More than 190 countries have set a target of 30% conservation by 2030. But is it possible, given the huge capital requirements and lack of tools to measure impact?
At a glance
Almost half of the world’s GDP depends on natural assets, yet only $200 billion annually is invested in nature-based solutions
You may need more products. Innovations such as natural debt swaps and sustainability-linked loans exist, but transaction costs are high and scaling up is difficult.
Scaling up nature-based solutions requires advanced reporting frameworks and more investment-friendly policies to attract large financial institutions
The global economy is highly vulnerable to nature-related risks, with approximately half of global GDP estimated to be at least moderately dependent on natural assets. Bees alone are estimated to contribute more than $200 billion annually to global agriculture.
According to the United Nations Environment Programme, this is the same amount of money invested annually in all nature-based solutions around the world, and only about a third of the total needed.
One reason for this is that nature is harder to pin down than climate, said Stephanie Kelly, head of Greenwheel, the research arm of London-based asset management firm Redwheel. “Investors tend to prefer a single metric, such as carbon emissions,” she says. “Climate is obviously complex, but it becomes easier for investors to understand it when they have a number to hang a hat on and a path to follow.”
But nature includes thousands of different things, from birds and bees to the food we eat, the clothes we wear, the air we breathe, and the water we drink. And unlike carbon emissions, nature is non-substitutable and any impact will be huge. James King, Sustainability and Climate Manager at PwC in London, tells Sustainable Views that this is unique to certain regions.
“Nature is so local that financial products have to be bespoke. There are really no off-the-shelf models,” he says.
Nature as a financial product
As nature rises to the agenda of policymakers and the private sector, new financial products are emerging. Nature debt swaps, nature-related sustainability loans, ocean bonds, conservation bonds and forest bonds have all emerged in recent years, with equity investors increasingly interested in building “nature-positive” portfolios. I am.
Still, transaction costs remain high, due diligence takes time, and necessary monitoring and verification systems have not yet been scaled up, King said.
On the surface, a debt-for-nature swap provides a win-win solution to the nature crisis and the global debt crisis. However, although more governments are participating in these deals, they are extremely complex and time-consuming to negotiate.
Governments must agree to debt terms, which vary from country to country. Develop a maintenance management plan. They then need to determine the best use of the funds, while ensuring that local communities are properly engaged and can actually benefit from the flow of funds, King explains.
“They (natural debt exchanges) work very well, but they are difficult to scale or replicate quickly,” he says.
Katie Leach, head of nature at Lloyds Banking Group in London, said that while it was important to focus on nature-positive financial flows, financial institutions should shift away from financial activities that directly harm nature. equally important, he told Sustainable Views.
According to UNEP, approximately $7 trillion in public and private finance each year supports activities that directly harm nature, such as tobacco production, oil and gas extraction and construction, and intensive agriculture. This is 30 times the amount spent on nature-based solutions.
still needed
More than 190 countries have committed to designating 30% of their land and oceans as protected areas by 2030, which will require sophisticated monitoring and verification systems.
Reporting frameworks such as the Task Force on Nature-Related Financial Disclosures and the EU’s Corporate Sustainability Reporting Directive should also increase oversight of corporate activities and direct more resources towards nature-based solutions.
Public funds are also needed to encourage private investment. “Blended finance is very important for nature because it helps private financial institutions reduce potential value losses in the early stages and guarantees them over a longer period of time (compared to climate finance). ,” says Lloyds Bank’s Leach.
Rewilding projects take much longer to produce an impact, so funding needs to run for a longer period of time. For example, debt and equity financing under the European Investment Bank’s Natural Capital Financing Facility typically lasts between five and 15 years, whereas financing for renewable energy projects can last between three and five years.
According to the University of Oxford’s Institute for Environmental Change, nature projects “often require large upfront investments with medium to long-term returns.” . (and) may not generate income in the traditional sense. ”
Robert Gardner, founder of boutique nature-focused asset management firm Rebalance Earth in London, says governments can and should introduce more nature-positive policies to stimulate investment. .
This includes the creation of natural credit markets. Versions of natural credit markets exist in Colombia, the United Kingdom, and Australia, but they are currently too small. “To get pension funds to invest, you need a market big enough to invest, and it’s a chicken-and-egg problem,” he says.
Commercialization of nature?
Gardner sees nature as an asset class, and Rebalance Earth uses pension fund money to restore natural landscapes. One initiative is protecting and restoring seagrass on UK beaches and selling blue carbon credits to the private sector. Another is the ‘Rewilding Partnership’ signed with Plymouth City Council to better protect the city from flood risk, funded by Biodiversity Net Gain Credits, which the company plans to extend elsewhere as well. I’m thinking of reproducing it.
Gardner foresees a world where nature-based solutions, like his fund’s Nature Restoration Partnerships, can be packaged into securitized portfolios. “If we can do that, then insurance companies will be eligible to buy these products, which brings in more money. Then they can hold equity capital in parallel, which brings in even more money. ,” Gardner said. “This is the genius of capital markets. Capital markets are very good at understanding these things, and that’s the virtuous capitalist system we want to leverage.” But all of this requires more aggressive He added that policy planning would be needed.
While some may find this approach to conservation cynical, others find it pragmatic.
Maria Nazarova Doyle, Global Head of Sustainable Investing at London-based IFM Investors, said: That way, the mind is focused and everyone realizes that it is something they have to pay for.
“Ideally, we want people to be interested in nature ‘just because’, but this approach works with the systems we already have.”
