investment viewpoints

    Why should you invest in natural capital?

    Why should you invest in natural capital?
    Christopher Kaminker, PhD - Group Head of Sustainable Investment Research, Strategy & Stewardship

    Christopher Kaminker, PhD

    Group Head of Sustainable Investment Research, Strategy & Stewardship

    It’s time to take a hard look at how our current wasteful economic model is harming mother nature and reinforcing climate change.

    Given the grim situation, what can investors do to adapt to these nature-related risks? How can they seize opportunities from the transition to a more circular, bio-economy?

    Here are insights from Chris Kaminker, Group Head of Sustainable Investment Research, Strategy & Stewardship at LOIM to give you some food for thought.

     

    Q1)Why does LOIM think investing in natural capital is important?

    A1) Nature is one of the most productive assets of our economy, with over half of the world’s GDP moderately or heavily dependent on nature – either directly, or through supply chains. Our natural capital is what sustains these annual flows and the many unpriced ecosystem services that nature provides, but our present economic model is rapidly depleting those forms of capital.

    Many of the industries that are most dependent on nature also have a propensity for destroying it, undermining their own business models in the process. Investing in nature can, conversely, help us further develop natural capital as one of the engines of our economy.

    Many of the industries that are most dependent on nature also have a propensity for destroying it, undermining their own business models in the process. Investing in nature can, conversely, help us further develop natural capital as one of the engines of our economy.

     

    Q2)Why is LOIM finding investor interest in natural capital?

    A2) There are many investable opportunities linked to nature. On the one hand, we seek to identify companies that are harnessing the power of nature through the circular bio-economy. Companies in the bio-economy are using nature-based materials or ideas in their business models, often replacing more damaging and less circular alternatives. This may include companies producing biomaterials, biopharmaceuticals, or adopting more regenerative forms of agriculture.

    On the other hand, there are also countless opportunities linked to the preservation of nature, by investing in leaner forms of industry. Firstly, we see opportunities associated with the transition to a more outcome-oriented and service-based economy that may contribute to dematerialisation. Secondly, companies promoting resource efficiency – with 3D printing being a good example – may help to reduce raw material extraction and environmental impact. And thirdly, we are identifying companies helping to move the world towards zero waste, through more active recovery and recycling, or new industrial and urban models.

    Investors recognise that investments in such business models do not only contribute to the transition to a more sustainable and nature-positive economy, but could also be a real driver of return.

     

    Q3)How is LOIM mobilising this investor interest into opportunities for natural capital investors?

    A3) We are actively investing in research in this area to develop new insights for investors with regards to the alignment of their portfolios to nature-related risks. We have already developed proprietary capabilities to assess alignment to the climate transition and are expanding this work into other areas such as water, deforestation and biodiversity.

    Our thematic research has also focused on identifying the opportunities and supply chains relevant to investments in natural capital. Some of the themes we are exploring include regenerative agriculture, water, forestry, waste management, and renewables. We are using the insights from this research to identify companies leading in the transition.

    Last November, we also launched our Natural Capital strategy, as part of our broader commitment to the Sustainable Markets Initiative of His Royal Highness the Prince of Wales. This strategy seeks to bring to life precisely the type of opportunities we have described above and seeks to harness and preserve natural capital through its investments.

    For more on this topic, see Chris Kaminker’s video presentation at the World Circular Economy Forum held virtually in Canada in September. His speech starts 53 minutes into the conference.  

    Discover more about our Natural Capital strategy here

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