for transition strategies. We discuss how pesticides are currently categorized by international bodies, where those classifications fall short, and what it means for investors. 

Panelists:
Arend Kulenkampff, Director, Sustainability-Linked Sovereign Debt Hub, NatureFinance

Louise Corbett, ESG Specialist, responsAbility Investments AG

Hosted by:
Taylla Scapim, responsAbility responsAbility Investments AG

Follow responsAbility Investments on LinkedIn: https://www.linkedin.com/company/responsability-investments

Transcript

0:01

Welcome to Voices of Impact Investing, the responsAbility Investments podcast.

In this episode: 0:08

Investing in Change - Reducing Pesticide Risks for People and the Environment. Through smart financing, clear standards, and transition strategies, the investment community has a powerful role to play in shifting the agricultural sector toward more sustainable and regenerative practices. We need to transition our food systems away from these conventional practices that may have been fit for purpose in the past, but in an increasingly climate stressed future, we have to think more about resilience, perhaps less about yield in the short term and more about the ability to withstand. But what the evidence shows is that after they've transitioned to more regenerative practices, we do see lower costs, we do see higher returns, we do see improving yields. An integrated pesticide management plan helps to transition from using chemical pesticides to using alternative measures. A lot of it makes common sense. Things such as using pest resistant varieties of your crop, to no till or mulching, or planting so that you miss the life cycle of the pests. You know, so the plant is too big when the pest wants to eat it. You might end up still needing to use chemical pesticides, but it helps you transition away from that. Join Taylla Scapim as she hosts this critical conversation with Arend Kulenkampff of Nature Finance and Louise Corbett, ESG Specialist at responsAbility. A very warm welcome. I'm here today with Louise Corbett, who is our ESG specialist at responsAbility and Arend Kulenkampff who is the lead for innovative finance at Nature Finance, which is an organization that engages with various stakeholders to leverage the role of finance in tackling those issues related to nature and climate crisis. So for those who don't know, responsAbility is a leading asset manager which focuses on three core themes, financial inclusion, climate finance and sustainable food, which is of course why we are here today. So let's start with you, Arend. If we try to picture how climate shocks and food insecurity set distress increases the urgency to shift away from pesticides use and promote regenerative agriculture as we are about to surpass that 1.5° threshold, what would you say about that? So of course we're confronting this Poly crisis at the moment where escalating climate shocks combined with the collapse of ecosystems is putting increasing pressure on States and governments to dedicate resources towards adaptation and resilience. But at the same time, their shark absorption capacity is diminishing, their fiscal space is reduced. And so they simply do not have the resources. And so the the the use of pesticides are really an accelerant in this vicious cycle of increasing pressures on governments and diminished shock proportion capacity. And So what we need to do is, is to really find a way to to arrest that regenerative agriculture is really one is institutional lever and the resilience asset that has demonstrated that its ability to to sort of halt this Poly crisis or or to contribute to its resolution. And a good example of this is work that we've done recently in Ghana where of course as a major expert exporter of cocoa, they had a heavy reliance on nature. But the use of conventional agricultural practices combined with harmful pesticides over the years has led to really a dramatic decline in the output, the production of cocoa. And that of course has systemic effects for a country as reliant as it is on cocoa. So reduced exports means fewer inflows of foreign exchange, which which they service, their government debt, their sovereign debts. And that has contributed to what we saw recently, a sovereign debt crisis. And so without the ability to restore these natural capital assets to to replenish basically the stock of of nature and to be able to produce at the same level of of output as a before. And we're going to see in countries such as Ghana, which are at the forefront of this Poly crisis, trapped in this sovereign debt, nature and climate on vicious cycle. So you know that that is the urgency, that's the context and the use of regenerative agriculture in general and more organic, more sort of nature based pesticides as part of that story. Thank you. Luis, maybe and I hear harmful pesticides. How do we know which pesticides are OK to use, which ones are harmful? And could you think of any cases where the use of harmful pesticides went wrong in our portfolio? Yeah. But what we have seen environmental social due diligence is we we recently looked at one where we saw a company that had incident relating to pesticides and their employee who was trained in the use of pesticides was mixing up some pesticides and they were required to wear a mask, which they did do that. The filters in the mosque were old, so they'd be using it for a while. And unfortunately, this employee therefore inhaled the pesticides because the filters didn't work as they should and they actually ended up in hospital, you know, and that's, that's just an indication of how highly hazardous that pesticide really is. And we've seen others where untrained employees are called in to assist with the spraying of the pesticides. You know, they ended up with pesticide dripped on their body and through their clothing and also ended up in hospital for a week and then we're out of work for weeks after that still. So, you know, the people spraying and using this, it's if you're using highly hazardous pesticides that can be real risks. You know, I think but you were saying about some pesticides being dangerous and some being OK. How do we