Home » ESG Consideration for Agritech Companies Part III: Governance Consideration

ESG Consideration for Agritech Companies Part III: Governance Consideration

by Yahya Mubarak Imonikhe
9 minutes read
ESG Consideration for Agritech Companies Part III: Governance Consideration

As this series on Environmental, Social, and Governance (ESG) considerations for agritech companies concludes, we turn to the Governance framework—a critical pillar underpinning sustainable business practices. Governance involves the systems, principles, and processes that direct an organisation’s internal structure. It ensures alignment with ethical standards, regulatory requirements, and stakeholder expectations.

For agritech companies operating, governance assumes a strategic role. Companies must establish frameworks that address sector-specific challenges such as intellectual property management, compliance with regional agricultural regulations, and oversight of data-driven technologies like precision farming. These governance mechanisms mitigate operational risks and enhance organisational accountability, transparency, and adaptability in an evolving market landscape.

This article unpacks the Governance framework, examines its application within agritech, and outlines best practices for founders and investors to implement. Embedding governance into operational DNA will align agritech companies with innovation and integrity, ensuring sustainable growth and competitive advantage.

Catch up on the first and second articles in the series.

What Governance in ESG Entails

Governance within the ESG framework refers to the organisational structures, policies, and practices that ensure ethical decision-making, regulatory compliance, and effective stakeholder engagement. While the Environmental and Social components focus on external impact, governance emphasises internal accountability and oversight. This includes how companies set strategic goals, monitor performance, and respond to risks and opportunities.

Governance plays an indispensable role in agritech companies in harmonising technological innovation with ethical and sustainable practices. For instance, adopting artificial intelligence in crop management necessitates strict oversight to ensure data privacy and equitable access for smallholder farmers. Similarly, intellectual property related to proprietary algorithms or seed genetics requires governance structures to manage licensing, protect innovation, and prevent exploitation.

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Some key areas of governance directly influence the sustainability of agritech companies. If neglected, the effects could be as severe as loss of market trust. These key areas include operations, procurement, and finance. Let’s explore them closely. 

ESG governance

Source: iStock

Operations

Effective governance in operations is pivotal to ensuring that agritech companies maintain compliance with a myriad of regulatory frameworks, including agricultural policies, environmental laws, and food safety standards. Governance frameworks must proactively address potential gaps. For instance, developing precision agriculture tools like drones or IoT-enabled devices requires adherence to technological and agricultural standards. A strong governance structure ensures that these tools meet performance metrics and ethical considerations, such as data privacy for farm owners and the ecological impact of their use.

Moreover, governance drives accountability in how companies operate within various agricultural ecosystems. If an agritech firm produces bioengineered seeds, governance mechanisms ensure thorough vetting of those seeds for safety, environmental compatibility, and ethical distribution. Failure to align operations with these governance standards can lead to regulatory fines, loss of market trust, or even long-term damage to agricultural communities.

Procurement

Procurement in agritech is complex. It often involves global supply chains for raw materials, components, or equipment essential for producing smart farming technologies. Governance frameworks in procurement address risks such as sourcing from suppliers that exploit labour or disregard environmental norms. It also involves transparency mechanisms, such as supplier audits and certifications, to ensure that raw materials used in sensor technologies or climate-resilient seeds are sourced sustainably.

For instance, companies procuring IoT sensors for precision agriculture must verify the quality of the sensors and the ethical practices of the suppliers. A lack of governance in this area can result in reputational damage, supply chain disruptions, or legal liabilities, especially as awareness of sustainability is at an all-time high. Additionally, governance supports the integration of circular economy principles. It ensures that materials sourced for manufacturing can be recycled or repurposed to reduce environmental footprints.

Furthermore, procurement governance fosters innovation by encouraging partnerships with vendors prioritising sustainability. Collaborating with suppliers who use renewable energy in their manufacturing processes or offer biodegradable materials can give agritech companies a competitive edge while aligning with global sustainability goals.

Finance

Financial governance is the backbone of sustainable growth in agritech, encompassing areas such as transparent accounting practices, ethical investment strategies, and compliance with tax regulations. Agritech relies heavily on venture capital, government grants, and subsidies. Hence, robust governance is required to manage resources effectively and ethically.

