Reinventing Nature as an Asset Class: Insights from SF.live
In the evolving realm of sustainable finance, the potential for investment in nature is immense but requires substantial funding and commitment. A panel of experts at SF.live recently addressed the critical need to reimagine nature as an asset class.
Current Challenges in Nature Projects
Rachel Barza, associate director and lead on climate adaptation and nature finance at the EBRD, opened the discussion by highlighting the piecemeal approach to projects, which often feel more like isolated heroic efforts than sustainable initiatives. She cited specific remediation projects in Moldova and Kosovo that, while receiving municipal support, still demand considerable effort to bring to fruition.
Barza expressed concern over the protracted timelines, saying, “Some projects take up to a decade to develop. The necessary analytics can require a Ph.D. dissertation in just six months. We cannot sustain this for each project; we need to streamline the process, whether that involves leveraging data, utilizing AI, or simplifying project cycles to encourage innovative solutions.”
Moving Beyond Perpetual Pilots
Addressing the question of what it takes to escape the cycle of perpetual pilot projects, Stuart Schofield, partner and co-head of energy transition and climate change at Opus Corporate Finance, outlined the characteristics that attract investors to new asset classes. He shared a historical overview of investment trends from wind and solar to biogas and vertical farming, emphasizing that all require significant effort to demonstrate value.
He noted that investors seek projects that offer consistent and substantial long-term capital deployment opportunities, rather than one-off initiatives, which they often view as inefficient uses of their time.
Building a New Market Framework
Eoin Murray, chief investment officer at Rebalance Earth, candidly assessed the current market landscape, stating, “The reality is that the market isn’t fully developed yet. For growth, we require corporations to recognize and pay for the value of nature. Presently, most view nature as having no economic value.”
Murray proposed two essential strategies to stimulate investment in nature:
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Quantifying Nature’s Value: Nature must be acknowledged as a tangible asset on balance sheets. Murray stressed the pivotal role that accounting practices can play in reshaping perceptions.
- Diversifying Nature Portfolios: Adding variety to nature investment portfolios can mitigate risks. Murray advocated for a mix of terrestrial and marine projects to ensure balanced investments, highlighting the opportunity for biodiversity gains alongside carbon-focused initiatives.
Murray further explained that traditional infrastructure projects, which generally depreciate, often attract investor support, while nature initiatives, which can appreciate in value, need to be positioned similarly.
The Path Forward for Responsible Investment
Guillaume Levannier, director at PwC, emphasized the necessity for standardization and transparency within the industry. He identified three critical developments: robust regulations, blended finance models, and well-informed corporate buyers driven by disclosure guidelines.
From a public sector viewpoint, Charlotte O’Leary, CEO of Pensions for Purpose, discussed the challenge of investor awareness. Many investors lack insight into the nature of their investments and their impacts. O’Leary believes that the industry often capitalizes on this ignorance, advocating for a shift in focus toward progressive impact rather than merely maximum returns.
Using vertical farming as a case in point, O’Leary stressed the importance of showcasing the benefits of investments, suggesting that engaged public interest can drive greater investment. This shift must be championed at the leadership level, supported by both employee advocacy and sensible regulatory measures, such as the NC17 amendment to the Pensions Schemes Bill.
“This conversation is about evolving our approach to systems for sustainable impact, emphasizing long-term thinking over short-term gains,” she concluded. “Research by Pensions for Purpose has shown that it is indeed possible to achieve market-rate returns across various asset classes, challenging the notion that financial performance must come first.”
Understanding and integrating these perspectives will be vital for the future of sustainable finance and investment in nature.