THE EARTH IS THE MOST FERTILE INVESTMENT WE HAVE
Martijn Wilder, Founding partner Pollination Group and Co Founder HSBC Pollination Climate Asset Management
Globally, trillions of dollars of Government money are being promised to green new deal type projects – further cementing in institutional investors’ minds the immediate risks of being stuck with stranded legacy assets, and the reputational risk of being on the wrong side of public sentiment.
For this rapidly growing pool of capital looking for reallocation, there is an immediate need for new low carbon and decarbonised investment opportunities that deliver strong cashflow and decent, long-dated returns. So far, a relative dearth of opportunities with scale has meant renewable energy projects have taken the lion’s share of funds.
A new investment thematic – Natural Capital – is emerging that recognises the intrinsic value of our ecosystems. Natural capital can help pension and sovereign wealth funds meet their need for mandated returns and satisfy their requirements to do so in a way that is not only less harmful but has the potential to restore the environment. As an uncorrelated asset class it offers diversification in the shift to decarbonise the economy and still derive a healthy return. It’s a no-brainer that if we are to sustain our way of life, we must place a value on our quality of water, the importance of biodiversity, the health of our soils and oceans, and the need to prevent the catastrophic impact of climate change.
The World Economic Forum (WEF) has recently noted that transitioning three major sectors of the economy onto ‘nature-positive’ paths could create USD $10 trillion of economic growth and 395 million jobs by 2030. The total annual investment necessary to capture all the opportunities across the three sectors is estimated at about $2.7 trillion, a figure comparable with the $2.2 trillion stimulus package announced by the United States in response to Covid-19.
It’s a no brainer that if we are to sustain our way of life, we must place a value on our quality of water, the importance of biodiversity, the health of our soils and oceans, and the need to prevent the catastrophic impact of climate change.
As an investment proposition, it is gaining momentum. The European Commission is calling for $22 billion per year over the next decade to be invested in planting over three billion trees, restoring 25,000 km of rivers, reducing fertilisers by 20% and increasing agricultural lands under organic farming management to 25%.
Major corporations have also recently made major commitments to nature-based investing. Unilever, ten years into its Sustainable Living plan, has announced a €1 billion climate and nature fund. L’Oréal is transforming its business to respect ‘planetary boundaries’ with plans to achieve carbon neutrality by 2025 but also fund the preservation of biodiversity, sustainable water management and circular use of resources. Apple is directing large allocations of capital to nature-based investments with Conservation International.
For many developing countries, investing in nature also means investing in life. It can be a powerful actor for economic development for the world’s poorest people. According to the World Bank, low-income countries depend on natural capital for 47 percent of their wealth. Targeted investment in human capital and infrastructure would allow for better, more sustainable use of resources, while improving standards of living.
The opportunity exists to invest in sustainable and regenerative agriculture and farming practices, sustainable timberland management tied to more sustainable timber housing, sustainable fisheries and aquaculture and sustainable water production and water preservation. At a time when trillions of newly created capital is looking for a home, our home (the earth) is the most fertile investment we have.
For many developing countries, investing in nature also means investing in life.
In many cases these are asset classes that are already providing a baseline return from current operations, but as a natural capital investment product, they will also generate additional returns as vehicles for carbon sequestration and land restoration. As the resource is regenerated, it offers the potential for higher yields and higher value outputs.
In addition, many governments and companies already value and pay for carbon assets arising from reductions in greenhouse gas emissions, and over time we will see increasing revenue flows from investments in biodiversity, wildlife and natural assets such as reefs, oceans, mangroves and rainforests. In Australia, the Queensland government already pays for nature-based co-benefits through its Land Restoration Fund. Mangrove reforestation, for example, reduces the severity of storm damage, provides breeding grounds for fish species and has been found to be one of the most effective carbon sinks available.
Valuing nature also provides the opportunity to scale up traditional financial tools to fund nature. We have already seen new financial innovations with reef and rainforest bonds successfully launched into the market. Much more is to follow.
We know our economic relationship to nature must change. We have the ability to achieve that. Given that historically we have not been able to properly quantify or value the importance of our ecological systems, for far too long they have been highly undervalued and it is why we are fast approaching an environmental tipping point. It’s time to tip the balance back in nature’s favour.
At a time when trillions of newly created capital is looking for a home, our home (the earth) is the most fertile investment we have.