Investing in nature: transforming industries, not trading credits

This article was originally published in POLITICO on 4 November, 2024 under the headline: “Meet the forest expert trying to get investors to care about nature”.

Changing the financial system from within. That’s the mission that Marc Palahí, a forest expert-turned-sustainable finance adviser, has set for himself.

After spending 16 years at the European Forest Institute warning European Union policymakers of the impacts of climate change, Palahí concluded the economic system wasn’t adapting fast enough and that investors needed to start putting nature on their balance sheets.

That’s why he accepted a job at Lombard Odier Investment Managers (LOIM) last year as the company’s first-ever chief nature officer. His task is to oversee the asset management firm’s approach to nature-related investments, to help companies reduce their negative impacts on biodiversity, and to explain to clients how their business operations depend on the natural environment. Ultimately, it’s about making nature “a keystone asset,” he explained.

“We have an economy now that is extractive, is fossil-based, it develops at the expense of nature and climate,” Palahí told POLITICO in an interview. “In the next 20 years, we need to transform entirely and holistically the economy so that it becomes a regenerative economy that is powered by nature, but prospers in harmony with nature.” He noted that supply chains across most industries will have to be radically transformed, including “food, fashion, chemicals.”

Read also: Nature: an asset class, not an offsetting strategy

Despite alarming warnings in recent years that the global economy depends on healthy ecosystems, the pace of change is “very slow,” Palahí said. “People are paralysed because they see the big picture … and they feel the difficulty to translate that in practical terms to their business.”

A big part of his job at LOIM is therefore to convince investors and financiers to invest in transforming company supply chains to put nature conservation at the centre. “Nature needs a long-term approach, and the problem is that our economy is working on a monthly basis, [a] quarterly basis,” he said. “It’s frustrating.”

His brief entails unlocking capital to get farmers to favour agroecological practices in coffee production in Latin America; to get fashion brands to move away from synthetic fibres; or to replace cement and steel with wood in construction.

Palahí sees his job as “translat[ing] in economic terms all these benefits” that nature provides, like clean air and water, crop pollination and pest control. “Because bees don’t send bills, people think that they are not there, but … they are doing amazing work, and without them you cannot produce many of our crops” – which is why their economic contribution should be assessed and should appear on companies’ balance sheets, Palahí argued.

He also would like to see more scientists opening doors to investment firms and corporate boardrooms, as he believes their knowledge of the natural environment is essential to accelerate the transformation of companies.

Taking the example of the finance sector, he said they should look at nature and “be like pollinators … connect[ing] flowers that have pollen with those that require pollen to fortify … bring[ing] capital to the places that are needed to create value, not to extract value.”

But he said he remains sceptical about new investment vehicles like biodiversity credits, and fears that this new market will become a “wild west” if it’s not properly regulated and tied to “reliable, scientifically proven” standards.

In September, European Commission President Ursula von der Leyen said she’d like to create “a market for restoring our planet” by launching nature credits.

But Palahí, who is also CEO of the Circular Bioeconomy Alliance, established by King Charles III in 2020, warned that these new biodiversity credits shouldn’t become a “distraction” from the fundamental overhaul that awaits the current economic system.

“People think that with carbon credits or nature credits, you will solve our problem of having an economy that is destructive toward nature, but you will not achieve that only with a credit, that’s for sure.”