Investors Urged to Prioritise Nature Markets
Updates from PRI Spring and the TNFD also showcase efforts to enhance accountability on nature-related impacts.
Industry experts have highlighted the importance of nature investments and potential risks arising from their underfunding, amid increased regulatory attention.
Speaking at City & Financial Global’s Biodiversity and Nature Markets Summit 2024, Rhian-Mari Thomas, CEO of the Green Finance Institute (GFI), suggested that economic prosperity and financial stability could not be dissociated from healthy natural capital.
“Nature is our biggest infrastructure, it is simply not a nice to have,” she said. “It’s not too late. With investment, we can restore nature and there aren’t many reasons left why we shouldn’t be making this a priority.”
In May, delegates at the fourth meeting of the UN Convention on Biological Diversity’s Subsidiary Body on Implementation called for investments of at least US$200 billion a year, and for reform of US$500 billion in harmful subsidies to achieve Goal D of the Global Biodiversity Framework (GBF) – to invest and collaborate for nature.
In December last year, the UK government estimated the global biodiversity financing gap at US$700 billion per year, highlighting the scale of the investment challenge.
“Conservation without funding and finance is just a conversation. This is what we have to solve, the funding gap for nature restoration and our nature targets,” Thomas added. “There is a huge opportunity for business and for our financial sector to do exactly that.”
Increased attention
Focus on nature both from policymakers and investors has seen continued growth. Last week, EU member states approved the bloc’s central biodiversity policy, the Nature Restoration Law, after Austria made a surprise last-minute decision to back the legislation – which aims to halt rapid decline in the health of Europe’s land and oceans and restore 20% of lost biodiversity by 2030.
This means EU members will now be subject to the most comprehensive set of biodiversity targets in the bloc’s history.
The GFI recently highlighted risks not currently captured by assessments which could have major impacts on businesses, the financial sector, government agencies and regulators. Those included anti-microbial resistance, soil health decline, freshwater pollution, water shortages, ocean acidification – as well as quantifying what their financial and economic impacts could be. While the report was UK-focused, similar risks exist elsewhere.
“The fact that today’s summit focuses in part on nature markets emphasises that this is something that can and should attract proper, credible investment,” said Caroline Bush, Associate Director at Osborne Clarke, speaking at the event. “Natural capital is being driven by client demand and increasingly, biodiversity really is on board-level agendas.”
Research conducted by alternative asset managers Gresham House and mallowstreet recently found growing appetite for natural capital-focused investments among UK asset owners, with over half already invested or planning to do so within the next 18 months.
“This is an area that is driven not just by regulation, but also by what the market demands – be it from consumers, shareholders, or key stakeholders,” said Bush, suggesting that the trend was likely influenced by increased awareness of the power of biodiversity to help mitigate the effects of climate change.
“Nature markets are still in their relative infancy, but I think that the power of these structures to facilitate biodiversity enhancement around the globe is palpable,” she added.
Engagement and understanding
Earlier this week, the Principles for Responsible Investment (PRI) launched the engagement process for Spring, an investor stewardship initiative created last October to tackle the material financial risks of biodiversity loss by 2030.
The initiative has a particular focus on geographies that are home to critical natural ecosystems, and face future risk of forest loss and land degradation. As such, it engages with companies from emerging markets – as well as those from regions that source forest risk commodities from these countries.
A total 204 investors collectively representing US$15 trillion AUM have publicly supported the initiative, with 66 actively involved in the engagements with the initiative’s 40 focus companies. Those firms are spread across the food and agriculture, mineral mining, automotive, chemicals and banking sectors, including the likes of Bayer, L’Oreal and Toyota.
In the coming months, the PRI will convene smaller engagement groups for each of the 40 companies to develop targeted and constructive engagement strategies. The group is also undertaking efforts to align with existing investor initiatives whose objectives match those of Spring, in a bid to avoid duplication of efforts.
According to research by ClimateWorks Foundation, less than 2% of philanthropy goes to climate mitigation, but corporate donations for the environment have increased.
“If we are smart, we can use these free funds to bolster markets and leverage further private sector funding,” said GFI’s Thomas. “We need investment in nature-positive businesses to do business as usual for our pension funds and our public markets.”
Thomas noted that an important step in galvanising nature-positive investments was to understand how companies across different sectors are interacting with nature – something that the Taskforce on Nature-related Financial Disclosures (TNFD) is now looking to do.
At London Climate Action Week, the TNFD announced the next batch of adopters of its voluntary recommendations, with 96 further companies having committed to disclose their material nature-related issues to investors and other stakeholders. These included Legal and General Investment Management, MUFG Asset Management, and automobile manufacturer Volvo.
The new batch takes the total of TNFD adopters to 416, with publicly listed companies now representing more than US$6 trillion in market capitalisation – a 50% jump since the TNFD’s early adopter announcement in January.
In parallel, the TNFD has also launched its first set of additional sector guidance, covering eight-real economy sectors – aquaculture, biotechnology and pharmaceuticals, chemicals, electric utilities and power generators, food and agriculture, forestry and paper, metals and mining, and oil and gas – as well as additional guidance for financial institutions.
This may help to correct a trend recently evidenced by biodiversity data specialist NatureMetrics, per which businesses seem widely ill-prepared to report on their nature impacts and dependencies. According to preview data, 86% of respondents to its nature maturity assessment tool scored less than 3 out of 5 for nature maturity, indicating a poor level of current understanding, readiness and action.
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