Root Capital, a nonprofit agricultural lender, today released a new issue brief detailing the financial benefits linked to conducting due diligence on the social and environmental practices of its borrowers. The release marks the first in the organization’s new Issue Brief Series. The series, supported by the Citi Foundation and The Skoll Foundation, aims to stimulate discussion about issues important to the fields of smallholder agricultural finance, small and growing business, and impact investing.

“Root Capital’s financing has transformed livelihoods for thousands of smallholder farm families in Latin America and Africa and encouraged them to serve as stewards of their natural resources,” said Sally Osberg, president and CEO of The Skoll Foundation. “The Skoll Foundation is supporting Root Capital’s new Issue Brief Series to glean best practices from their 15 years of experience using finance as a tool to generate sustainable markets and to engage other financial actors to reach even more smallholder farmers. Collaborating with social entrepreneurs like Root Capital gives us an opportunity to catalyze a financial market that will unlock prosperity for the world’s 450 million smallholders while sustaining the critical ecosystems they farm.”

For a growing number of companies, social and environmental factors have become integral to business strategy and profit generation. For many financial institutions, however, measuring and incorporating social and environmental factors into overall portfolio performance remains a challenge. Root Capital’s first issue brief and accompanying tools show how its own social and environmental due diligence of small and growing agricultural businesses has not only created impact, but has also yielded financial benefits that partially or fully offset the costs involved.

“We initially set out to build the impact case for social and environmental due diligence,” said Willy Foote, founder and CEO of Root Capital. “Along the way, we started to notice an emerging business case for social and environmental due diligence in the form of reduced risk and new growth opportunities.”

Relying on an emerging body of evidence, including portfolio-wide data, Root Capital found alignment between social, environmental, and financial interests to be strongest in five areas: (1) identifying and mitigating risk, (2) generating new business, (3) identifying businesses with growth potential, (4) strengthening businesses by improving their relationships with suppliers, and (5) identifying opportunities to support more of existing clients’ unmet financial needs.

Pamela Flaherty, president and CEO of the Citi Foundation, expressed her support of Root Capital's efforts by stating, “The Citi Foundation is pleased to support Root Capital's new Issue Brief Series which starts to build the business case for financial institutions to conduct social and environmental due diligence as part of their lending to small and growing businesses. This first issue brief and associated methodology guide establishes a blueprint that financial institutions can follow and use as a basis to propel long-term sustainable growth of the sector.”

Supplementing the issue brief, Root Capital also released its social and environmental due diligence scorecards and an accompanying methodology guide to outline the organization’s approach to social and environmental due diligence in more detail. These accompanying tools are intended for public use and adaptation by other financial institutions, agri-food companies, impact investors, and international development practitioners seeking to integrate social and environmental factors into business decisions.

About Root Capital
Root Capital is a nonprofit agricultural lender that grows rural prosperity in poor, environmentally vulnerable places in Africa and Latin America by lending capital, delivering financial training, and strengthening market connections for small and growing agricultural businesses. Since 1999, Root Capital has disbursed more than $570 million in credit to over 450 businesses, improving livelihoods for 750,000 rural producer households. For more information, visit www.rootcapital.org

Root Capital

Root Capital

Root Capital is a nonprofit agricultural lender that grows rural prosperity in poor, environmentally vulnerable places in Africa and Latin America by lending capital, delivering financial training, and strengthening market connections for small and growing agricultural businesses. Since 1999, Root Capital has disbursed more than $570 million in credit to over 450 businesses, improving livelihoods for 750,000 rural producer households. For more information, visit www.rootcapital.org.

More from Root Capital