In the battle against climate change and biodiversity loss, a promising ally is emerging: nature-based solutions (NBS). As the urgency to confront these issues grows, so too does the recognition of nature’s potential to provide an effective and sustainable remedy.
The concept of nature capital was first referenced in 2008 by the World Bank and although nature has since been gradually gaining recognition as an asset class, historically, it has only received a fraction of global climate capital. Bain & Company reported that only 2% of $632 billion deployed globally each year in climate capital goes towards nature.
Still regarded as a relative newcomer to the climate innovation stage, the nature capital landscape is constantly evolving. From the important task of decarbonizing land to the strategic investments in forestry, the meticulous management of woodlands, and the vital processes of carbon sequestration, the scope is vast and growing at speed.
Take a deeper dive and natural capital thinking extends to practices such as regenerative agriculture, restoration, and rewilding initiatives, as well as the intricate mechanisms of biodiversity net gain (BNG), nutrient offsetting, environmental exchanges, and the development of supportive tax and legislative frameworks.
Private capital is starting to flow as investors are beginning to see the enormous environmental benefits and promising financial returns. This emerging asset class presents attractive market opportunities from revenue generation to job creation, particularly in sectors like forestry and carbon credits.[1]
The Challenges Today
Although the notion of nature as an asset class holds considerable promise, there are key challenges hindering its integration into financial markets. These include:
1. Valuation complexity. Accurately valuing ecosystem services is complex and there is a need to refine valuation methods. The differences and delays in developing the Biodiversity Credit market highlight this complexity in comparison to the Carbon Market’s more standardised approach.
2. Rights and ownership. Property rights and ownership of natural assets can be a contentious issue, becoming more complex when ecosystems cross borders and involve multiple stakeholders.
3. Lack of standardisation. The absence of standardised metrics and impact reporting templates for natural assets poses a significant challenge for investors looking to incorporate them into their portfolios.
The Opportunities Ahead
There is growing support that nature as an asset class has the potential to drive sustainable growth in the financial markets. Over the past five years, more than 50 new funds dedicated to nature capital have launched, a 20% increase from the previous five-year period.[2] In addition, the 2023 Annual Report published by the Forest Investor Club projects that investments in nature could generate $3.6 trillion in annual business opportunities and 191 million jobs by 2030.[3]
There is little doubt a more conscientious and caring consumer, changing agri-environmental policy, and a boardroom focus towards achieving net zero has influenced the market push towards nature conservation. This shift in behaviour has resulted in Savills throwing its weight behind the nature capital opportunity. The global real estate services firm now has a specialist team of eight dedicated professionals advising estate owners, farmers, and businesses on the environmental and financial benefits better stewardship of their land brings.
What Does This Mean For Brands?
Clarity in positioning and messaging is paramount for brands wanting to stand out from the crowd, particularly as competition for share-of-voice in this new asset class increases.
As the demand for impact investing grows, brands that have a powerful narrative delivered with meaning and authenticity will benefit the most. And by articulating the environmental and financial advantages of investing in nature, brands will be able to attract the attention of pension funds and asset managers.
The Future of Nature Capital
While nature capital as an asset class is not without its challenges, it signifies a profound change in our relationship with the environment. Nature isn’t merely a source of beauty but a fundamental pillar of economic prosperity. Viewing nature through the lens of an asset class underscores the necessity for sustainable and ethical investment approaches that safeguard and enrich the value of our natural resources.
One company committed to tackling climate change and the biodiversity crisis is Oxygen Conservation who secured £20m of conservation-based debt lending a year ago. The organisation has been acquiring land across the UK, spanning from Cornwall to the Scottish Highlands, to protect and restore the natural and built environment. With an operational ethos around offering a variety of natural capital products and services, enabling nature to fund its own preservation and enhancement, Oxygen Conservation believes that our natural environment is the most valuable asset we possess.
For an asset class that delivers positive environmental and social impact, I can’t think of a more deserving cause than nature capital.