How Capital Enhances Resilience: Five Lessons Learned

Co-authored by IDH Farmfit Fund (Barbara Visser), Acumen (Luan Mans), and ISF Advisors (Clara Colina)

We are entering an era where climate risk is the defining variable in agriculture and resilient food systems. Extreme weather events are disrupting primary production and eroding agri-SME profitability, playing havoc in rural economies, driving employment losses and destabilising global supply chains. Smallholder farmers, who produce 30-35% of the global food supply, contribute the least to climate change, and bear the brunt with shocks often wiping out harvests and cutting incomes.

Beyond the farmers, climate shocks raise the cost of risk in ways that strain the core economics of agricultural business models. For many value chain actors sourcing from farmers or agricultural service providers, the impact of climate shocks implies a full recalibration of whether the business model works at all under the new climate reality. Financial systems are also exposed: banks may risk rising non-performing loans in agricultural portfolios, insurers may withdraw from high-risk zones, and investors remain hesitant to deploy capital at scale due to perceived risks.

Building resilience to climate shocks starts with meeting the adaptation needs of smallholder producers and rural agri enterprises. These include access to new technologies including inputs or mechanisation that can reduce yield losses, logistics solutions that can increase access to markets and processing and storage solutions that can build resilience by allowing farmers and agri-SMEs to capture more value and lowering post-harvest losses. The transition to greater climate adaptation measures further supports climate and income resilience by enhancing soil health, improving water retention and reducing fertiliser use.

But the adoption of these technologies and practices requires significant upfront investment that most farmers and agri-SMEs can’t afford and that most financial services providers aren’t willing to finance. Studies by CPI suggest weather variability alone may drive a 20-30% increase in smallholder short-term working capital needs, due to costs for e.g., drought-tolerant seeds, and pest-resistant inputs. Mechanisation and infrastructure (e.g., small-scale irrigation, water harvesting) may collectively add another 25–35% to baseline capital expenditure. This is without counting defensive adaptive strategies and emergency support (e.g., cash transfers or insurance payouts) to manage shocks post-occurrence. As a result, and despite the urgency, only 7.2% of climate finance reaches agrifood systems, and a mere 1.7% reaches small-scale producers, leading to an estimated smallholder climate adaptation finance gap of USD 75-150 billion. 

Where are we today? Adaptation finance at a crossroads

The good news is while the gap is still huge, the narrative is shifting. Resilience is increasingly seen as good business, not just a moral imperative. There’s growing investor interest in climate adaptation investments, with recognition that adaptation is no longer just about “doing good” and supporting those that are most vulnerable, but also about avoiding losses and building the foundations for resilient farmers, agri-businesses, and global supply chains. For buyers and food companies in particular, resilient supply chains are proving to be competitive. Investing upstream to build resilience is becoming a procurement strategy, not just corporate social responsibility. Nestle for instance has committed to sourcing 50% of key ingredients (including cocoa and coffee) from farmers using regenerative practices by 2030 (20% by 2025). 

Solutions also exist. From climate-smart irrigation to adaptive insurance, soil health platforms,  nature-based asset finance to blended funds backing local financial intermediaries. But these efforts remain fragmented and undercapitalised. According to AgBase investment in climate-smart ag ventures is concentrated in a handful of solutions (10 solutions received 70% of total funding to climate-smart ag solutions from 2014-2024) and less than 80% of AgTech solutions in sub-Saharan Africa are unable to raise a second deal, stalling between pilot and scale-up stage despite having climate relevance and early traction.

Finally, capital is also increasingly available. Though it’s not deployed in the right form, at the right time, or priced for the realities on the ground. There continues to be a mismatch between investor impact and financial return timelines and what is realistic in terms of outcomes - climate-smart investments often take years to pay off which makes it hard to engage for investors and donors with shorter-term horizons. For instance, the much-needed technical assistance for the climate transition usually has a time horizon of four years or less – far too short to meet associated targets. Systemic risk perceptions are even higher than real risk, particularly when risk correlates across borrowers and regions. And we continue to miss tailored financial products to meet climate adaptation needs. 

Seizing the opportunity: Five key lessons from London Climate Action Week

So if the case for building resilience is so clear and the tools for capital are there, how can we rewire the systems so that adaptation finance delivers to both smallholder farmers, agri-SMEs and capital providers? On June 24 2025, IDH Farmfit Fund, Acumen and ISF Advisors brought over 55 investors and practitioners to discuss investment strategies to fill the climate finance gap. Five key lessons emerged. 

