The recent fourth annual Natural Capital Investment Conference, hosted by Environmental Finance and supported by Sustainable Finance Guernsey, saw a number of local practitioners attend and speak.
The conference attracted 300 attendees, including institutional investors, asset managers and service providers, and the discussions focused on integrating nature and biodiversity into investment decisions and analysis. The event highlighted the increasing momentum towards this new sustainable investment opportunity. Speakers at the conference discussed the hurdles and possibilities for financial institutions, investors, corporations, and service providers in this fast-developing sector.
Rebecca Booth, Client Director, Carey moderated a session featuring William Mason of the Guernsey Financial Services Commission, who spoke about the world’s first biodiversity-focused fund regime, the Natural Capital Fund. Here she reflects on the day’s discussions
Given the current peak in interest towards sustainable investing, institutional investors are now directing their attention towards a neglected aspect of environmental well-being – biodiversity. As a result, there are growing calls to factor biodiversity into the evaluation of all companies and their investors. However, despite the growing number of funds being established, investment prospects related to natural capital are still constrained.
Taskforce update
The day opened with Abyd Karmali, the managing director for climate finance at Bank of America. He previewed the data framework that the Taskforce on Nature-related Financial Disclosures (TNFD) is set to release. The framework will offer quantitative metrics highly applicable to sustainability-linked loans and bonds.Abyd is seeing a shift of capital to nature-positive outcomes.He believes $4trn of American GDP could be lost due to biodiversity risk.TNFD is the market lead for this shift and is aligned with scientific data and government endorsedAbyd explained the LEAP concept of Location, Equate, Assess and Prepare as a common framework and language for biodiversity disclosure in the finance sector.TNFD has been tasked with making the framework for disclosure similar to TCFD, so it has taken the same four-pillar framework of governance, strategy, risk management and metrics and added impact to the risk management pillar.The TNFD timetable for disclosures were discussed with key dates as follows:
Metrics being released on 28 MarchComments to be received by JuneThe next version of TNFD will be published in SeptemberIt was noted that it is not yet known how financial institutions and investors will drive the use of TNFD, but the metrics are expected to be used in financial instruments and bonds.
COP15 for Investors
The event continued with a keynote panel moderated by Peter Cripps, Editor, Environmental Finance. The discussions focused on the most meaningful outcomes for nature-based solutions and investment-driven initiatives following COP 15, asking how investors should react and adapt, has enough been achieved, and what are the steps forward?
Panellists included David Vyravipillai, Investment Manager, Railpen; Emine Isciel, Head of Climate and Environment, Storebrand; Maria Nazarova-Doyle, Head of Pension Investments, Scottish Widows; Matthieu Maurin, CEO and Co-Founder, Iceberg Data Lab and Vian Sharif, CEO, NatureAlpha and Head of Sustainability, FNZ.
Emine Isciel, emphasised the significance of the precautionary principle with regard to biodiversity concerns and investment exclusions for the Norwegian financial services firm.
The panel noted that investors will be asking for reporting on the impact on biodiversity, including through the supply chain, similar to how climate impact is currently being reported.It is expected that more resources will be required for ESG teams to achieve the reporting and analysis requirements, particularly as data sources are not yet available across all areas. This is expected to be available in five years, although a call for data consistency was requested.Investors will soon ask for reporting on the impact on biodiversity, including through the supply chain, similar to how climate impact is currently being reported.Investors need to understand the locations of investments to ensure there are no stranded assets as well as other biodiversity factors to be included in the investment decision-making process
Assessing biodiversity risks
During a fireside chat, Snorre Gjerde, the lead investment stewardship manager at Norges Bank Investment Management, pointed out that the need for location-specific data on companies’ operations and supply chains poses a significant challenge to assessing biodiversity risks.
Regulation and nature-related disclosures
I joined another panel session to moderate a discussion about regulation and nature-related disclosures with William Mason, Director General, Guernsey Financial Services Commission; Dr Sam Lacey, Business Development Director, NatureMetrics; Eloisa Menguzzo, Research Analyst, Responsible Investment, PGGM and Ross Grier, Managing Director, NextEnergy Capital.
The session covered the following themes:How might the development of standards and TNFD requirements raise the expectation of nature-positive performance?What are the practical challenges for organisations in implementing the TNFD framework, alongside meeting the requirements of SFDR and other climate-related risk frameworks?How organisations can measure, assess and report on the materiality of nature-related risksThe role of natural capital accounting and how it might be applied
It was fantastic to see the audience’s reaction to the Natural Capital Fund regime. It seemed to be positively received by all who attended the session
Nature Action 100 Initiative
The afternoon continued with another fireside chat with Rashila Kerai, an analyst and biodiversity specialist at Robeco, who discussed the Nature Action 100 investor collaborative engagement initiative.
Rashila spoke about the engagement already taking place in relation to natural capital investment and biodiversity and the new investor coalition. This NA100 Initiative was soft-launched in 2022 at the Montreal Biodiversity Conference with a strategy to drive real-world change through investment.
Rashila explained the reasons why collaboration across investors is an important driving force:When we amplify voices as a collective, it sends a signal to the market that biodiversity topics need addressing and disclosureCollaboration drives efficiency as companies only need to have one conversation with an investor group which would pass on to their underlying partners
The next steps for NA100 will be to identify 100 companies to improve climate performance and biodiversity, with an official launch in June 2023.
How to scale natural based solutions & mitigate risks
During a panel discussion around scaling natural-based solutions and mitigating risks, Mark Halle (UNEP) explained how his organisation supported seeding capital into nature-based solutions. However, he warned that investors must take risks in this asset class as it is an emerging market with associated execution and climate risk.
Esben Brandi (BTG Patual Timerland Investment Group) explained that he was excited by the entrants coming into the forestry market but cautioned not to just focus on hectares and number of trees being planted but also the tending, land management and development of the forest and a biodiverse area.
The panellists agreed that this asset class used blended finance from governments and private investors but was not a class with high returns, more single-digit.
Unlocking Capital & Biodiversity
Later in the afternoon, Hans Mehn was back on stage to join Deepshikha Singh, Head of stewardship at La Francaise Asset Management; Natasha Mawdsley, Nature and Food Systems at Systemiq and Maya Hennerkes, Director, Green Finance Systems at Climate Strategy & Delivery at EBRD.
Hans explained there are huge gaps in the capital required to achieve global biodiversity objectives; he is positive that the capital inflows will be achieved, but the timing is critical.
He estimates that $150bn currently goes into conversation finance, mostly from public finances, and the blended finance approach which has been used in the renewables sector is a good model to fill the gap. He called biodiversity investment ‘the opportunity of our time’
Natasha Mawdsley added that collaboration between private public and philanthropic funding was need to meet the financing gap required of USD500bn by 2050.
The panellists explained that blended finance would work best if government grants were available to undertake feasibility studies to then create products for private investment.