The Importance of Investing in a Nature-Positive Economy

Humanity’s existence is solely dependent on nature, yet we act as if that's not the case. We often think that technology will provide all the answers we need to reverse climate breakdown. While this is sometimes the case, protecting and restoring nature is also a critical part of the solution––one that doesn’t get talked about as much in investing circles.

Nature is a key contributor to the global economy and is worth $125-145 trillion in value annually. That’s over 1.5 times the global GDP generated through ecosystem services, such as water, food, fresh air, climate regulation, productive soil, water for crops, natural flood defenses provided by forests, coastal protection from tsunamis and cyclones by coral reefs and mangrove swamps, the billions of tonnes of carbon stored by peatlands, and pollination of crops by insects. But the way we live and eat is driving nature’s decline at an unprecedented rate, with up to one million plant and animal species facing extinction and an approximated 70 percent decline in animal population sizes tracked over the last 50 years. This loss of biodiversity, the variety and abundance of all living beings, is irreversible.

Although there's a relative consensus that great opportunities await financial institutions that accompany companies on the transition toward practices that respect planetary boundaries, there’s a massive gap in financing nature-based solutions to the tune of $711 billion per year. It is imperative that we find ways to fund ecosystem services that further protect natural resources (such as clean water, rainfall, pollination, flood protection, soil nutrition), allow for regenerative agriculture and agricultural practices, sustainable forestry and fisheries, coastal ecosystem and invasive species management, and conservation in urban environments. However, it doesn’t necessarily mean the answer is just in carbon offsets or products and services branded as “carbon neutral” by bundling them with carbon offsets. It’s long past time that we look beyond “carbon tunnel vision” and trust nature a little more by being prepared to leave it alone. 

We need to plan for a fair and inclusive transition to a nature-positive economy that will benefit generations to come. This transition must consider the reduction of greenhouse gas emissions (GHGs) alongside other conjoined nature issues that include the likes of biodiversity loss, freshwater consumption, forest, and seabed loss as well as soil nutrient loss. Above all, we need to prioritize nature-positive capital.

Why don't we see more nature-positive capital flowing?

The most important factor to unlock large financial flows is understanding and presenting nature-positive solutions as financially viable opportunities with attractive risk/return profiles. Continuing to rely on traditional funding, such as grants and other public sector finance, is clearly not sufficient to address the twin crises in climate and biodiversity loss. Methods targeting climate change mitigation aren’t necessarily always good for biodiversity, although measures to protect biodiversity normally have a core benefit for helping the mitigation of climate change. 

The pace of climate change can be measured through global temperature rise and increasing GHG emissions. However, given the complexity of measuring nature across oceans and forests to insect populations across geographies, understanding the extent of human-caused loss of natural capital and biodiversity is daunting. “Nature-positive” is a risky claim as ecosystems are complex and any positive impact can have an unanticipated adverse impact. For this asset class to succeed, standardization of methods and assessments will be necessary to enable investors and companies to capture all the impacts that are being created.

Adding another lens to the issue is the legality of natural capital rights. We know natural capital provides ecosystem services, such as climate mitigation and adaptation. Who owns these benefits and who should be the beneficiaries of cash flows generated by those services is not clear in many instances. Acknowledging local communities that have rights to that natural capital, and optimizing via the establishment of benefit-sharing mechanisms needs to be a critical part of the solutions for investments to be successful in the long term.

How can investors take action now towards bending the curve?

Responsible consumption and production, especially in agriculture, is critical to bending the curve of biodiversity loss. Supporting companies that are adopting science-based targets for biodiversity and climate change within their operations and investments is an important first step. 

While humanity can destroy nature and biodiversity very quickly, recovery takes time, and we need to afford conservation managers the luxury of funding and time. Building long-term strategies to preserve and restore nature and biodiversity while ensuring the legality and sovereign ownership issues are imperative. Here are a few general principles corporates and investors are/should follow more actively:

1. Screening out companies that are causing harm, such as the ones involved in intensive agriculture, companies that have environmental controversies, have high involvement in fossil fuels, or are involved in making products or services towards the destruction of natural capital. The first step in tackling biodiversity is to assess the investment’s impact on nature and wildlife as well as the portfolio risks related to biodiversity loss for investors to be able to address their impact.
2. Invest in green infrastructure opportunities that support biodiversity gains and improvements in ecosystem services. That is, companies that are involved in activities, such as regenerative agriculture, water treatment, coastal protection, and alternatives to plastic packaging. Examples of companies working in this space are Papkot, Shellworks, Rize, Agreena, Nattergal, Pivotal, and our very own one.five.
3. Improve supply chain sustainability by identifying and supporting leaders and potential leaders who are trying to transition and reduce their environmental impact, and set ambitious targets aligned with zero deforestation and restoration policies in their supply chains. Examples of companies working in this space include Minvoro, Infyos, and Sourceful.

The need for national strategies

Markets alone won't be able to solve the biodiversity crisis. We need national strategies, corresponding governmental action, and regulations to force investors and companies to report on their impact and dependencies on nature. We need to eliminate subsidies that harm nature, tax activities that are harmful to the planet, spend that revenue on funding restoration projects, and provide incentives to make those projects viable. 

But it’s not all doom and gloom. We are starting to see a lot of promising examples of governments and the private sector stepping up. There are Costa Rica's Payments for Environmental Services Program, Australia’s recent biodiversity credit system, the EU’s Biodiversity strategy, and the landmark Blue Bonds for Ocean Conservation. On top of that, 100 investors with collective assets totaling €14 trillion signed the Finance for Biodiversity Pledge, and there’s the New York Stock Exchange's co-development of a new asset class based on sustainable enterprises. 

The stakes of our climate emergency

We are in a climate emergency. Every day, week, month, and year, we are learning more about the limits of the Earth's systems to be able to absorb anthropogenic pressure without compromising the living conditions of the human species. What’s at stake is the stability of global natural ecosystems on which humanity depends. There’s a dire need for the re-ordering of financial principles that fully value natural capital, reduce harmful practices that destroy nature, and rapidly mobilize substantial amounts of capital for biodiversity and nature conservation, preservation, and restoration.

We are looking to invest in scalable startups that can catalyze innovation and financial flows to restore and conserve natural assets and help deliver multiple returns on investment across climate mitigation, climate adaptation, biodiversity recovery, and community livelihoods. We'd love to chat if you’re working on these issues. Please get in touch at namratha@speedinvest.com.