know? There actually are different classification systems out there. There's a few different versions and they have different criteria. So the World Health Organization, for instance, is one that's commonly known, but they don't have as extensive criteria as some others. So for instance, they don't include fatal to inhale pesticides in their definition of a highly has pestified. So most of these classifications have a low, medium high hazard. So the World Health, there's one Lambda Sahala trodden boys, Medley's funny names, they plastered as a moderate hazard pesticide, whereas another organization might fast it as highly hazardous because if you inhale it, you can you know, it's can injure you or you can die. So there's many different ways of classifying. And there's one NGO that's actually looked at the different classification systems and merged a lot of the criteria and they've put this list out publicly. They're called Pesticide Action Network PAN and they have this list then that's easily available of what we call highly hazardous pesticides. So it's things linked to cancer or acute risks like breathing it in. Yeah. So that's a nice way to check if it's highly hazardous versus something that's OK to use in your garden like garlic or chili is like the natural pesticide that you OK. So it's not highly hazardous. Thank you very much. Going back to our end, what are ways that society can actually guide a location of capital to contribute to avoiding pesticides related risks? Sure. So you really have to think about it in multiple levels, right? Almost like a stack of financing because these are large scale transformations of food systems. You have to also think about large scale scale mobilization and channeling of capital. So at the top level, it's things such as sustainability linked debt. And this may be at the government level. There have already been some governments, very pioneering governments like what do I, that have borrowed at the government level, at the sovereign level, with a commitment to transition part of their agricultural base towards more sustainable practices. In this case it was around their cattle industry and methane production, but conceivably you could have something similar around the use of pesticides, regenerative agriculture. So that is where you stimulate demand for these new types of practices and you create incentives for producers at a large scale to shift their production. At the mid level is where we build our markets, right? So you have to be able to give the, the producers, the, the, the market signals in order to make those investments, right? Because ultimately these are costly interventions for some. They have been working with the same sort of conventional practices, use of insecticides and and fungicides for many decades, many generations now. And so you really have to give them the right incentives. And so there are a number of different financing mechanisms that can facilitate that things such as impact loans, impact bonds, where of course responsibility has also been actively involved in bringing sort of these this more impact invested and oriented capital to to help spur that transition. And then at the lower level, it's about enabling supplies. So working with producers, oftentimes this may be smallholder producers to give them really the capacity to be able to undertake these changes. So that might involve training at the use of extension officers who work with the smallholder producers who, you know, really elucidate the harms that synthetic pesticides can cause and the advantages of shifting to more regenerative practices. So it's really an all-encompassing and coherent stack of solutions that needs to be deployed. And underpinning that of course is the enabling infrastructure. It's regulations, rules that try to discourage harmful practices and shift the incentives towards a more regenerative pesticides and other and other practices. Yeah, maybe. Louise, could you share with us how responsibility encourages our investees or the farmers or companies to reduce the use of pesticides? Yeah. So we have a number of mechanisms we use to help. I'm besties on that transition away from the use of highly hazardous pesticides. So we don't require them to be completely pesticide free. So typically we would use something and then called an environmental and social action plan or an ESAP and that is a contractual requirement that they have to comply with while we are invested. And that might say something like they need to reduce the use of highly hazardous pesticides or phase out specific ones, for instance. And then also in our contract with them, we would require that they allow us, someone like me, the ESG officer to come into the site. So of course we can go and look at how they're using the pesticides and see what's in their chemical store and all they actually using pesticides that are lower hazard. And we do also then have a monitoring requirements in terms of data monitoring. So we also follow up with them on if they are using pesticides, which ones are they using and how much and that's so that we're able to actually see that they are transitioning away from highly hazardous pesticides. Maybe an interesting note there is that and you might end up using more pesticides but lower hazard because they might not be quite as affected as the higher pesticides. OK, Yeah, just something like it's actual expert. Yeah, it's a complex issue. And can you think of a successful story of how one of our amnesties did it? Well like well, we, we have some investors at the moment who we're doing it well when we invested. There's others we're working with at the moment on the transition that certainly we have an investee in Vietnam that uses I think it's called the red eyed wasp, which is a pest of the stem Bora. The stem Bora effects their crop and so the wasp actually targets the pest that is bad for their crop and they're using that instead of a chemical pesticide. OK, so that's, that's very interesting. Yeah. Aren't help. I often hear we need to feed the growing population. How do you think relates to what we're talking today and how do farmers can manage their their practices in