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"Real nature-based assets will become a new form of real estate" – an interview with Marc Palahí
Article published in FundsPeople, 7 May 2024
After 25 years of experience in the field of science, nature, forests and biodiversity, Marc Palahí joined Lombard Odier Investment Managers (LOIM) in June 2023 as CNO (Chief Nature Officer). For 10 years he led the European Forest Institute. He is also CEO of the Circular Bioeconomy Alliance, an initiative promoted by HM King Charles III of England.
Nature’s transition
The aim is to design investment strategies that revolve around nature. In the effort to give nature a voice, it is essential to move towards "a circular bioeconomy model, which leaves behind the current linear, extractive model that has characterised the fossil economy of recent centuries," he says. "The energy transition began 20 years ago, but now we also need to rethink food systems and production models. We're talking about nature's transition," he adds.
In this new model, nature can be the source of many alternative solutions, but also the ultimate engine of a new economy adjusted to the ecology of our planet. "In fashion, organic cotton or bamboo, in construction, wood, in food, moving from an extractive system that generates negative externalities to a regenerative one that generates ecosystem services such as carbon sequestration or aquifer recharge," he explains.
Read more: Why nature is becoming a new asset class
The coffee example
Palahí uses coffee cultivation as an example of this. Coffee is one of the crops that most leads to deforestation. For every kilogramme of coffee produced using conventional methods, about 20 kilogrammes of CO2 are emitted (including the average impact on deforestation). The current model is extractive, based on monocultures that require many inputs in the form of synthetic fertilizers and pesticides. In addition, coffee plants exposed to the sun have a much shorter life span (10-20 years) than if they lived in their original habitat: the forest. That is precisely the ecosystem we should be recreating; forest coffee plantations, adjusting the economy of coffee to its ecology as a plant," he explains.
That way, not only will quality coffee be produced, with plants with 5-7 times longer-lifespans, but the new system, instead of emitting, will absorb carbon, and improve biodiversity and water quality instead of destroying biodiversity. "Coffee production, especially arabica, is at risk due to climate change as it does not tolerate rising temperatures well. Coffee produced with the forest system creates a more suitable microclimate and is resilient to climate change," he explains.
Such transformations can be very interesting investment targets if, for example, degraded assets are acquired and regenerated, transforming extractive agricultural systems into systems that work in symbiosis with nature, supporting biodiversity and sequestering carbon." The example of coffee can be applied to other crops, such as cotton and cocoa. Companies that produce or are linked to these products may be interested. Nature has to become a cornerstone asset class because it is our most important capital at the end of the day," he says.
Ecosystem services
Palahí gives the example of the Spanish dehesa as a system that produces food while generating environmental services (biodiversity, carbon, protection of soils and water resources, etc.) and landscapes of great value.
"We must bear in mind, as we have already seen in the case of Spanish olive oil, that in the next ten years, we may see many episodes of food chain disruptions due to climate change. Food inflation continues to rise, as well as insurers' costs for weather-related losses, so it's important that nature be known as our most vital life insurance and as the new engine of the economy."
Challenges and potential
Palahí acknowledges that in the current framework there are many challenges that can slow down his proposal: "The lobbyists for synthetic fertilizers and pesticides, the model of agricultural and livestock subsidies, the lack of knowledge and research into new regenerative models," he says. In his opinion, the problem is that sustainable production cannot be more expensive than unsustainable production, "they would have to pay for negative externalities, there is a regulatory problem," he says.
On a financial level, he sees nature as an asset class in itself. "So far it's been played in a more philanthropic way. We have this idea that the best thing we can do for nature is to separate ourselves from it, but it is not a museum, it can be the engine of change in our economy," he stresses. However, Palahí considers nature to be the most undervalued asset class in the world: "The demand for climate-resilient and nature-positive land is going to drive the biggest asset appreciation of the century. Real nature-based assets will become a new form of real estate."
holistiQ
Last June Lombard Odier Investment Managers (LOIM) launched holistiQ Investment Partners in collaboration with Systemiq (a company specialising in the transformation of key economic systems, such as energy, food and nature, materials, the built environment and finance). holistiQ is a sustainable asset management company integrated into LOIM and dedicated exclusively to sustainable investing. It aims to accelerate the shift towards a more productive and sustainable economy and become the preferred partner for asset managers to navigate the environmental transition. "There are about twenty of us working in the nature field, looking for opportunities," he says.
Read more: The rapid rise of nature-based investments
In his opinion, "in the next two decades we are going to see one of the most important economic transformations of recent centuries: the ecological transition of our economy". Companies and the financial sector will jointly have to reinvent and finance new value chains in businesses such as food, fashion, construction, and chemicals. "At the Circular Bioeconomy Alliance, we work with the private sector to test new production and business models inspired by nature, biology and ecology as a framework for rethinking the economy," he concludes.
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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