IFACC 2023 Market Report

MOBILIZING FINANCE AT SCALE Capital is beginning to flow to the agriculture transition in the region, as indicated by the products and disbursements highlighted in this report, however, we are in the early stages of market evolution and lending and investment will need to accelerate in the coming years. IFACC’s goal is for transitional agriculture investment to mature beyond the “pilot phase” and become an established investment thesis for mainstream investors, reaching $10 billion in disbursements by 2030. Key challenges faced by our signatories to scale investment include: • The need to offer long-term product tenors, grace periods, and attractive interest rates to finance key IFACC-aligned production models - while also enabling commercially viable transactions • The limited track record of long-term financing for the sector to attract private capital from impact and mainstream investors • Managing farmer credit risk beyond the top farmer segments to originate sufficient commercial pipeline • Managing exchange rate and collateral riskIn the absence of a more favorable enabling environment whereby environmental services are internalized in the products we grow, trade, and consume daily, achieving the IFACC target of US$ 1 billion disbursement or investment by 2025 and US$ 10 billion by 2030 is likely only possible through a major injection of catalytic capital to de-risk and thereby unlock more significant flows of commercial capital to the sector. Indeed, several of our signatories report that they have tremendous investor interest in the senior tranches of their financial products and are only limited by the amount of subordinated capital they can attract. IFACC estimates a need for $2 billion in catalytic capital by 2030 to achieve $10 billion in total disbursements. We hear from our financial partners that they require catalytic capital that can: • Take subordinated positions, first loss, enhance and guarantee credit products, and manage exchange rate and collateral risks • Be priced at truly concessional rates to crowd in commercial capital and allow for a compelling value proposition for farmers • Use robust yet streamlined E&S frameworks and KPIs, such as IFACC’s• Employ timely, commercially-responsive review and approval procedures • Support all critical sectors including, soy, cattle, and agroforestry • Be of sufficient magnitude A key priority for IFACC and our partners in 2024 and 2025 is to expand the availability of catalytic capital for IFACC-aligned products. Our work includes crafting a narrative to make the case for catalytic capital and collectively advocating for this with partners; engaging key development finance institutions, governments, and value chain actors to invest in this area; and convening senior executives to take action.Looking ahead, despite the challenges noted above, we see momentum building for IFACC products. The political environment in Brazil in support of the agriculture transition continues to be favorable, with Brazil hosting the G20 in 2024 and COP 30 in 2025, and the recently launched National Program for Degraded Pasture Conversion, by the Brazilian Agricutlure Ministry. We expect concrete progress by traders and slaughterhouses to create financial solutions for their suppliers, particularly the signatories of the agricultural sector roadmap while supply chain companies, banks, and investors are facing growing pressures to implement their Net Zero and climate goals. We look forward to another year of growth in 2024, and to working with our partners and other stakeholders to overcome the most difficult challenges to scale towards our common goals. BRAZILIAN IFACC-ALIGNED AGRICULTURE LENDING AND INVESTMENT (DOLLARS OF ANNUAL DISBURSEMENT) Illustrative PILOT PHASE • Test new product offerings and structures • Eleven IFACC products /$ 240 MM • Close market gaps with innovative financial structuresRAMP-UP PHASE • Expand disbursements • Create replicable mechanisms • Build track record • Manage currency risk • Scale MRV, impact monitoring • Begin to access capital market in Brazil and globally.ESTABLISHED INVESTMENT THESIS • Replicable mechanisms • Track record • Large investments sizes • Credit ratings, enhancement • Innovative collateral • Brazil and global capital markets • Acceptable risk-return profiles2020 2023 2027 2030 © TNC/Maíra Erlich © TNC/Maíra Erlich 11 IFACC 2023 MARKET REPORT