1. Adopt a systemic lens, grounding investment strategies in market realities

Investments must move beyond isolated solutions to consider the full agri-food ecosystem and the realities of local contexts. System-level thinking is essential to address the structural and context-specific vulnerabilities that prevent finance from flowing to agricultural markets like fragmented value chains, ‘missing middle’ financing, and inadequate infrastructure. Investment strategies that work in more mature agricultural markets that are well into the transition to market-based finance (e.g., Zambia Cotton or Brazil Soybeans) will likely not be replicable in less developed and higher risk agricultural markets, such as the more smallholder-intensive maize markets in sub-Saharan Africa. Holistic and adaptive approaches tailored to local system maturity, actor capacity, and incentive structures are essential.

For example, Aldea Familia, an IDH Farmfit Fund investee, applies a systemic, farmer-centric approach by integrating digital tools, tailored inputs, processing infrastructure, and financial services across its different business entities, creating a holistic model that addresses multiple barriers faced by farmers to increase their income and build resilience. The IDH Farmfit Fund supported this model with two reinforcing investments: first in Aldea’s coffee mill to strengthen value addition, and later in its MFI to scale access to agroforestry finance, including climate-smart solutions like Rabobank’s Acorn carbon program. Together, these investments demonstrate how supporting multiple, interconnected levers within a single ecosystem can drive more resilient, scalable impact. More information here. 

In Colombia, IDH is developing a platform that will provide innovative financing to help coffee farmers transition to climate-resilient practices. This will be supported by a financing facility for technical assistance, working capital and long-term investments, conceived and structured with a systemic investing approach to maximise impact. This effort requires collaboration across the value chain, including farmers, agri-SMEs, coffee traders and brands, fintechs and agritechs, as well as the government, and is grounded in a shared vision of what it takes to transition to climate-resilient practices, what levers can be pulled and who can best fill different capital needs. 

2. Leverage strategic partnerships

No single actor will be able to tackle the climate adaptation challenge alone. Blended finance works best when anchored in strongly trusted and aligned partnerships between capital providers, enterprises, and enablers with aligned objectives. Promising models like ARAF, FASA or Ireme Invest demonstrate that partnerships between concessional investors, enterprises, and enabling actors that are addressing the underlying vulnerabilities of agricultural markets are critical for anchoring long-term strategies and meeting the return and impact requirements of investors. 

For instance, Acumen via ARAF, has been successful in setting up an innovative blended finance model that combines concessional first-loss capital with commercially oriented senior equity, helping to de-risk investments in early-stage agribusinesses and crowd in private capital. The fund’s structure includes $23 million in catalytic first-loss equity from the Green Climate Fund (GCF), paired with $25 million in senior equity and $3 million in grant capital for a $6 million Technical Assistance Facility (TAF). This structure is designed not only to attract more risk-averse investors by protecting their downside but also to strengthen the climate resilience and financial viability of its investees through tailored technical support. The fund closed with oversubscription in 2021, building on Acumen’s 10+ years of previous agriculture investing. To date, the fund has invested in 14 agribusinesses in Ghana, Nigeria, Kenya, Tanzania, and Uganda impacting over 1.2 million farmers.

3. Invest in measurement and data

What gets measured gets financed. Unlike mitigation, where there is a clear North Star, the reduction or removal of greenhouse gases, climate adaptation does not have one single universal metric. Yet standardised adaptation metrics, like “perceived adaptation” and “resilience to actual shocks”, are now emerging to track both financial and climate outcomes. Better data also combats investor biases and can help close the risk perception gap.

Acumen and ARAF, for instance, partnered with 60Decibels to embed resilience measurement across its investment portfolio. To date the tool has been applied for over five years on over 5,000 farmers, post investment, to better understand how our investments are supporting farmers to become more (or less) resilient, and to help inform our investment decision making. Furthermore, within Trellis, their philanthropic backed early stage Ag fund, Acumen has dedicated resources to measuring impact at the farmer level prior to every investment, to ensure that the farmer's voice is included in the investment decision making.

