[Disclosure: AgFunderNews’ parent company AgFunder is an investor in Klim.]
It’s no longer enough to talk about the sustainability benefits of regenerative agriculture, says Klim cofounder and CEO Robert Gerlach. While those things matter, companies must increasingly assess regenerative agriculture for its impact on overall financial profitability.
Regenerative agriculture is lauded for its promise to improve soil health, biodiversity, and yield, all of which can aid in a building a stronger supply chain more resistant to external shocks.
Competitive pricing, a predictable flow of goods, and less overall uncertainty in the face of war, climate change, and regulatory pressures are critical to the financial health of companies, and a big reason agrifood corporates now invest in regen ag. But historically, the tools to measure regenerative agriculture’s impact on financial health have been virtually nonexistent.
“We’ve always argued with every single supply chain offering or in-setting offering that it’s about P&L improvements and climate improvements, but we could only ever quantify the climate improvements,” notes Gerlach. “The obvious next step was to build a tool that can quantify financial improvements.”
In response, Klim has built a financial modeling tool that gives agrifood companies a more granular way to analyze how regenerative agriculture impacts their overall P&L.
“It’s first and foremost relevant for the companies that want more clarity on the ROI of the investment [in regenerative agriculture] and need to convince certain parties that cannot be convinced anymore with just climate-related metrics,” says Gerlach.
“Once regenerative agriculture is understood as a question of financial risk management rather than ethical positioning, it moves from the periphery to the core of corporate strategy,” he adds.
“More fundamentally, it challenges how sustainability itself is defined. Rather than focusing narrowly on emissions, sustainability increasingly needs to be understood as the ability to sustain: the ability to reliably deliver food and beverage products to customers, at scale, under growing environmental, regulatory, and market pressure.”
How it works
Klim, which offers carbon insetting to agrifood corporates and digital tools to help farmers manage the regenerative agriculture transition, counts Nestlé, Kaufland, and Lorenz Snacks among its customers.
While the company hasn’t publicly stated which customers are using the new modeling tool, Gerlach says it is already part of “board-level discussions and strategic decision making” at select large agrifood companies to help them justify long-term investment in regenerative practices.
Via its new tool, Klim can create a discounted cashflow model for a company similar to what an investment bank would use to evaluate the long-term potential of a company or project. The model assesses the company’s overall value with and without the addition of regenerative agriculture practices to its supply chain.
As Paul Ritch, head of strategic projects at Klim, explains, the tool looks at hard ROI, the impact on stock price, and possible cost reductions, as well as improvements in areas such as reputational risk.
“We built it to show the pure ROI of a regen program, not just a theoretical carbon price that any company can make up,” he notes.
One of the most important metrics is the financial impact of yield volatility driven by climate change and extreme weather events, as well as geopolitical conflict that impacts input supplies.
“Conventional yield volatilities are going to be increasing generally,” says Ritch. “While regenerative agriculture does not take volatility to zero, it does offset a lot of growing volatility. When you can shrink the statistical likelihoods or standard deviations of major downside events, then it’s much more predictable in terms of how much you need to hedge, how many short-term disruptions you have.”
The tool, adds Gerlach, “allows agri-food companies to model impacts on revenue, costs, multiple risk dimensions, regulatory exposure, access to capital, and ultimately enterprise value under different transition pathways.
Our goal is to make regenerative transition decisions as financially legible as traditional capex.”
The post Behind Klim’s new tool to turn regenerative agriculture into a financial instrument appeared first on AgFunderNews.
