N4C Finance Event: Enhancing Nature-Based Investment Funds for Scalable Impact, Returns, and Risk Profiles
Briefing Room 04.08.23
Charlotte Kaiser, BTG Pactual Head of Impact Finance. Photo by
Need-to-Know
- The N4C finance event, in the run up to the London Climate Action Week, gathered prominent investors, intermediaries, and solution providers to address the challenges and solutions related to scaling finance for nature-based investments.
- Expert panelists, including representatives from Schroders, Clarmondial, BTG Pactual Timberland Investment Group, and Climate Asset Management covered topics such as natural capital investing motivations, challenges, and investment opportunities.
- Emphasis was placed on financing solutions that protect, manage, and restore ecosystems to address climate change and societal challenges.
- The event discussed the potential impact of the Taskforce on Nature-related Financial Disclosures (TNFD) and the importance of connecting financial, agricultural, and trade policies. The need to overcome barriers to institutional financing for nature was discussed, along with how to develop diverse narratives to communicate natural capital strategies and risks effectively.
By Caroline Barraclough
“Can you balance risk, return and impact?”, “How do you create a natural capital narrative?” “Is nature an asset class?”. These were just some of the talking points at Nature4Climate’s collaborative nature finance event that took place ahead of London Climate Action Week.
From reforestation funds to space intelligence, from agricultural policy to the impact of the TNFD, leading investors, intermediaries and solution providers enjoyed an information-packed discussion on the ins and outs of scaling finance to nature.
The expert panelists were Andrew Dreaneen, from Schroders, Tanja Havemann of Clarmondial, Charlotte Kaiser from BTG-Pactual TIG, and Martin Berg of Climate Asset Management, from a diverse set of fund solutions, investing styles, themes and geographies.
Andrew Dreaneen, Head of Natural Capital at Schroders kicked off with an overview of Schroders informative new natural capital insight paper “Reconfiguring supply to unlock demand”, detailing the motivations, challenges and routes to natural capital investing.
“Everyone you talk to is interested in natural capital,” he said, having never seen such a high level of interest in anything over his 23 years at Schroders. Yet “often investors want nature, carbon credits, yield, return – and compromises have to be made.”
Andrew provided an overview of the three related but distinct investment opportunities that Schroders are pursuing in natural capital (real assets, nature-based solutions and private equity) and highlighted the fact that the flows into natural capital of $5-10 billion a year are still modest and need to grow massively to bridge the trillion-dollar funding gap.
Next up was Tanja Havemann of Clarmondial, an organization which creates investment solutions within the natural resource management sectors. Tanja emphasized the importance of aligning social and environmental objectives to make effective natural capital investments, by highlighting the World Bank definition of nature-based solutions: ‘actions to protect, sustainably manage, or restore natural ecosystems, that address societal challenges such as climate change, human health, food and water security, and disaster risk reduction effectively and adaptively, simultaneously providing human well-being and biodiversity benefits’ as particularly important.
Tanja emphasized the importance and opportunity that exists to finance natural capital across instruments, including working capital and project finance. Tanja shared Clarmondial’s experience with leveraging corporate value chain commitments to finance natural capital. And, she described how the Food Securities Fund has mobilized capital from institutional investors, and described the Biosphere Integrity Fund – a new fund being designed to finance value chains with contributions to natural capital improvements in landscapes.
Tanja was followed by Charlotte Kaiser of BTG Pactual Timberland Investment Group, who has “been in the trenches on investing for nature and climate for many decades”. Charlotte highlighted how nature can provide a third of the solution to meeting the Paris agreement, but at the moment nature-based solutions only receive around 3% of the overall financing, as to date they have proved too small and risky for most institutions. She emphasized how forestry investing can provide an institutional-scale solution and made the important point that a business-as-usual investment is perhaps mispriced – as nature and climate-related risks are not fully accounted for.
The final speaker was Martin Berg, CEO of Climate Asset Management, a joint venture between Pollination and HSBC Asset Management, which, Martin said, seemed “bold when it was founded three years ago…but how the world has changed.”
Martin made a number of crucial points about how the September launch of TNFD (Taskforce on Nature-related Financial Disclosures) has the potential to change everything – like its forerunner the TCFD (Taskforce on Climate-related Financial Disclosures). The more corporations and financial institutions understand nature-related risks, the more they will take it seriously, he said.
He highlighted the importance of scalable and mainstream investment solutions, and detailed Climate Asset Management’s institutional real asset approach – including a fund strategy for corporates that aims to deliver carbon credits.
Road ahead
During the discussion, speakers were pressed on issues ranging from the length of time it would take for TNFD to have real impact, to how to best ‘position’ investment solutions, to the policy asks most needed to drive financing at scale.
The expert panel emphasized the importance of connecting financial, agricultural and trade policies for a more holistic approach, taking steps to ensure that incentives reach smallholders at the bottom of the supply chain, and that the TNFD roll out might take a few years to have real impact – just like its forerunner the TCFD.
The discussion focused on breaking down the barriers to enable institutional financing of nature at scale and finding the best ‘narratives’ for natural capital. Liquidity challenges, comfort levels around revenue streams from non-traditional sources, and the need to scale impact as well as capital dominated the former, while the importance of bringing in diverse – and hopeful – stories about different ecosystems, articulating how natural capital strategies are pricing in a risk that is conventionally ignored, and being alert to the ears of different audiences (using a risk-based, capital preservation story in the US, for example) were recommended.
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