private assets
Tapping the potential of nature-based investing
Experts and researchers gathered at LOIM’s Transition Investment Summit in Zurich to discuss how nature-positive investing fits into the key system changes underpinning the environmental transition. What solutions are being designed to foster regeneration and resilience while capturing value for investors?
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The value of nature investing
What is the motive for sustainable investing – is it value, or values?
That was the question posed by Doctor Zacharias Saunter, Professor of Sustainable Finance at the University of Zurich and Senior Chair at the Swiss Finance Institute, as he gave the keynote speech at the recent Transition Investment Summit (TIS) in Zurich.
The event brought together climate experts and leading voices from finance to explore how sustainable investing can achieve returns while also hastening the transition from today’s emissions- and resource-intensive economy to a new economic model, one that is Circular, Lean, Inclusive and Clean (CLIC®).
For Saunter and summit host Jean-Pascal Porcherot, Lombard Odier Managing Partner and Co-Head of Lombard Odier Investment Managers (LOIM), the answer was clear. For sustainable investing to succeed over the long-term, it must be about managing risk and uncovering value.
However, Porcherot noted, while the environmental transition is creating perhaps “the biggest investment opportunity since the industrial revolution,” the task for investors is far from straightforward.
System changes require systems thinking
The transition to a sustainable economic model defies traditional investment analysis, Porcherot explained. “The environmental transition is a complex topic to address. It is not structured around classical sectoral clusters: it is about complex, interconnected system changes.”
Thomas Hohne-Sparborth, PhD, Head of Sustainability Research at LOIM, and Felix Philipp, PhD, LOIM Sustainability Analyst – Materials & Circularity Lead, expanded on this theme. The environmental transition, Hohne-Sparborth said, is unfolding through major changes in three systems – energy, land and oceans, and materials. “Across these systems we have seen a number of success stories. For example in energy, the International Energy Agency says that we have already passed peak coal demand, and that we will see peak gas demand by 2028 and peak oil by 2029. Solar is now the cheapest form of energy.”
Philipp added: “In the land and oceans system, we saw a deforestation law passed in the EU [European Union], and in materials we’ve seen progress on a plastics treaty. These are changes in our environmental systems, but what about social systems? We are witnessing a transition in healthcare, too. Instead of a ‘sickcare’ system that spends mostly at the end of life, we think we will move towards a patient-centric system where the focus is prevention.”
How can investors respond to a world facing physical and environmental limits? Philipp asked. Agreeing with Porcherot and Hohne-Sparborth, he concluded: “We have to invest in system changes.”
Towards an economy powered by nature
Doctor Marc Palahí, Chief Nature Officer at holistiQ Investment Partners1, LOIM, explored a fundamental part of the systems changes underpinning the environmental transition – nature.
“We have reached a tipping point,” he said. “The shocks that we are creating can no longer be absorbed by nature. Losses are accelerating at an unprecedented rate: for example, wildfires in Canada in 2023 emitted more than three times the annual emissions of the entire Canadian economy. Food systems are facing a perfect storm of climate change and nature degradation. As a result, cocoa prices have surged over 250% in the last year to reach USD 10,000 per tonne, more than double the previous record high.”
In terms of finding solutions, he warned, “We are drowning in information but starving for wisdom. If we want to rewrite our future before it’s too late we must rethink our economy. We have to move from a closed system to an open system – an economy powered by nature.”
From carbon source to carbon sink
Despite the perils facing the environment, nature’s regenerative power offers hope, Palahí explained. Nature-based investing has the potential to bring both economic and ecological resilience, he said. For example, nature-based agriculture could turn our food systems from a carbon source into a carbon sink, while reducing the cost of farming inputs by up to 62% and, in some circumstances, even improving yields2.
Taking coffee beans as an example, he noted, “Coffee plants living in forests live for decades, but when farmed as monocultures they live for just a few years.” Highlighting agricultural research, he explained that regeneratively-produced coffee grown in agroforests can sequester up to 4.5 kg of CO2e for every kilogram of fully processed coffee, as opposed to the 22 kg of CO2e that is emitted for each kilogram of conventional coffee3.
Regulatory conditions and the market backdrop augur well for nature strategies. For instance, as retail coffee companies come under pressure to reduce the emissions embodied in supply chains, and policy and regulations like the EU’s anti-deforestation law4 tighten, Palahí concluded: “Demand for nature-based assets could outstrip supply.”
A nature strategy for regeneration and value
Taraneh Azad (pictured above), Co-Head of holistiQ Investment Partners, LOIM, explored how nature-based investing can work in practice. LOIM’s strategy, she explained, is to acquire potentially productive agricultural brownfield sites and convert them using regenerative agriculture practices, with the aim of increasing the value of the land while simultaneously producing ‘nature-positive’ crops that command a market premium.
Coffee beans are the ideal crop to launch the model at scale, she said, because coffee faces unprecedented threats from climate change, and research has demonstrated coffee’s suitability for regenerative production techniques. In addition, she noted, speciality coffee is benefitting from strong demand growth, with today’s USD 54 billion specialty coffee market expected to grow to USD 153 bn by 20305.
Already, she continued, LOIM is exploring the potential of sites across four countries – Ethiopia, Laos, Tanzania and Columbia – having identified the most climate-resilient land and built a large team with deep expertise and long-standing experience in nature-based solutions across the tropical belt. With a plan for long-term agreements, and contracts denominated in USD, talks are now underway with major corporate buyers. Interest is being fuelled by the compelling nature-positive story, the exceptional taste profile of the product, and the potential to reduce supply-chain related emissions for growers.
For corporate buyers, LOIM’s deep understanding of the frameworks surrounding corporate net-zero commitments is a further draw, Taraneh explained. In turn, long-term investors are drawn by the 10-year investment horizon that targets returns in the high teens6, while aiming to restore local biodiversity and the carbon sequestration capacity of agricultural landscapes.
A multi-sector outlook
Nicolas Mieszkalski, LOIM Portfolio Manager for strategies including TargetNetZero Equity, explained that while opportunities in sustainable investing are abundant, investors must take a rigorous approach. At LOIM, he explained, “We implement a systematic investment process. We have a risk-controlled framework and we invest in all sectors of our economy” to achieve diversification while seeking to align portfolios with the Paris Agreement.
For Hohne-Sparborth, this multi-sector outlook is essential. “We have to understand how every sector offers opportunities,” he said. “In energy, we are moving from a linear system to a decentralised, bi-directional power grid – infrastructure will be key. In carbon markets, we believe carbon will be priced at over USD 150 – are firms ready? In materials, we aim to favour bio-based materials and a circular system that reuses and recycles more. In food, we will have a zero-tolerance approach to land-use change and we will create nature-positive value chains. Applying our approach across all systems gives us a broadly diversified set of opportunities.”
The breadth and depth of these changes led summit host Porcherot to explain how Lombard Odier has adapted to what he called “a complete rewiring of the economy.” “Over the past six years we have invested in building a strong sustainability research team, consisting of more than 50 professionals today,” he said. Highlighting research partnerships with leading universities, and the launch of holistiQ, Lombard Odier’s dedicated sustainable investing platform built in collaboration with systems change experts Systemiq, he concluded, “For us, sustainability is above all an investment conviction.”
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