a better way? They think there is any contradiction in there. I mean, there is a tension in the short run precisely because we need to transition our food systems away from these conventional practices that may have been fit for purpose in the past. But in an increasingly climate stressed future, we have to think more about resilience, perhaps less about yield in the short term and more about the ability to withstand climate shocks. But what the evidence shows is that after they've transitioned to more regenerative practices. So it's not just the use of more sustainable types, pesticides, but also practices such as agroforestry, no till farming and the like that actually yields do improve over through so past the the valley of death, as they call it, where you've, you know, you're, you're investing, you're shifting practices and that can cause some disruption. But then on the other side of this, we do see lower costs, we do see higher returns, we do see improving yields. So in the in the medium to long term, I would say this potential tension between the need to produce food for the population and sort of the resilience and considerations around sustainability are in fact aligned. So it's about creating, again, those incentives, those structures that can give producers that comfort, that confidence that, you know, they will be rewarded for the actions that they're undertaking. And that might be painful in the medium and short term. Yeah. And this, how do you think farmers, what can they do to, you know, on board this transition? Is there any plan they could put in place? So I think the best practice way to do that is it's called integrated pesticide management. And you know, you have an integrated pesticide management plan and that is a plan that helps you transition from using chemical pesticides to using alternative measures. A lot of it makes common sense. So farmers are even conventional farmers are applying these things, things such as using pest resistant varieties of your crop to, you know, no till or mulching planting so that you miss the life cycle of the pests. You know, so the plant is too big when the pest wants to eat it. Yeah, simple things like that. But yeah, obviously the you might end up still needing to use chemical pesticides. But so if it helps you transition away from that, and we've actually seen a nice example in a potential MSD that we're looking at where they they've been doing exactly that. They they've indicated to us it's taken them a bit of time. So one of the things they've done that they said was very successful was simply for the use of fungicide. They've been monitoring the data, the weather data and so if it's a wetter spring, they then they spray. If it's dryer, they don't spray, which basically before the conventional farmers around them are just spraying every year irrespective of the better. So they I think they said that produce, you know, it was significant was sort of half done until their beside used. Obviously, you know, and they are working on replacing the highly hazardous pesticides that they're using, but they have also indicated that it can be tricky because they're indicated for the one that's the pests are actually resistant to the lower hazard pesticides. And so it's taking them a bit of time to find an alternative there. Yeah, it sounds like a nice way to combine technology, but still sounds intuitive to check the weather. Yes. In the Internet, it's so simple. But yeah, there's a lot of farmers are just advised, you know, you spray this. Yeah. When the crop is the size or the flowers are coming out or just before the flower, the crop blooms, you spray it. Yeah. And that's what's happened, you know, and it's. It's not necessarily the best way of doing it. Yeah. Maybe being cautious of time and giving the audience a chance to ask questions. I would maybe end with you aren't if we were to place ourselves where because we you mentioned the need of different, there are several levels of what needs to be changed. So let's say, where would you say we stand today and what is needed so that we continue moving into the right direction? Yeah, I think we do have a growing suite of instruments and interventions that we can deploy now to really start to accelerate, you know, given the context, the shift towards more regenerative practices and to build these resilience assets. But the one that I find very compelling is actually regenerative school meals. And we've been doing some work in this space. So, you know, what this, what this does is it creates a large market for producers to to sort of incentivize them again to do this transition. And schools, of course, are large sources of demands. We're talking about, you know, potentially millions of children that need to be fed nutritious food. And so the there's a shift in the way that people are thinking about school feeding programs by also focusing on the sourcing and the value chain underpinning those programs. So making sure that they are sustainably produced, locally produced and finding ways to combine these two policy agendas into one. And so we are working on a number of different innovative financing structures that try to target both in the same sort of funding package with a set of a key performance indicators and other mechanisms to to support the production side alongside with other indicators that encourage and incentivize the development of regenerative school meals. So, you know, that's I think is one of many different types of policy interventions. But of course, the market is also constantly innovating and coming up with good solutions for how to make it worthwhile for farmers to undertake this transition. That's so nice. Yeah, it's a bit of full initiative. Yeah, that's really nice. Thank you so much for this short, very short discussion. Actually, I could stay here for hours. Maybe I will reach out to Rachel to see if there are any questions from the audience. Shudo. Hi, and thanks for enjoying the conversation. We've got a few. So let me first start with the really tricky problem, which is how do you see the pesticides that are being applied to a crop? So down the line, how do you track from a consumer