Want to invest in nature? Guess what, you already are.
Whether you like it or not, if you are an investor, you are already investing in nature.
Across Aotearoa New Zealand and around the world, all global gross domestic product depends, either directly or through supply chains, on nature: clean air and water, productive land and diverse and thriving flora and fauna.
That means, every investment – and every investor – relies on nature too.
Business activities not only impact nature but also depend on it, meaning the degradation of nature we have seen in recent decades has become a material financial risk to investor portfolios.
In light of global agreements and treaties, as well as an increasing array of international, national and local regulations and reporting standards focused on halting nature damage and pushing for nature restoration, it has become critical for investors to understand and measure nature-related risks in current and future investments.
Risk is the portal through which most investors currently see nature – if they see it at all. Self-interest and self-protection are powerful motivators in an uncertain market. But the time has now arrived when forward-thinking investors – the type who tend to do better during moments of convulsive change – are starting to ask themselves a couple of different questions:
Not just, “What climate risk am I exposed to through my portfolio’s dependencies on nature?” but “What responsibilities do I have as an investor to be part of slowing and reversing nature loss – a problem that is existential for everyone in the market and everyone on planet Earth?”
And then: “What opportunities might there be for investors sage enough to grasp first mover advantage and put themselves at the forefront of a global shift towards nature positive business?”
The global momentum we are seeing to address nature risks in financial systems and restore natural ecosystems presents unique opportunities for investors to direct capital towards businesses that contribute to or benefit from nature positive outcomes. This also helps align their portfolios with the growing consumer demand for sustainable and responsible investment options.
Nature-related risks and opportunities coincide, impact and interact with other significant environmental, social and governance (ESG) challenges and opportunities, including climate change, human rights, and genuine partnerships with Indigenous People and Local Communities (IPLC). This heightens the potential impact of these risks and opportunities, and strengthens the case for investors to consider them holistically.
It hasn’t, traditionally, been all that easy to do this. Nature is a highly complex area for investors and while the dependency or impact of some companies on nature is obvious to see, in many instances it can be much more opaque. If companies themselves were not aware of their exposure in this area, how could potential investors arm themselves with the necessary information?
That’s all changing now. We have arrived at a point where there is enough information available for investors to start assessing their portfolios and asking the right questions. As data availability and quality improve, these assessments will become more sophisticated.
The advent of the Taskforce on Nature Related Financial Disclosures (TNFD) framework not only enables companies to report more thoroughly on their exposure to nature risk, it can also act as a useful signal of which companies are most active in doing so. Around the world, hundreds of corporates have signed on as TNFD ‘adopters’. This list of companies, and the information they report, should be a productive seam to mine for canny investors, wanting to situate themselves at the vanguard of the economic shift to nature positive.
Alongside such reporting there are increasingly more resources being produced to help investors trace a path through emerging risks and opportunities associated with nature. One example is the Nature Investor Toolkit, set to be launched on 19 September at the RIAA Aotearoa NZ Conference. Developed by a group of RIAA’s Nature Working Group members, including asset owners, asset managers and data providers, the toolkit seeks to empower investors by defining key concepts and directing them to current market-leading industry resources.
This area is fast moving and evolving, and the toolkit points investors towards tools they can use to identify and assess nature-related risks and opportunities in existing investment portfolios, define and identify ‘new’ nature-related investment opportunities, and design nature-related focus areas for stewardship, including company engagement, voting and contribution to policy and advocacy.
As the toolkit makes clear, investors have vast power to demand more from companies when it comes to nature. If expectations are set, metrics are put in place and progress is demanded it will become increasingly difficult for corporate leaders to avoid their responsibility to be part of the solution for nature repair.
Of course, investing in companies is not the only way investors can seek to surf the nature positive wave. Nature-based solutions across the world are engaged in activities that seek to regenerate biodiversity on land and in water, at the same time producing carbon credits that are bought and sold on international markets.
The fight against climate change has given us a live natural capital market based around emissions mitigation and carbon storage that is now acting as a firm foundation for emerging nature markets more directly linked to biodiversity outcomes.
Many New Zealanders will be familiar with the concept of “Te Ao Mārama”, based on whakapapa, and referring to the rich, interconnected diversity of all life, resources, and biodiversity. That beautiful idea is an appropriate one for the way investing should work in an economy striving towards nature positive.
According to the United Nations, around US$200 billion in investment is needed each year by 2030 to reverse nature loss and meet nature positive targets. If our economies are themselves an ecosystem we need many actors across it to do their part if this goal is to be achieved. Investors have a massive part to play.
Grappling with nature and capitalising on the opportunities it offers requires a different way of thinking about investment. Such is the scale, the urgency and the cost of the transition we need that action can only be catalysed by different aspects of our societies and economies joining together. We need governments and companies working together but also informed by sources of information and expertise including Indigenous People and Local Communities. The interconnectedness of Te Ao Mārama is what puts each of us at risk if nature collapse continues around the world but it also means we each have an opportunity to lead and benefit from nature repair.
Guy Williams, Co-Chair of RIAA’s Nature Working Group and Executive Director at Pollination Group
Guy is Co-Chair of RIAA’s Nature Working Group and an Executive Director at Pollination. Guy brings over 20 years’ experience at the leading edge of industry innovation and strategy in biodiversity and natural capital. Prior to joining Pollination, Guy held global roles at some of the largest consulting and advisory firms, as well as being an integral part in the development of many nature-related frameworks and standards such as the TNFD and SBTN. Guy possesses a deep interest in primate conservation, and the use of digital media and community-led storytelling to support effective conservation strategies.
Disclaimer: The views and opinions expressed in this article are solely those of the author(s) and do not necessarily reflect the view or position of the Responsible Investment Association Australasia (RIAA). This article is intended as general information and should not be considered investment advice. It is recommended to seek appropriate professional advice before making any investment decisions.