South African ESG Taxonomy: Its Effect on the Agriculture Industry
Written by students at DIS Abroad: Emma Ward, Kelsey Wakiyama, Chingun Tsogt-Erdene, Natalia Macia, Decklan Barnabas
Introduction
We aimed to discover how the agriculture industry has been affected by the new ESG Taxonomy in South Africa. The agriculture industry plays an important role in the country, which is plagued by food insecurity. It will be interesting to see how various companies adapt to the new ESG goals and further, if agriculture companies’ improved environmental impact will positively benefit South Africa’s environment, social goals, and government. While there was limited research into the taxonomy’s long-term effects, this initial research provides insight into the trajectory of the effects of the taxonomy’s application in the agriculture industry.
The Agriculture Industry in South Africa & Its ESG Goals
As one of the largest and most important industries in the world, it is crucial that the agricultural sector is constantly producing and providing. In the 21st century however, the world is facing a problem: how can we continue to produce food for a growing population while withstanding the effects of climate change? Increasingly, climate change induced droughts and floods are exacerbating food security issues, water scarcity, and land degradation. The industry must learn to be resilient in the face of climate change while also mitigating its contribution to the problem. Agriculture uses 37% of land and produces about 25% of greenhouse gas emissions worldwide (Ritchie & Roser, 2019). Sustainable agriculture is a piece to the solution that can be holistically defined as practices that protect the environment while enhancing economic viability and improving social equity (Leonie, 2015). ESG (Environmental, Social, and Governance), which includes sustainable agricultural practices, has become a necessity for the industry in certain regions to combat challenges in food production. South Africa is transforming its agricultural business and production practices to adapt to our changing world.
South Africa faces severe food insecurity. Almost 20 million people do not have adequate or reliable access to food daily (PWC, 2024). As inflation increases and income does not keep up, citizens cannot afford food. In 2023, food and beverage consumption in South Africa dropped by 3%. One favored solution to this issue is increasing food production, yet this must be done sustainably. The Second Green Revolution proposed in “South African Agribusiness at a Crossroads” proposes four practices for commercial farmers to produce food more sustainably, stabilize food prices to decrease food insecurity, and improve overall health in South Africa.
These solutions are integrative, and they must be a collaborative mission between the government, farmers, businesses, and conservationists.
The first practice targets family-owned agribusinesses, which are common in South Africa. As the transition to a greener way of agriculture pushes forward, these businesses must create succession plans that include embedded procedures to ensure that changes in production persist through changes in leadership. The second strategy generally utilizes the power of technology and data. End to end farm management includes practices that harness data to provide insights and help shape sustainable solutions. Traceability is the practice of tracking food throughout the supply chain. Beginning with farmers providing information to food companies about the quality and production of items, retailers can assure their food is sourced sustainably. Lastly, and arguably the most important, agribusinesses must complete impact assessments and make data on ESG practices public. Credible data and transparency allow for tracking improvements and trust from customers and investors, and it shows a dedicated mission. In order to report praised data, farming practices must include reducing chemical pesticides, reducing nutrient loss in soil, enhancing biodiversity, and adopting regenerative practices.
These practices offer suggestions for how ESG can be integrated into the agricultural industry in South Africa. Not only will these practices ensure the vitality and prosperity of the industry, they will also aid in improving social equity, bettering quality of life, and minimizing impacts on a changing global environment. Agribusinesses have additional reasons to care, such as increased consumer demand, investment appeal, international trading opportunities, and a reduced risk profile.
South Africa launched a Green Taxonomy in April of 2022, consisting of a 191-page framework providing environmental guidance for investors and other stakeholders. Aligned with the EU Taxonomy, South Africa’s Green Taxonomy identifies the same six environmental objectives: climate change mitigation, adaptation, water, pollution, biodiversity, and circular economy. By following the model adopted by the EU, South Africa is ensuring that the domestic financial sector is aligned with international best practices, therefore providing investors with “clarity and conviction” to invest in South African green projects (South African National Treasury, 2022). According to a statement from the South African government, their launch of the green taxonomy will enhance market understanding of economic activities and environmental performance across markets (Sheriff, 2025).
The South African National Treasury’s report comparing the EU and SA taxonomy stated: “sustainable finance ought to contribute to the delivery of the sustainable development goals (SDGs), a just transition to a low carbon and climate resilient economy and financial stability” (South African National Treasury, 2022). The development of a taxonomy consistent with international developments was identified as one key action, to build credibility, foster investment and enable effective monitoring and disclosure of performance for a more sustainable economy. The launching of the new Green Taxonomy will set the stage for greater potential in sustainable agriculture for South Africa.