point of view whether pesticides or highly hazardous pesticides have been used this kind of like down the line problem? I wonder if you've got any experience or or comments? Yeah, maybe I'll, I'll try answer that. I think it's a good question because yeah, for one of those initiatives to to transition to a more sustainable agriculture as well as to us as consumers to support that. So how do we actually recognize what is sustainable? And I think that's really tricky because different different countries have different requirements. So they might ban some highly hazardous pesticides, but. Others are allowed and in some cases, like in Europe, they've banned suits and highly hazardous pesticides, but then they can import from countries where those are used to A lot of pesticides banned in Europe, for instance, are used in emerging economies, Brazil, South Africa, for instance. So it's it's tricky because you can't actually know when you buy it. Has it been used? The only way at the moment is to buy things that are certified. So if they organic or I don't think there's a region certification yet, but you know, there, there are sort of, it's tricky because it's organic or not or no certainty. So, so it's, it's pretty hard. I mean, that's something I try myself and it's pretty hard to do anything besides organic. And you know, you, you try buy what you can, but obviously organic is more expensive and I do feel there should be a middle line. Do you have it's interesting. I never thought there's no regional chief agriculture label, just like, I mean, there are standards under development, but of course it is difficult precisely because, you know, production practices vary so much from country to country, from locality to locality, from crop to corrupt producer to producer. But I think what this raises of course as well is the importance of having robust monitoring, reporting, verification during the production process. So making sure that the inputs can be tracked and, and, and verified. And as that creates an opportunity of for funders and investors, of course, because you know, they are investing against certain outcomes. And so that puts a premium and having good systems in place in order to be able to track these things. So there, I think we are seeing a big step change in the capabilities of being able to see what inputs are being used to, you know, verifying those, having quality and control practices in place. And then, you know, you, you, you can sort of control the downstream effects by making sure that the inputs are are safely secured. So yeah, I would say that that's an opportunity now. But of course there's also, you know, the importance of certification processes. Yes. So we've got a couple more questions and 1 is how do we get people to focus more on the long term? Where have you seen that work? Well, I think governments and consumers and even, you know, farmers really do see the long term benefit of reducing pesticides, but they have a very short term need to improve their yield where, you know, without getting pessimistic, where have you seen a shift away from the short term? I mean, I think we are seeing a lot of innovation happening around providing sort of that certainty that in the medium to long term, there's going to be demand for regeneratively produced outputs for products and that involves some financial engineering. So we have examples of outcome bonds that you know are now being tested out in different contexts. There is an opportunity here to kind of lock in the commitment to to offtake to purchase product in the future and this is can extend out five to 10 years. And that can give them the the producers the assurance that you know they will have a ready market with potentially a premium attached to it after this transition towards more regenerative practices. Of course there are a number of countries that have these support programs in place, subsidies for the purchase of inputs in this case, you know, sustainable pesticides and other integrated pest management solutions. And so that can be that can create again sort of these longer term incentives to to make that transition. And then at the end of the day, you know, it's also on consumers to to opt for, you know, it's regeneratively produced outputs products which which often might entail a premium. So we have to focus on both the supply and the demand side. And we're getting more and more creative about how to reconcile those two. Maybe a quick example there that in this DS spoke about using the weather data, you know, they've, they've been looking at them those themselves. That's not something pushed on them. And pesticides cost a lot of money. So there is, there is a reason for them to actually change and improve on that. And they also recognize that the soil health is a lot better if there's less pesticides. So it was better for, you know, then they could apply less fertilizer, for instance. And so it reduced other costs. So there was there was a short term financial incentive to do that. Thank you. Thank you so much for joining us today. And I invite you to follow responsAbility and Nature Finance if you want to be informed and follow what's going on, on the stomach level, but also on the investment side. And with that, I close our webinar for today. Thank you so much. As a leading impact asset manager, responsAbility specializes in private market investments across 3 core themes, Financial inclusion, climate finance, and sustainable food. Don't forget to subscribe to the Voices of Impact Investing podcast to stay updated on new episodes available on Apple Podcasts and Spotify, and follow us on LinkedIn at responsAbility Investments. You'll find the link in our show notes. The Voices of Impact Investing Podcast is provided by responsAbility Investments, A licensed and supervised manager of collective investment schemes. This recording and data mentioned here has not been submitted to, nor received the approval from FINMA or any other regulatory body. This information was produced by Responsibility Investments together with its partners. To the best of its knowledge and belief. 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