Nature technology is fast becoming a key investment theme, a study of leading investors has found, which also predicted that nature-based solutions (NBS) are likely to become an asset class in its own right.
The Nature4Climate study surveyed 121 global financial institutions such as BlackRock, Bank of America, Aviva Investors and Goldman Sachs to identify trends in nature investment.
Three quarters of respondents said nature technology was “important” for their investments or they were already actively making direct investments into nature technology. This might include areas such as food and agriculture technology, reporting and verification technology or nature data technology.
Lucy Almond, chair of the campaign group, told Environmental Finance that many investors just getting involved in nature investing are “still trying to figure out ways to get a rate of return”, especially in some NBS investments. However, it is much easier to understand the financial benefit of an investment into technology, she said.
“It’s one of the reasons why nature technology is an exciting area, because [all the investors] see the potential to make money off the back of it,” she said. One unnamed venture capital firm that works with Nature4Climate has set up a ‘dual’ fund which invests into nature-based solutions and nature tech companies.
It told Almond that “we know we’re not going to make much money out of the NBS side at the moment, but we might make our money on nature tech”. She said there are a lot of investors “experimenting in different ways like this”.
Nature-based solutions are also likely to go through an evolution as a financial instrument to become its own unique asset class. This is one of the key difficulties facing investors who cannot fit it into one of its existing asset classes, she said.
Over half of the respondents within the survey categorised NBS as its own asset class, but around a third believed that it would become a “more official” asset class in 2024.
Nature4Climate told Environmental Finance that it hopes this will develop, to help scale up investment into NBS, but noted it was “unlikely” in the next year.
Despite these challenges, respondents were positive that further institutional investments in NBS will be announced over 2024, with avoided deforestation, reforestation, agroforestry and forestation pinpointed as particular areas of opportunity.
To help scale NBS investment further, the study also called for better data and more comparable metrics – although Almond noted that this has been improving with collaborative market efforts such as the Taskforce on Nature-related Financial Disclosures [TNFD].
While investors were concerned about the current lack of quality data, many have begun to recognise “we don’t have everything, but we have enough to get going with it”, particularly on areas such as deforestation.
Biodiversity credits were also highlighted as a growing area of interest and an innovative way to help finance nature. While these “have potential to make a change”, Almond said these are “unlikely to be massive game changers … that change the entire financial system”.
The campaign group was positive more broadly about how nature investment is developing, and the interest it has seen from investors. “It’s still a nascent group, but it’s been interesting to see it grow over the past 18 months – particularly since events such as [the launch of the disclosure recommendations of the] TNFD or [the focus on climate and nature at the latest annual World Economic Forum meeting in] Davos”.
This has helped it rapidly come to the forefront whereas “it took a long time for climate to do the same”.
She said there is “huge investor appetite”, and “so much energy behind it that solutions will be found”.
The survey also found:
- Over 80% of respondents were motivated to invest in nature out of a “moral duty”. 36% also pinpointed “increasingly good returns” and 40% cited the potential to gain first mover advantage as a reason for investment;
- Nearly half of respondents had or were planning to set a biodiversity or nature-related policy;
- Over 40% had a dedicated engagement activity on nature negative impacts; and
- 30% were working towards a ‘deforestation-free finance’ commitment
Nature4Climate is a coalition of 26 organisations such as the UN Development Programme, the World Wildlife Fund, and the Nature Conservancy to promote the use of nature as a solution to the climate crisis.