Aligning CAP with the Paris Agreement

In a paper published today, the Aldersgate Group joins an alliance of investors to call on the European Union to align reforms to the Common Agricultural Policy (CAP) with European Climate Law and the Paris Agreement.

Representing €2 trillion of assets, the alliance highlights four recommendations to promote enhanced carbon mitigation and negative emissions. It will also enhance resilience for climate adaption, biodiversity and global food security. These recommendations are:

1. Encourage use of enforceable performance-based targets which link support to member states and farmers, commensurate with the cost of delivering public good or environmental services;
2. Shift away from incentives that prioritise yields at the expense of the climate and environment, and balance this with new monetary incentives that put a value on sustainable agriculture;
3. Decouple support from production metrics for single commodity transfers with high associated greenhouse gas emissions (e.g. beef and dairy);
4. Apply the Just Transition Mechanism to support farmers’ social and economic well-being, where impacted by CAP reforms.

If implemented, these recommendations would unlock the potential for private finance to have a transformative impact on the sector by supporting the decarbonisation agricultural and land-use practices. The recommendations are derived from the paper, which was authored by Legal & General Investment Management and experts at Chatham House.

In publishing the paper, Nick Molho, Executive Director at the Aldersgate Group, said:
“The Common Agricultural Policy could be used as a powerful tool to drive a thriving European agricultural sector, whilst also delivering significant environmental improvements. Business and investors are today coming together to call for an ambitious programme that will not only support sustainable food production but also promote public goods such as nature restoration, biodiversity net gain and a reduction in greenhouse gas emissions. The EU’s commitment to climate neutrality by 2050, its ambitious commitments on biodiversity restoration by 2030 and the overall ambition of the European Green Deal all provide a unique – and long awaited – opportunity to align agricultural and land use policy with the EU’s climate and environmental goals.”

Alexander Burr, ESG Policy Lead at Legal & General Investment Management, said: “We are all becoming increasingly alert to the size and scale of risk that climate change poses to sustainable economic growth. As long-term investors, and stewards of our clients’ assets, we engage with businesses across the food and agriculture sector to help them transition towards a net-zero economy. However, to truly effect change we seek stronger action from policymakers. Working with this alliance, we at LGIM, view the reform of the EU CAP as an opportunity for the EC to once again be bold and ambitious; and, we should demonstrate to the world how agricultural subsidies can support – and not undermine – the transition.”

Tim Benton, Director of Energy, Environment and Resources Programme at Chatham House: “The EU is taking steps to align the land-use sector with the Paris Agreement through the Green Deal and the updated Bioeconomy Strategy. By encouraging climate to be at the heart of its subsidy packages, alongside food security, farmer wellbeing and dietary health, the Common Agricultural Policy could work in tandem with these other strategies if ambitiously applied. The EU can support a land-based economy that works for people and planet and create a system that prioritizes not just output but food quality.”

Helena Wright, Policy Director at FAIRR said: “Governments have committed under Article 2.1c of the Paris Agreement to make finance flows consistent with a pathway towards low greenhouse gas emissions, and there is no way to achieve that without transformation of the animal agriculture sector. Current EU agricultural subsidies are not aligned with climate or biodiversity objectives. Investors recognize that CAP reform is critical for the agriculture and food sector itself which faces hugely increased costs of water, feed, and infrastructure damage due to more extreme weather events.”

Faith Ward, Chief Responsible Investment Officer at Brunel Pension Partnership, said: “For the EU to meet its own climate targets and move in line with the Paris Agreement targets, it urgently needs to reform the Common Agricultural Policy, agreeing stronger enforcement measures, removing misaligned incentives and ending support for high-emission commodities. I support the recommendations of this letter to bring meaningful reform to the CAP based on our shared climate goals”

Peter van der Werf, Senior Engagement Specialist at Robeco, said: “Robeco has been engaging with large-scale agricultural producers for many years in our program to improve sustainability in the meat and fish supply chain. We can’t solve these issues alone, and some of the main barriers for further improvements in sustainability have to be resolved by policy makers. We have started engaging with the Brazilian government to ensure environmental protection is enforced. At the same time it’s equally important is to achieve subsidy reform of the Common Agricultural Policy (CAP) in Europe to ensure that any subsidies provide the right incentives for farmers to align with the Paris Agreement. Ultimately the CAP should achieve a circular business model for farmers that provides a sound economic basis for their farming operation.”

Nina Roth, Director for Responsible Investment at BMO Global Asset Management, said: “BMO Global Asset Management is engaging companies along the food and agriculture value chain, including its financiers, on improving sustainable practices to combat climate change and biodiversity loss. Strong incentives in the CAP are vital for transforming the industry.”

Ben McCarron, Managing Director at Asia Research & Engagement, said: “We support these recommendations as a stronger approach to environmental management in the agricultural sector is needed to meet global targets for climate and create a stronger food industry. There needs to be stronger incentives to improve the way land is treated, not to degrade it.”