The world may be mobilising billions today to invest in nature, but that has to become trillions – and fast.
As we begin 2023, nature and biodiversity are in the spotlight like never before. COP15, the UN biodiversity summit, represented a real breakthrough to halt the global decline in nature by 2030.
But for the ambition to become a reality, it must also be the turning point for investment in nature. We may be mobilising billions today, but that has to become trillions – and fast. Private finance will have a critical role to play, deployed in a way that’s fair and effective, alongside public money. That’s non-negotiable for a world looking to chart a course towards a nature-positive future.
While some commentary has focused on the “scant attention” received by COP15 relative to its climate sibling, COP27, the framework agreed sends a signal that business and finance cannot ignore.
The hope was for a “Paris Agreement for nature” and there is no doubt the deal was a major milestone in efforts to protect nature, with outcomes including a target to protect 30% of nature on Earth by 2030.
As our Global Head of Sustainable Investment Andy Howard, who attended the global conference on behalf of Schroders, has said, investors don’t have a choice as to whether they want to be exposed to it or engage with it.
Simply put, nature risk is an integral factor to investment risk and returns, and transnational companies and financial institutions will increasingly be required to disclose nature risks, dependencies and impacts.
While there is a lot more work to be done, one thing is clear: change is coming, and it will be dependent on data about our natural world and on the impacts of the real economy.
To use one example, in Africa, a team of academics at Natcap Research, which Schroders invested in last year, have been using satellite data and machine learning to identify areas of high potential for carbon sequestration and storage across Ghana and Sierra Leone.
For the prioritised sites, they ran detailed assessments of potential carbon units to a higher degree of accuracy than was previously available. This innovative approach gives greater certainty to investors on their carbon returns and allows nature-based projects to maximise outcomes for climate and for nature.
In the UK, their scientists have established a way to model the carbon stored in the top 30cm of soils and very fine spatial scales – in five metre squares. These remote models can be used to guide data collection for carbon markets and reduce the need for costly field sampling. This is ground-breaking scientifically, and together with other research efforts can open whole new opportunities for valuing nature.
Which trees or mangroves to plant, and where? How do we connect green spaces for exponential biodiversity gain? Just how much carbon can – and could – soil store with regenerative agricultural practices? What is the opportunity for supporting pollinators, and the risks in not doing so?
These questions – and the data that answers them – are critical in translating the political goal-setting and finance commitment-making into real impact on the ground, right around the world. Collective efforts from researchers have started to crack those answers.
These are also questions of fiduciary duty for investors like Schroders, who own assets and companies with nature impacts. Investing behind nature can yield both returns and impact – while failing to take account of nature risk is a liability for companies and their investors. This issue matters for business. It’s why at Schroders we’ve launched a company-wide Plan for Nature, and we’re determined to better measure, report on and improve the natural capital impacts of our investments.
Better data is how we can bridge between science and practice, between policy and deploying capital. With it can come more sophisticated disclosure of impacts, more active engagement with companies and new products and solutions dedicated to supporting natural capital in private assets.
Reporting standards for nature and biodiversity to reflect these disclosures are also being rapidly advanced. Companies have started to pilot the use of Taskforce on Nature-related Financial Disclosures (TNFD) and Science Based Targets for Nature (SBTN) – equivalents of the widely-adopted climate frameworks – and the International Sustainability Standards Board (ISSB) will build on these efforts to help set international standards on nature loss.
Let’s be clear: the reality is that today we are way off meeting the funding needed to safeguard the natural world that underpins our economy and society. The agreement at COP15 aims to close the ~$700 billion funding gap between what we spend to protect nature every year and what we need to be spending by 2030.
The appetite from investors is there. Schroders’ Global Investor Survey released last month saw that 63% of investors want fund managers to focus on natural capital and biodiversity engagement with companies – higher even than climate at 59%.
To truly reach the scale of financial flows required, the framework agreed in Montréal must turn into rapid and deep alignment on policy and on incentives (and disincentives) – as we’re increasingly seeing on climate change. And it will drive towards greater data sharing, including disclosure for businesses.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
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