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Building Bridges 2023: mobilising trillions to create a net-zero, nature-positive economy
For many years, the focus of international efforts to build a sustainable economy has fallen on climate change. Now, with humanity’s hunger for food and materials causing landscape degradation and biodiversity loss on a vast scale, this focus is expanding to include the nature crisis. Increasingly, science is showing the link between the two. With healthy natural landscapes acting as vital carbon sinks, protecting and restoring nature is an essential part of tackling the climate challenge.
At Building Bridges 2023 in Geneva, an international conference dedicated to accelerating the transition to a sustainable economy, this focus on nature was clear from the start. Hubert Keller, our Senior Manager Partner at Lombard Odier, joined global leaders in finance, industry and policymaking to explore the role that large-scale finance can play in addressing “the twin climate and nature crises”.
Making nature count
Opening the conference, Patrick Odier, Chairman of Building Bridges, spoke of the urgent need to focus on “technical solutions”. Following the success of the ‘Climate-related Financial Disclosures’ regulations, under which corporations must report on the risks they face from climate change, he highlighted the need for landmark new ‘Nature-related Financial Disclosure’ guidelines to “be implemented as fast as possible.”
At a panel entitled “Making Nature Count,” Elizabeth Maruma Mrema, Co-Chair of the Taskforce on Nature-related Financial Disclosures (TNFD), launched the new guidelines for the first time in Europe. The proposed framework, she explained, would require companies to report on the risks to their business from biodiversity loss and nature degradation, along with the commercial opportunities that might arise as action is taken to restore degraded landscapes. With more than half of global GDP reliant on nature and the ecosystems services it provides, the new framework will ensure transparency for investors, so that capital can be allocated in a way that protects portfolios from the risks created by nature loss, and accelerates the shift to a nature-positive economy.
Moderator Eva Zabey, CEO of Business for Nature, explained that the TNFD guidelines are one of two key frameworks that have put nature firmly in the spotlight. While there has been a “deep sense of frustration and impatience” that the global community has not acted quickly enough, she said, momentum is now building for change, with “196 governments adopting the [2022 Kunming-Montreal] Global Biodiversity Framework, which sets the roadmap for action towards a nature-positive world by 2030.”
Mobilising trillions
The sums needed to successfully achieve this transition are vast, explained Hubert Keller, Lombard Odier’s Senior Managing Partner. Speaking at a panel which posed the question “Why Are Trillions Not Mobilised?” he noted, “we need to clarify that we are looking at the biggest economic transformation of all time. It’s not only about energy systems. It’s also about the new materials economy. And it’s about the complete transformation of the relationship between the economy and nature”.
90% of the technology and other solutions we need for the transition to happen are already available, he said. So the key questions are, “Is capital flowing at scale in the right places? And, if not, what should we do to unlock it?”
In our energy systems, he explained, capital is flowing for the transition from fossil fuels to renewable electricity: “In the Global North, with the building blocks of electrification, we have crossed tipping points and are moving towards mass adoption. In 2021, we saw about USD 1 trillion of capex being deployed in the electrification of our energy systems.” This, he said, is “unlocking a new investment cycle.” The bad news, he warned, is that the same capital flows are not being seen in our materials systems or towards nature investments, and that this shortfall is particularly pronounced in the Global South.
Avinash Persaud, Barbadian Special Envoy on Investment and Financial Services, highlighted the extent of the problem: “We need USD 2.4 trillion going to developing countries every year, because there’s no pathway for the planet to be preserved if we don’t get a green transformation in developing countries. We are asking them to transform more quickly than has ever been done anywhere else in the world. We need to invest in these countries to support their transformation.”
Future-proofing food systems
The threat to nature, the conference heard, is perhaps most acute in our food systems, which are responsible for 90% of deforestation and 25% of all biodiversity loss. With agriculture now occupying half of all habitable land on Earth, a switch to regenerative farming will be key to turning degraded landscapes back into healthy ecosystems.
Read also: Meet FarmED – the farm putting soil first
Speaking on the “Transition Costs and Economic Models for Regenerative Agriculture”, Matthew Watkins, Senior Sustainability Analyst at Lombard Odier, warned that while our food systems are stoking climate change, climate change itself “is going to have a massive impact on agricultural growing regions.” For investors, he said, the switch to regenerative agriculture will bring new opportunities in agricultural equipment manufacturers, with regenerative farming needing a more diverse range of machinery. Seed production will also offer opportunities, particularly in seeds that are engineered to be resistant to pesticides. So, too, will biological pest control solutions – such as natural pheromones used to lure pests away from crops – that can help to minimise the use of synthetic chemical pesticides.
Yann Vuillerod, Global Sustainable Sourcing Leader at Nestlé, highlighted the importance of changing our attitude to food. “How do you value the importance of food for your health?” he asked. “How do you value quality over quantity?” Major food producers have a responsibility to accelerate the transition towards diets that are better for both people and the planet. However, consumers must also be part of the solution, he said: “Everybody has a role to play. The idea is to get critical mass for the transition, because we need to future-proof our food systems.”
Read also Swiss farming – a pioneer in sustainable agriculture | Lombard Odier
Investing in nature
Matthew Watkins also highlighted the potential for regenerative farming to create new opportunities to invest in nature itself. “We see much more of a role of nature as an underappreciated asset class. The potential for direct investments in nature to capture some of the benefits of ecosystem services is not currently recognised by the market today,” he said.
At Lombard Odier, we believe that nature is currently the world’s most undervalued asset class. Regenerative farming will play an important role in driving the biggest revaluation of the next century. Regenerative commodities – those produced in harmony with nature – will command a premium among buyers committed to minimising their environmental footprint. As degraded agricultural land makes the switch to regenerative farming, biodiversity will return, soils will be renourished, and restored ecosystems will once again become a carbon sink. Land values will rise and carbon or other nature-based credits will flow. Meanwhile, myriad other nature-based investment opportunities will come to the fore, as nature is increasingly recognised as an asset class in itself.
To date, transformations in our energy system have led the sustainability transition – but our nature and materials systems are catching up fast, with fundamental tipping points promising to revolutionise the investment landscape. For investors, as Hubert Keller put it, this represents “the biggest economic transformation of all time.”
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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