The event in New York highlighted that, despite challenging market conditions, enthusiasm and commitment to the theme remains. Genevieve Redgrave reports
Environmental Finance welcomed over 150 attendees to its third annual Natural Capital Investment Americas conference. The event demonstrated the extent to which the theme is progressing year-on-year, with discussions moving beyond the ‘why’ and into the technicalities of the ‘how’.
While maturity on the theme still lags behind Europe, there was clear drive to scale up investment into nature. From innovative regenerative agriculture practices to the more established timberland markets, participants were keen to approach this theme broadly – and find out how to make it palatable to a North American market.
Market turbulence and sustainability commitment backpedalling were inevitably a point of concern for conference participants, but many highlighted that progress continues. Krista Gnau, market engagement lead (North America) for the Taskforce on Nature-related Financial Disclosures (TNFD), pointed out that many are “doing the work, but maybe not doing it publicly”.
With firm recognition that nature loss is a business risk, internal assessments and preparations continue, she said, arguing that the North American market is still “taking nature risk seriously”.
Rodolfo Jaffé, managing consultant at Ramboll, highlighted that it has been accepted as a long-term risk, with many “pushing forward in the absence of regulatory mandates”. Despite it now not looking likely that the US will introduce its own form of Biodiversity Net Gain – England’s mandatory biodiversity credit market – anytime soon, many are acting now in the expectation that this will come further down the line, he said.
Investor pressure was also highlighted as a key driver of company action by the TNFD’s Gnau.
Structural issues remain
There are wider structural issues, however, which continue to hold back nature investment in the US, particularly in more nascent or emerging themes.
Atish Babu, principal at Agriculture Capital, said “challenging” conditions for famers are holding back sustainable agriculture. While many farmers may be willing to look at sustainable agriculture or alternative revenue streams from a “value perspective”, the complexity of pivoting towards these opportunities is too high.
The US also fails to provide the regulatory environment and financial incentives that make credit markets viable as a business model elsewhere. This means sustainable agriculture investors cannot rely on these revenue streams, in the way that it is possible in the EU or Australia.
Jillian Dyszynski, director of climate finance at the American Forest Foundation, added that the “land rich, cash poor” small holder forestry owners, find it “hard to make it work”.
With this demographic being the largest forestry owners in the US, it is imperative that forestry investors address how to bring them into any opportunities and sustainability efforts, she said.
While timberland and forestry remains some of the most mature and stable nature investment themes in the US, the conference heard how difficulties remain in attracting attention. Rather than there being “keen interest” in forestry strategies, it is viewed as a diversification or inflation hedging opportunity.
However, MaryKate Bullen, managing director at Forest Investment Associates, pointed to growing demand for products from woodlands, adding that forestry investments can help meet climate and nature goals, which is becoming an increasingly important value driver.
It is therefore increasingly having to compete with real estate or infrastructure opportunities, according to JP Gibbons, senior investment director of sustainable and impact investing at Cambridge Associates.
Structural issues also linger within blue finance, particularly on the lack of standardised definitions, registries and enabling conditions. Despite this, it was highlighted as a clear area of opportunity, with the Inter-American Development Bank pointing towards a host of potential instruments from which it expects to see growth.
This includes blue bonds, debt for nature swaps, parametric insurance and blended finance instruments.
While blended finance was cited throughout the day as key to scaling up many markets, Invesco highlighted that its blended finance fund has seen challenges in working with multilateral development banks (MDBs).
Gerald Evelyn, senior client portfolio manager and lead for the taxable fixed income client portfolio management at Invesco, told the conference that aligning with MDBs on its Climate Adaptation Action Fund (ICAAF) proved to be a challenge.
With varying regional specificities in their mandate, “we had to pander to a number of customisations”.
It meant that institutional investors were more willing to take risk than their concessionary capital counterparts, he said – something which was highlighted throughout the day by other panellists as a sign that the winds are turning on nature investment. It was hoped that investors will soon be willing to take more risk on pre-development carbon project financing as well as more innovative structures.
Optimism
While there were many structural issues highlighted, these were not seen as a permanent block in the road.
The North American market is clearly willing to get down to business and begin acting on nature. While short-term headwinds are clearly playing a role, the conference suggested that many are in it for the long haul and willing to take a leadership role.
More stories from the conference:
The Bezos Earth Fund called for the development of ‘an operating system for valuing nature’. Paul Bodnar, director of sustainable finance, industry and diplomacy told the conference that “we treat nature as a valueless asset, worth more dead than alive”. Read the full story here.