The resilience tool is based on measuring resilience across three key pillars: Ability to adapt, ability to access enablers, and ability to absorb a shock. Below is a table that provides more detail on the specific indicators being considered:

Figure 1: Acumen ARAF Resilience Measuring Tool

Similarly, IDH Farmfit Fund partners with IDH Insights Hub, an online platform that provides data, tools, and learnings on smallholder farmer inclusive business models. Reliable data can provide great insight in the actual financing needs and how meeting those needs can increase farmer resilience. For example, in the case of a Ugandan coffee company, IDH Insights Hub estimated farmers need an average of three years to implement a regenerative agriculture system and seven to eight years to fully transform to regenerative agriculture. While the cashflow from diverse crops (excluding coffee) is expected to be positive from year-2, the total farm investment needs peaks in year-3, hence providing finance to farmers during the initial three years can substantially ease the burden on their cashflows. This type of data allows for tailored investment structures and timelines to the financial needs of farmers and the providers serving them. 

4. Tap market-based instruments and anchor value chain actors, where there are incentives

In markets where there is a commercial incentive to secure supply, off-takers, and aggregators hold the key to scaling adaptation solutions and building resilience in global supply chains in a financially sustainable way. Research by ISF Advisors shows that off-takers can provide finance at up to three times lower cost than alternative channels by leveraging existing sourcing infrastructure and absorbing lending costs to strengthen procurement – creating returns that go well beyond the loan itself and that could finance smallholder farmer investments in climate adaptation solutions.

Compared to traditional finance service providers, offtakers have significantly lower operational costs. They leverage existing sourcing infrastructure – trucks, staff, relationships – to deliver finance at marginal cost. The real difference though, is how offtakers think about benefits. Offtakers don’t price lending to cover costs. They do it because it enables their core business. 

For offtakers sourcing from smallholder farmers, lending drives more reliable volumes, higher-quality produce, and sourcing economies of scale. In a good season with no shock, sourcing benefits - particularly the uplift in sourcing volumes resulting from uplift in farmer yields and / or loyalty through the use of inputs - are able to outweigh the cost and risk of lending for most providers.  In a bad season, however, when a climate or market shocks hits, the cost of risk spikes and can erase most or all the associated sourcing benefits. The key question is: do the profits of the good seasons outweigh the losses of bad seasons? ISF research suggests that for most providers the overall business case of lending to smallholder farmers remains positive when the overtime sourcing benefits are taken into account. 

Figure 2: Four-year total lending margins for selected offtakers financings smallholder farmers (% of balance)

5. Mobilise government leadershipIn many agricultural markets, especially those dominated by subsistence farming and challenging underlying commodity market conditions, commercial capital will struggle to meet investment return thresholds. And even those that are attractive, catalytic public investment and policy action remain essential to crowd in private capital. Governments play a key role in shaping a fit-for-purpose agri finance market. 

In the early stages of agri-finance market development, country governments typically play a lead role in financing the agricultural sector through subsidy programs, state banks, and direct provision of retail credit. However, state-driven credit is often allocated based on political influence with predictable results: uneven distribution and low repayment rates. Even when done well, governments can only extend so much agri-finance before running into natural fiscal limits. As a result, as agricultural and financial markets mature, countries naturally transition to more market-based financing approaches. To enable the transition to market-led systems, governments must become regulators and market catalysts for private sector financial service providers. 

Governments can strengthen their enabling role by establishing a distinct, pluralistic, and market-based agri-finance agenda, investing in the right regulatory and infrastructure “building blocks,” and using targeted interventions to unlock private capital while ensuring markets serve national climate and development priorities. ISF latest research on the role of government in supporting ag finance markets a framework for how macro-level foundations and meso-level building blocks enable market development before exploring the effectiveness of different market-catalyzing approaches, typically applied at the micro level. For example in Uganda, tax breaks to solar powered agricultural technologies have been key for the sustainability of business models such as SunCulture, allowing them to expand financing to more smallholders. 

Figure 3: Agri-finance maturity scorecard

Where do we go from here

The case is clear. The tools are emerging. The capital exists. The challenge is now execution and coordination. 

As we look toward African Food Systems Forum, NY Climate Week, Building Bridges, COP30, and other global events, this conversation must remain front and centre. We invite funders, enterprises, and policymakers to connect with us and join us in transforming adaptation finance into a mainstream investment priority. 

For further learning opportunities, please check out: 

• Learnings from IDH Farmfit Fund’s five-year journey
• Case studies from Acumen’s Roots of Resilience report spotlighting two social enterprises building smallholder farmer resilience 
• ISF’s upcoming Agri-Finance State of the Sector report