For example, sound governance ensures that funding received for developing sustainable technologies is allocated appropriately and transparently, mitigating risks of mismanagement or fraud. It also facilitates responsible investment practices, encouraging agritech firms to prioritise long-term growth over short-term profits. By doing so, these companies can reinvest in research and development for technologies like CRISPR-based crop enhancements or AI-driven pest control systems, solidifying their market position while contributing to agricultural sustainability.

Additionally, governance frameworks in finance address the nuances of tax compliance, particularly for agritech firms operating in multiple jurisdictions. Adhering to local tax laws, avoiding tax havens, and maintaining accurate financial records are non-negotiable for building trust with stakeholders and regulators. Companies with strong financial governance are better positioned to secure funding from impact investors, who often require evidence of alignment with ESG principles before committing capital.

ESG in agritech

Source: iStock

Relevance of Governance to Agritech Companies

Strong governance frameworks foster trust among stakeholders, from farmers and distributors to regulators and financiers. In agritech, robust governance ensures companies can adapt to rapid technological advancements while maintaining compliance with complex legal landscapes.

Moreover, agritech companies often operate in global markets with diverse regulatory environments. Governance structures must account for international laws on data protection, such as the General Data Protection Regulation (GDPR) while addressing localised issues like pesticide usage restrictions or biodiversity conservation policies. Companies that fail to establish these structures risk reputational damage, legal penalties, and loss of investor confidence.

Governance also directly impacts the scalability of agritech solutions. Companies developing precision agriculture tools must ensure that data collected from farm equipment is securely managed and used ethically. Similarly, startups introducing blockchain for supply chain transparency must establish clear protocols to validate transactions and protect user data. Without governance frameworks tailored to these innovations, agritech companies risk alienating their customers and investors.

ESG

Source: iStock

Governance Best Practices for Agritech Founders

Agritech companies can adopt several governance practices to strengthen their organisational structures:

  1. Board Diversity and Oversight: Establishing a diverse board with independent directors ensures balanced decision-making and accountability. This diversity should reflect expertise in technology, agriculture, and sustainability to address the unique challenges of agritech.
  1. Risk Management Frameworks: Agritech companies must proactively identify and mitigate risks, whether related to climate change, regulatory shifts, or cybersecurity. To achieve this, they must conduct regular audits, carry out scenario planning, and establish contingency plans.
  1. Stakeholder Engagement: Building transparent communication channels with farmers, regulators, and investors fosters trust and ensures that governance decisions align with stakeholder needs. Engaging local communities when deploying new technologies can prevent resistance and enhance adoption rates.
  1. Ethical Use of Technology: Companies must establish guidelines for the ethical deployment of AI, IoT, and other technologies, ensuring that they enhance productivity without compromising data privacy or perpetuating inequality.
  1. Regulatory Compliance: Regularly updating governance policies to align with evolving agricultural and environmental laws is essential. This includes monitoring emerging legislation on climate-smart practices and carbon accounting.

Conclusion

Governance represents the structural backbone of agritech companies striving for sustainability and growth. For founders and investors, integrating governance into their strategic priorities is beyond meeting ESG expectations. It cuts across building resilient companies that can withstand regulatory scrutiny, attract investment, and deliver meaningful impact.

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Agritech Digest seeks to provide the latest agricultural news, technology, innovations, and insights to promote awareness of agritech startups. It is dedicated to empowering Agritech startups, investors, policymakers, farmers, and agri-enthusiasts by offering knowledge and resources, helping them succeed in the evolving world of agritech and entrepreneurship in agriculture. Agritech Digest aims to showcase the vast potential of the agricultural technology industry by attracting investors and young talent through highlighting technology and innovations in the agritech industry.


Agritech Digest seeks to provide the latest agricultural news, technology, innovations, and insights to promote awareness of agritech startups. Agritech Digest aims to showcase the vast potential of the agricultural technology industry by attracting investors and young talent through highlighting technology and innovations in the agritech industry.

Agritech Digest seeks to provide the latest agricultural news, technology, innovations, and insights to promote awareness of agritech startups. Agritech Digest aims to showcase the vast potential of the agricultural technology industry by attracting investors and young talent through highlighting technology and innovations in the agritech industry.

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