rethink sustainability
Financing a nature-positive future: Net Zero Delivery Summit 2024
Why is now the time to invest in nature? For Dr Marc Palahí, Chief Nature Officer at holistiQ Investment Partners, Lombard Odier Investment Managers (LOIM), that was the key question as he joined a panel of leading sustainable investment voices at the third annual Net Zero Delivery Summit, hosted by the City of London Corporation at London’s prestigious Mansion House.
Held at the halfway point between Dubai’s COP28 and COP29, to be hosted by Baku, Azerbaijan later this year, the summit provided an opportunity to assess progress on the pledges made at the seminal Kunming-Montreal COP15 biodiversity conference and COP28, and to explore how finance innovations can catalyse further climate action.
Read more: re-NATURE Hub – putting nature at the heart of climate action
At a panel entitled ‘Securing a nature-positive future’, Dr Palahí told delegates that to achieve the Paris Agreement target of net-zero emissions for the long-term we must first build a new economic model based on nature.
Why now?
“There are three key things driving both the need and the opportunity to invest in nature,” Dr Palahí began. “The first is the unprecedented physical risks caused by climate and nature degradation. The more we degrade nature, the less carbon is absorbed from the atmosphere. In turn the more temperatures rise, and the more extreme weather events we see, the more nature is degraded, for example by forest fires. This negative cycle means we are reaching critical tipping points.”
“This also causes economic disruption. Supply chain disruptions may cause up to a 3% rise in the cost of food each year – recently we’ve even seen cocoa rise 280%1. There is also a significant impact on the insurance industry. Global insured losses due to climate and nature risks have doubled in the last five years compared to the previous five. In 2023, wildfires in Canada led to claims of USD 720 million, the costliest event in the history of British Columbia2. Companies are investing in nature-based solutions to make their supply chains more resilient to these threats.”
Read also: Building a sustainable chocolate supply chain
“The second driver is the need for corporate Greenhouse Gas (GHG) mitigation solutions,” Dr Palahí continued. “For most food and agriculture companies, over 90% of their GHG emissions come from land-use and land-use change [when natural landscapes are taken over by agriculture and intense farming practices using fertilisers and pesticides]. They can’t just offset these emissions, so nature-based solutions play a critical role in mitigating their emissions.” The beauty of nature-based solutions is that they can really help adapt our land systems to climate change.
Dr Palahí explained: “The third driver is the changing, maturing relationship that businesses have towards nature. On the one hand this is due to the demand-pull of new policy and regulation. Policymakers are increasingly introducing legislation that demands corporate action to reduce their impact on nature and demonstrate supply chain traceability, for example the EU’s Deforestation Regulation and Directive on Green Claims.”3 On the other hand, nature-based solutions have provided the financial industry with a proof of concept that is ready to be scaled up. This could be termed a supply-push underpinned by over 20 years of both scientific and philanthropic projects in this space.”
Shaun Carazzo, EMEIA Financial Services Climate Change and Sustainability Leader at EY, agreed with Dr Palahí on the importance of regulation, noting that reporting frameworks such as the Taskforce on Nature-related Financial Disclosures – which call for companies to disclose the extent to which their business models both impact and rely on nature – are changing how EY clients view nature. Calling for greater corporate urgency when it comes to restoring nature and tackling emissions, he said that while these frameworks are, to date, largely voluntary, they should be made mandatory.
Marc Palahi, Chief Nature Officer at holistiQ Investment Partners, LOIM
Investing in nature
Continuing on the same theme, Dr Palahí expanded on the investment opportunities being created by the new regulatory regime. “These drivers are responding to a need but they are also creating an opportunity. In the same way that nature and climate degradation can create a negative cycle, there can also be a positive cycle that comes from implementing climate and nature solutions.”
“Until recently, investing in nature has been seen primarily as an off-setting strategy to counter-balance a failure to cut emissions. At Lombard Odier, we want to transform value chains and invest for future success, rather than offset today’s failure.”
Read also: Why invest in nature, the world’s most undervalued asset class?
“Our strategy is to acquire real assets – for example, underperforming monoculture farms and degraded land – then partner with local communities and specialists on the ground to deploy capex in the form of nature-based solutions to turn them into regenerative farms such as agroforests. We also want to invest in restoring ecological corridors to allow biodiversity to flourish, enhancing the “immune system” of the overall landscape.”
“We aim to transform them into more resilient and productive assets, and improve their economic, climate and nature value. We refer to them as nature-based assets. We are starting out with coffee because coffee is highly-exposed to the nature and climate crises. It is also well-suited for growing in agroforestry systems, and speciality coffee is already reshaping the coffee market. But there are lots of products across multiple value chains that would benefit from this approach.”
Financing nature
Grant F. Reid, Chair of the Agribusiness Taskforce at the Sustainable Markets Initiative, and former CEO of Mars, noted that half of the world’s habitable land is now given over to agriculture4. Food production is leading to deforestation and landscape degradation on a vast scale, even as a rising population leads to growing demand for food. He concluded that nature-based investing has gone beyond a business imperative and become a key part of reversing an unfolding human crisis.
Shaun Carazzo gave delegates cause for hope, highlighting recent increases in nature-related financing, but warned that much more is needed: “Between 2021 and 2022 we saw an 11% increase in nature financing, but that number needs to triple by 2030 and quadruple by 2050, if we want to effectively mitigate our effect on nature.” For Dr. Palahí, this is where the finance industry must step in. Today, there is a USD 700 billion shortfall in the nature-related investment we need – it is the role of the finance industry to find innovative investment solutions to close this gap, he explained.5
Growing international focus on nature and biodiversity will provide fresh incentive for the industry, noted Mariana Sarmiento, CEO of Terrasos, a Colombian firm specialising in nature-based investment. Policymakers are now seeing biodiversity loss and climate change as twin crises, and this year’s COP16 is likely to see an increased focus on the creation of business models that support nature, she explained. COP16 will also assess progress on National Biodiversity Plans, which will include a focus on innovative financial instruments that can accelerate the transition to an economy that works in harmony with nature.
Dr. Palahí agreed. “Nature finance and nature-based solutions are key tools in reversing biodiversity loss, transforming landscapes and value chains and creating a more climate-resilient economy,” he said. “Nature is our keystone asset and the true engine of our economy. It is the most sophisticated technology on the planet. The next ten years are crucial. We need to invest in nature now.”
1 Cocoa prices continue to rise. When might the tide turn? - Just Food (just-food.com)
2 Okanagan and Shuswap area wildfires cause over $720 million in insured damage (ibc.ca)
3 Regulation on Deforestation-free products - European Commission (europa.eu)
4 Half of the world’s habitable land is used for agriculture - Our World in Data
5 Closing the Nature Funding Gap | The Nature Conservancy
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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