Why making nature investible is key to mitigate the climate crisis
Heatwaves and other extreme weather events warn us to rethink our relationship with nature. The financial sector must play its part
BECAUSE we don’t quantify the benefits of nature, we overlook them altogether. Johan Rockström, the Swedish climate scientist I recently shared a platform with at London Climate Action Week, reaffirmed this point - that if it weren’t for nature, we’d already have crossed the 1.5-degree threshold. There’s a well-known saying in management that “what gets measured gets managed” - a cliché, perhaps, but frighteningly accurate in the case of nature.
The world is waking up to the fact that our global economy must become not just net zero but also nature-positive. Heatwaves and other extreme weather events remind us of the fragility of our natural environment. That entails knowing what nature is worth. It took us 15 to 20 years to get the language of carbon – and the disclosures of carbon – to become an intelligible feature of company reports. Today it is virtually impossible to get good data around nature. But we haven’t got 15 to 20 years.
More than half of our global GDP is dependent on the natural world. Protecting and preserving nature can make a powerful contribution to efforts to mitigate climate change. And there is a social imperative, too: Unless natural climate solutions create positive social impacts for local citizens and communities living on the land, they won’t be sustainable; investors must partner broadly and deeply.
The response must be vigorous. As a company, we learned that making meaningful changes in diversity and inclusion would involve a revolution in our culture. The same root-and-branch revision is required in our approach to nature.
Just as with net zero, the role of the financial sector in efforts to halt and reverse nature loss is clear and critical. Following the recent delay of the United Nations biodiversity summit, COP15, to December this year, we must use these months to bring more of the finance sector to the table. There is no time to waste.
Action on nature starts with action to end deforestation. The IPCC estimates that “agriculture, forestry and other land use” contributes 22 per cent to global emissions and half of that (11 per cent) is from deforestation and land conversion.
A NEWSLETTER FOR YOU
Friday, 12.30 pm
ESG Insights
An exclusive weekly report on the latest environmental, social and governance issues.
Deforestation is increasingly an investment risk, but nature is also a significant investment opportunity. Natural climate solutions are efforts to conserve, restore or improve ecosystems to absorb and store carbon from the atmosphere. Analysis has estimated that these solutions have the potential to provide around a third of the climate action needed to achieve the Paris Agreement goals and avoid the worst effects of climate change.
One statistic starkly captures the issue: Natural climate solutions may comprise a third of the solution, but today they receive less than 3 per cent of all global climate finance. How do we close that gap?
I believe that we can create a tipping point and accelerate investment.
The investment case gets stronger by the day, rooted in the price of carbon credits. Demand for high-quality carbon offsets is set to grow exponentially, driven by national net-zero ambitions alongside major private sector commitments. This opportunity is underpinned by increasingly sophisticated data and tools that allow us to start valuing the world’s natural assets.
While the supply of projects remains challenging, the growing demand and activity in this space create new opportunities to institutionalise project financing, structuring and development. Getting to grips with the social imperatives around nature action is also fundamental to ensuring these investments work for people and places.
What’s exciting is the increasing collective momentum of the investment industry on this agenda. There are now US$21 billion in assets under management in natural climate solutions – doubling in the last five years. The Natural Capital Investment Alliance, launched by the Prince of Wales at COP26, is an important step in this shift. The 15 members of this group all have, or will have, investment vehicles that help channel capital into nature-focused projects.
The energy transition is complex. The transition to a nature-positive world will be fiendishly difficult. But it is imperative and urgent, and we must make it investible. That’s why as we look ahead to the second half of the year, the financial sector must join the chorus of actors stepping up to take action on nature.
The writer is group chief executive of Schroders
Copyright SPH Media. All rights reserved.