Green Finance and the Agriculture Industry Overview
The UN Food and Agriculture Organization (FAO) published “Green Finance as a Critical Lever for Developing Sustainable Agrifood Systems” in 2023 to study the then current state of the 15 UN sustainable development goals created in 2015 and how they have been progressing and have been hindered by major world events. Along with this, the report outlines the current instruments of green finance and how they are being used to drive sustainable development in the agriculture sector, what problems and limitations they are currently experiencing with sustainable development, and recommendations to further drive green finance to increase investment into the agriculture sector. The report also uses South Africa’s new Green Fund as an example of a “best practice” in green finance delivery through its ability to provide catalytic funding to promising startups, and organizations, helping them to launch and develop new projects. This fund is run using government money, and distributed through the Development Bank of South Africa (DBSA).
Agriculture is a vital part of South Africa’s economy, but it faces significant ESG-related challenges, including water scarcity, soil degradation, and the increasing threat of climate change. The Green Fund has played a key role in supporting sustainable agricultural initiatives, providing financial backing for projects that promote environmental resilience and climate-smart farming techniques. By integrating ESG principles, the sector is transitioning towards more sustainable practices, but financial barriers remain, particularly in scaling up green investments and bridging the gap between public and private sector participation. The FAO report emphasizes the need for more innovative financial mechanisms, such as blended finance models, to attract greater investment into sustainable agriculture.
In the “Key Findings” section of this report, the FAO specifically recommends the establishment of a clear taxonomy when it comes to green finance investment in the agrifood in agrifood industry. They recommend this because it will help to properly identify green finance from sustainable finance, climate finance, and general investing activities:, “the time has come to provide an acceptable definition to clearly identify green finance to the agrifood sector.” (Das, 2023). Along with this, the FAO stated the gap between demand and supply of green finance needed to be bridged in order to successfully transition the agrifood sector into climate-resilient systems.
The Taxonomy’s Application to Agriculture in South Africa
Companies in the agriculture industry must follow certain best practices, as outlined, in the taxonomy brief in order to comply with the new ESG taxonomy. The First Edition of the South African Green Finance Taxonomy (South African Taxonomy, 2022), which was published in March of 2022, provided this technical screening criteria for multiple industries, including the ‘Agriculture, Forestry, and Fisheries’ industries. Companies in the agriculture industry must aim to achieve the goals laid out in this brief, as outlined below. The majority of these goals are focused on the ‘Environmental’ aspect of the ESG Taxonomy and are being enforced by third parties.
The first goal is ‘forestry and land rehabilitation.’ Forests provide renewable raw materials; therefore, they are an important aspect of the circular economy (Cite 8). In order to uphold ESG goals and the environmentally beneficial circular economy, forests must be protected. To achieve this goal, the brief recommends companies focus on both afforestation, establishing forests on land that was previously used for something else, and reforestation, re-establishing forests on land currently classified as forests. The Taxonomy “recognizes the importance of natural regeneration due to the increased carbon sink and stock potential provided by forests in general.” Another aspect of forestry and land rehabilitation includes continuing to efficiently manage forests. Companies must focus on using forests and their wildlife in ways that maintain “biodiversity, productivity, regeneration capacity, potential, and relevant economic and social functions.” Further, their practices must conserve forests and cannot damage ecosystems. This criterion prevents companies in the agriculture industry from damaging forests and the larger ecosystem.
The second goal is ‘climate change mitigation.’ As discussed, companies must comply with the aims of the ‘deforestation’ goal in order to mitigate the negative effects of climate change. Further, the brief lists other ways to protect against climate change, such as not introducing invasive species. In order to achieve this climate change mitigation goal, companies are required to apply the South African Sustainable Forest Development Policy. Application of this policy involves maintaining or improving the long-term capacity of forest land, refraining from converting high carbon stock land (i.e. primary forest, peatlands, wetlands, and grasslands), and carrying out harvesting activities.
While some of these activities are not applicable to all agricultural companies, following these general guidelines will allow agriculture companies to achieve ESG goals. Generally, the taxonomy aims for agriculture companies to improve the environment by ensuring forests can adapt to changing climates and protect from carbon; improve water quality; reduce water, air, and soil pollution; and protect biodiversity and ecosystems. Biodiversity impact will be measured by the Biological Diversity Protocol, pollution will be monitored by reports of pesticide use, and carbon levels will be monitored using a GHG balance baseline. Companies’ compliance with these policies will be monitored by independent third-party reviews of forest management plans every ten years.
South Africa’s Green Finance Taxonomy is a major step in aligning agricultural investments with sustainability goals. The taxonomy categorizes economic activities based on their environmental impact, providing a structured framework for identifying, tracking, and regulating green finance flows in the agricultural sector. By establishing clear criteria for what constitutes sustainable investment, it aims to reduce greenwashing and encourage financial institutions to support truly sustainable agricultural practices.
