Transition tipping points are turning nature into a new asset class: Transition Investment Summit 2024

Tipping points for the global economy are on the horizon. The ways in which today’s food, energy and materials systems exploit our natural world are starting to come up against physical limits. It’s clear that change is necessary, and identifying the ways they will change was the focus of our Transition Investment Summit, which took place in London on 16 May.

“Global warming, sadly, is literally baked in for the next few years. It’s not a risk, it’s a certainty,” said keynote speaker Mark Cliffe, a renowned climate change expert who is a Visiting Fellow at the Global Systems Institute, University of Exeter, and Visiting Professor at the London Institute of Banking and Finance. “Having committed to net zero, we need to figure out how we are going to get there.”

Nature and nature-based solutions provide a clear path towards creating this net-zero world, and the reasons why were unpacked in a series of clear and convincing presentations and panel discussions throughout the day.

The need for nature-based solutions

The soaring price of cocoa is just one symptom of what has become an unsustainable global food system, according to Thomas Hohne-Sparborth, Head of Sustainability Research at holistiQ Investment Partners, Lombard Odier Investment Managers (LOIM), and Marc Palahí, Chief Nature Officer at holistiQ, LOIM. “Extreme weather and weak value chains have driven a 360% increase in cocoa prices in a little over a year¹,” Hohne-Sparborth highlighted, adding that nature is showing the world the problems that exist with its current economic model.

Read also: Building a sustainable chocolate supply chain

“Our world has become too big for our planet,” Palahí added. “The food sector is responsible for around a third of global emissions² and 90% of deforestation³. Development has been taking place at the expense of nature. We are crossing the planet’s safe operating boundaries⁴, and when planetary boundaries are crossed, natural systems can no longer absorb shocks, so our economic system will have to absorb them instead.”

The most striking evidence of this is a sharp rise in insurance losses due to climate-related disasters – average annual payouts exceeded USD 110 billion in 2017-22, more than double the previous five-year average.⁵ Science is showing us the clear interconnection between climate change and biodiversity loss, Palahí added, but pointed out that it is also giving us the knowledge to build new value chains that help protect nature.

Nature as a new asset class

Nature absorbs over half of the world’s emissions every year⁶, and this is why markets are starting to put a value on nature and nature-based solutions, said Morten Rossé, Head of Nature and Climate at holistiQ, LOIM. “Nature is not just worth investing in, it is investment ready,” he said. “If you value carbon at USD 150 per tonne, nature should be capitalised at the same size as the real-estate market. Markets are starting to see this value, and that’s why we believe this is the decade for nature.”

Read also: Supporting the transition towards a nature-based economy

This principle is guiding holistiQ’s strategy of investing in land that has become degraded by monocultural practices and restoring it to healthy agroforests that boost biodiversity and crop yields, and can capture more carbon. “The starting point for this strategy is coffee,” Rossé said. “It’s an iconic product. We drink two billion cups every day⁷, but the value chain of coffee is its biggest weakness. It’s highly unbalanced, highly inefficient, highly emitting. Sales are already being disrupted by specialty markets that use coffee beans grown using agroforestry and regenerative farming practices. People are starting to care about where coffee comes from in the same way they do with wine.”

Fundamental system changes such as this are part of why sustainability represents the “biggest investment opportunity we have seen since the industrial revolution, happening at the pace of the internet revolution”, said Bettina Ducat, Co-Head of LOIM. Finding the most promising opportunities in this transition requires taking a much more selective approach than may have been the case in the past, Hohne-Sparborth suggested, and Ducat expressed the same sentiment. “Our approach is that we are looking for niche markets that will transform into mass markets – as has happened with solar power,” she said.

Building sustainability scenarios

“We have to understand ecology to create a new economy,” Palahí said. “Our markets are drowning in numbers but are struggling for wisdom.”

This point was also made by keynote speaker Mark Cliffe. “Traditional risk modelling is completely inappropriate for climate change because we live in a world of volatility, uncertainty, complexity and ambiguity,” he said. “No amount of modelling will save you if you are not asking the right questions.”