investment viewpoints

    To rewrite our future, we must invest in nature at scale

    To rewrite our future, we must invest in nature

     

    During COP26, His Royal Highness the Prince of Wales and founding members of the Natural Capital Investment Alliance (NCIA) – including Lombard Odier – emphasised the environmental and economic necessity of investing in nature at scale, and how forward-looking investors can find opportunities in the solutions urgently needed.

     

    Need to know

    • The window of opportunity to reverse the damage humanity is inflicting on nature is closing fast
    • With more than 50% of the global economy dependent on nature, the loss of species and destabilisation of the climate brings huge and growing risks to businesses
    • We have the technology and the knowledge to rethink our economy – we need the will and the wisdom to do it

     

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    Building a nature-positive economy

    Lombard Odier convened a NCIA and Circular Bioeconomy Alliance event on the subject of “Investing in Nature at Scale”, hosted by His Royal Highness The Prince of Wales's Terra Carta Action Forum.

    The fourth of LOIM’s Zero-Hour Sessions at COP26 in Glasgow brought together leaders from across the investment, business, government, and scientific sectors to connect the dots between investors, investable circular bioeconomy solutions, and natural capital opportunities in order to outline the path towards a prosperous, inclusive, net zero and nature-positive economy.

    Hubert Keller, Senior Managing Partner at Lombard Odier, praised the Prince of Wales's role in highlighting the extent of the challenge as well as what needs to be done to address it, and the role the financial sector stands to play in developing solutions. Keller outlined how the window of opportunity to reverse the damage humanity is inflicting on nature is closing fast, and how the case for investing in nature in scale is accelerating.

    “There is a clear realisation by investors and asset holders that we cannot outrun this nature crisis. The future of economic prosperity is at stake. 50% of global GDP is reliant on nature and by continuing to deteriorate it, we are basically destroying the most productive asset of our economy,” Keller said.

    “We are going much further than aligning with the temperature objective of the Paris Agreement. We are also aligning with a nature-positive economy. This means expanding across additional planetary boundaries such as stopping deforestation, and ending biodiversity loss.

     

    “What this concept of portfolio alignment is doing is forcing the companies to own the full scope of their environmental issues, in their operations and supply chain. Companies are having to adjust their business models to be far more efficient with their use of resources. All of this is compounded by consumers who are demanding more sustainable products,” he said.

    Keller explained how new technologies and solutions are unlocking the potential of the circular bioeconomy, which is driving new investment opportunities.

    “Today, the circular bioeconomy is feeding around 6% or 7% of our economy. It has the potential to go up to 30%. This represents a huge growth opportunity for companies and it is creating a fabulous investment opportunity.

    “We are also excited by the investment case for nature based on the growth of the carbon market. The growth of this market is driven by the net-zero commitments that so many companies are making. The voluntary carbon market could reach USD 200 billion by 2030. If the carbon market does mature in the way we anticipate, it will also help to develop the next green superpowers of the global south.

    “The capital that is sitting on the sidelines, the strong case for deploying capital at scale in nature, and the need to involve the economies of the global south. If we are able to connect these dots, we will achieve the transition to a net zero economy, achieve a transition to a nature-positive economy, and we will make a real economic difference for those economies in the global south in a way that is inclusive of local communities,” he said.

     

    Pivoting markets to nature

    Professor Nathalie Seddon, Professor of Biodiversity and Director of the Nature-based Solutions Initiative, University of Oxford explained how the destabilisation of the climate presents significant risks to businesses.

    “The science is very clear - climate change and biodiversity loss are undermining all the development gains from the last two centuries,” Prof. Seddon said.

    “Over half of global GDP relies on healthy, functioning ecosystems, yet we continue to develop as if nature has no value at all. Consequently, we are well on target to reach 2°C by the end of the century and losing 1 million species from planet earth.

    “This loss of species and destabilisation of the climate brings huge and growing risks to businesses. It brings reputational and regulatory risks as well as supply chain, continuity, predictability and resilience risks. It brings financial and market risks. There is a solution to reducing these risks that is available to go to scale right now: invest in nature.

    “Investing in nature is not an alternative to making drastic changes to our use of fossil fuels. Unless we decarbonise, the warming that will occur will turn nature into a net source of greenhouse gases. It is not either or, it is investing in nature and scaling back the use of fossil fuels,” she said.

     

    Leaders in economic rethinking

    Dr. Marc Palahí, Director of the European Forestry Institute, explained how we have arrived at a tipping point and that we urgently need to take action to restructure our economy.

    “The climate crisis and the biodiversity crisis are different faces of the same fundamental problem – our economic system. This system is not only addicted to fossil fuels but fails to value our most important capital – nature,” Palahi said.

    “Having arrived at such a tipping point, we need to rethink our economy if we want to rewrite our future. We need a new way of thinking for a new economic paradigm. We have the technology and the knowledge to rethink our economy – we need the will and the wisdom to do it,” he said.

    we need to rethink our economy if we want to rewrite our future.

     

    Tony O’Sullivan, Founding Partner, Pollination, said  there is value for private-sector firms in leading the alignment with a nature-positive economy.

    “In the real world, people are not waiting until their jurisdiction has mandatory reporting requirements, because they will be identified as a market laggard. We have clients today asking us to prepare for their nature reporting which could be five years away in terms of being mandatory. They want to be market leaders because it directly affects their cost of capital, and how the market views them,” O’Sullivan said.

    “We need to separate the world into developed and developing when it comes to natural capital. The market will punish laggards in the developed world. With the developing world, we need government support and we need to work out concession finance in a better way,” he said.

     

    Congolese carbon: a clear case for nature-based solutions

    Professor Lee White, CBE, Minister of Forests, Oceans, Environment and Climate Change for the Gabonese Republic, outlined the scale of the challenge presented by deforestation and the need to deploy considerable sums of capital in developing countries.  

    “The Democratic Republic of the Congo (DRC) is the biggest country in the Congo basin. Their deforestation rate has gone up significantly in the last decade. We are losing 500,000 hectares of forest every year. Each of those hectares has around 500 tonnes of CO2. The poor and rural farmers who are cutting the forest down are probably not making more than USD 500 per year. If the carbon in the hectare of land they are farming was only worth USD 10, it would be worth paying USD 5000 not to cut that hectare down,” White said.

    “For those 500,000 hectares of forest, if carbon is only worth USD 100, we are doing USD 25 billion [in] damage to the atmosphere per year. There has been a huge commitment to the basin at COP26, representing USD 500 million for the DRC over five years. If we are doing USD 25 billion damage to the atmosphere every year, why aren’t we investing USD 25 billion in nature-based solutions in the DRC?

    “If we don’t solve this problem for tropical rainforests, we lose the fight against climate change. We have to find a way to move those numbers of capital into developing countries to invest in nature-based solutions,” he said.  

    If we are doing USD 25 billion damage to the atmosphere every year, why aren’t we investing USD 25 billion in nature-based solutions in the DRC?

     

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