The agriculture industry in South Africa is both a key economic driver and a sector highly vulnerable to climate change. Sustainable farming methods, such as agroforestry and climate-smart agriculture, require significant investment in new technologies, infrastructure, and capacity-building. The Green Finance Taxonomy has helped channel funding toward projects that align with national climate goals. However, challenges remain. The taxonomy’s classifications may exclude smaller- scale farmers who lack the resources to meet ESG criteria, limiting their access to funding. Additionally, inconsistent application of the taxonomy across financial institutions has created uncertainty for investors and agribusinesses alike.
Despite these challenges, South Africa’s taxonomy provides a critical foundation for integrating ESG principles into agriculture. Lessons from other countries, such as Kenya’s oversubscribed green bonds and Indonesia’s public- sector-driven green finance efforts, suggest that refining financial incentives and improving policy coordination could further enhance the effectiveness of South Africa’s ESG framework. As the taxonomy continues to evolve, ongoing collaboration between policymakers, financial institutions, and farmers will be essential to ensuring that ESG principles drive sustainable agricultural development without excluding key stakeholders.
Recommendation
Nordic Impact Lab can harness their understanding of the growing importance of South Africa’s ESG Taxonomy in the agriculture industry in order to invest in agriculture companies that are efficiently following these procedures. Nordic’s investment into South African agricultural companies will help to build industry leaders and increase investment into a previously underfinanced sector of the South African economy.
One start-up in particular, Arable Grow (Cite 9), is pushing the boundaries of vertical farming technology. Vertical farming operations allow crops to be harvested year-round, in a regulated environment, while also reducing carbon emissions that would be used in traditional farming procedures and eliminating the use of pesticides in their operating system. Arable’s most popular systems center around the cultivation of various types of microgreens, but their systems can also be specialized to allow for cultivation of larger leafy greens, and even tomatoes and berries. With Nordic Impact Lab acting as an incubator for this new technology, Arable Grow can further specialize their systems to encompass a much wider range of agricultural products, transforming the South African agricultural production and distribution system.
Reflection
This process has exposed how the agriculture industry is affected by the new ESG taxonomy. It is clear that there is a lot of potential for investors and other stakeholders to take advantage of the new Green Taxonomy in South Africa, as the launch hopes to enhance market understanding of economic activities and its
impact on ESG areas. For the agriculture industry, the taxonomy has led to a need for additional funding in order to achieve the ‘forestry and land rehabilitation’ and ‘climate change mitigation’ goals. Companies must find ways to invest in new technologies, infrastructure, and capacity-building in order to engage in sustainable farming methods, such as agroforestry and climate-smart agriculture. Following the requirements in the ESG Taxonomy will require collaboration between government, farmers, businesses, and conservationists.
Works Cited
1: Ritchie, Hannah, and Max Roser. “Land Use.” Our World in Data, Sept. 2019, ourworldindata.org/land-use.
2: Leonie. “Sustainable Agriculture: A Cornerstone of South Africa’s Future.” Moore-Southafrica.com, 2025,www.moore-southafrica.com/news-views/november-2024/sustainable-agriculture- a-cornerstone-of-south-afr.
3: PricewaterhouseCoopers. “South African Agribusiness at a Crossroads | Press Release.” PwC, 2024, www.pwc.co.za/en/press-room/south-african- agribusiness.html. Accessed 10 Mar. 2025.
4: South African National Treasury. (2022, November 11). A comparison between the EU green taxonomy and South Africa’s green taxonomy [Report]. National Treasury of South Africa.https://www.treasury.gov.za/comm_media/press/2022/2022111101%20Report_A %20Comparison%20Between%20the%20EU%20Green%20Taxonomy%20and%2 0South%20Africa%E2%80%99s%20Green%20Taxonomy.pdf
5: Sherriff, B. (2023, January 23). “It's very investable”: South Africa praised for new green taxonomy. Responsible Investor. https://www.responsible- investor.com/its-very-investable-south-africa-praised-for-new-green-taxonomy
6: Das, Prasun Kumar, Azeta Cungu ( Green Finance as a Critical Lever for Delivering Sustainable Agrifood Systems, 2023, file:///C:/Users/17736/Downloads/Green%20finance%20Agribussiness.pdf.
7: South African Green Finance Taxonomy - 1st Edition, Mar. 2022, www.treasury.gov.za/comm_media/press/2022/SA Green Finance Taxonomy - 1st Edition.pdf.
8: “ESG.” Forests.Org, 20 Nov. 2023, forests.org/esg/.
9: “The Vertical Farm next Door: Arable Grow.” Arable Grow - Vertical Farm, 2 Jan. 2025, arable.co.za/.
