“What if it could be more profitable to regenerate nature than to deplete it?”
That was the opening question from Michael Urban, Lombard Odier Chief Sustainability Strategist, as he gave the keynote speech at a panel devoted to closing the ‘nature investment gap’ at the annual Building Bridges conference in Geneva. Now in its fifth year, the conference brought together policymakers, regulators, scientists, and leaders from the financial and business spheres to explore new ways to channel financial flows towards the transition to a sustainable economy.
Urban began by asking delegates to rethink the impact that our consumption could have on nature. Instead of viewing consumption as necessarily bad for biodiversity and the natural world, he suggested that nature-positive farming models could create a win-win for the planet and the economy – with increased commodity production leading to both economic growth and accelerated nature regeneration. To drive this change, he said, first and foremost, “it has to boil down to a compelling investment proposition.”
Mind the gap
Joining Urban for a deep-dive exploration into nature-based investing, Elisa Vacherand, Global Finance Practice Deputy Leader at WWF International, highlighted the extent of today’s nature investment gap. “Our economy doesn’t compute nature as an asset. We don’t value it,” she said. Every year, “USD 7 trillion […] goes to activities that are harmful to nature – USD 5 trillion of this comes from the private sector.”
Calling for finance to be redirected towards nature-positive activities, she added, “The nature-finance gap is around USD 700 billion each year that we need to close if we want to achieve nature-positivity by 2030.”
Delegates heard that an underlying problem is that nature remains a niche proposition for institutional investors. As such, it can be a difficult investment theme into which capital can be deployed at scale in both listed and private markets. And its integration into the climate sphere remains incomplete.
According to Andrew Lilley, Sustainable Investment Head, Europe at consultancy Mercer, there are two key culprits. “The first is at the global policy level. Nature is fragmented – it didn’t major at COP29 and the TCFD [Taskforce on Climate-Related Financial Disclosures] and TNFD [Taskforce on Nature-Related Financial Disclosures] are still seen as separate workstreams by most investors.”
He continued: “The second issue is that nature is complicated. We can overcome some of this by making sure people know that taking some action now is better than taking none. To start with, this might be just to identify the sectors they should focus on.”
Forest, land and agriculture
Echoing this point, Urban highlighted the Forest, Land and Agriculture (FLAG) sector which, he noted, occupies 60% of habitable land and is responsible for one third of man-made greenhouse gas emissions.1 For agriculture, he explained, “The solution is to transition to a nature-based model, reducing inputs such as chemical agricultural inputs, moving to healthier soil practices, reducing tillage, and instituting cover cropping and crop rotation.”
“This has a huge opportunity to move the sector away from being a net contributor to emissions, to being a net carbon sink.” Outlining the potential for private-markets investors, he continued, “We have the conviction that there is a business model for this new way of producing agricultural products. By following a fully vertically integrated consumer staples model, brownfield agriculture assets can be transitioned, free cash flows upstream increased, and potential financial and environmental outcomes for corporates and investors achieved.”
Lilley further emphasised the importance of making the case for growth. “Cataclysmic stories of climate catastrophe are not necessarily helpful.” Instead, he said, “Nature is a potential opportunity that investors have to get on board with.”
Brownfield agriculture assets can be transitioned, free cash flows upstream increased, and potential financial and environmental outcomes for corporates and investors achieved.
The coffee blueprint
Here, Urban turned to a real-world example – the coffee industry. Coffee, he said, is “a huge consumer market made up of incredibly complex, fragmented value chains – there can be twenty intermediaries between a farm and the final cup. Coffee is also highly vulnerable to climate change. Science says that 35% of areas suitable for coffee production today will be unsuitable in the foreseeable future.”
However, he continued, “Coffee is highly suitable for a nature-based model. After a short transition period [from monoculture farming to an agroforestry model] you can recoup your production volume, or even increase it. And there are buoyant specialty markets where you can sell your product. The value proposition […] is acquiring land that produces cashflow of ‘X’ today […], and you can increase that by a multiple of ‘10X’ through a nature-based model by moving to specialty markets and cutting out the intermediaries.”
This total-value-chain approach is key: by securing corporate offtakers and managing coffee production, distribution and retail in a regenerative way, an attractive real-asset opportunity can be structured for investors.
While the investment case comes first, Urban noted, it remains, “fundamentally linked to the impact proposition.” Nature-based coffee can store more carbon than is emitted during production, providing a powerful pitch to consumers. “It can also yield more than 100 KPIs [Key Performance Indicators] on environmental and social issues.”
Chief among these, he explained, is the redirection of capital flows to the coffee producers themselves, achieved by cutting out the intermediaries. This benefits smallholder farmers, local communities, and governments in the Global South, home to many of the world’s most biodiverse ecosystems and important carbon sinks. With this model rolled out at scale, and across other suitable agricultural commodities, the flow of capital could enable vital nature restoration in regions currently at grave risk of deforestation and highly vulnerable to global warming.
A new chapter for nature
For nature-based investing to realise this potential, panel moderator Kitty Parker Brooks, Head of Marketing at holistiQ Investment Partners, the sustainable-investment platform of LOIM, asked: “What are the organisational barriers we need to overcome?”
Eva Zabey, CEO of Business for Nature, explained that policy is key. “To go from experimentation to implementation we need a policy environment that gives certainty to businesses, investors and financial markets,” she said. Highlighting recent advances – such as the European Union’s Corporate Sustainability Reporting Directive and China’s response to Target 15 of the Global Biodiversity Framework – which are increasingly pushing companies to disclose their impacts and dependencies on nature, she said: “These have given a strong signal to companies that has elevated nature into the boardroom.” As company reporting requirements expand, delegates heard, so the availability of data needed by financial institutions will grow.
Crucially, though data capture remains imperfect, investors are already seeing a clear opportunity. At Mercer, Lilley noted, “We’re seeing money flow into nature, sustainable forestry and regenerative agriculture.”
LOIM’s Urban highlighted the same pattern. “From the investor standpoint, it revolves around directly acquiring real assets.” He said. “Why do we think we’re on the cusp of seeing this transformation in the coming years?” Put simply, “We believe demand is set to outpace supply for nature-based agricultural products.”
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