Nature Positive Investment Forum: a call for ambition

Paternoster Square, the home of London’s Stock Exchange is rather devoid of vegetation but on Wednesday, seasoned investors from across the UK gathered at the trading venue for Net Zero Investor’s second Nature Positive Investment Forum to discuss investing in regenerative agriculture, trees and marine restoration. 

The event was opened by chair Tegolin Harding, trustee director and head of sustainability at the Independent Governance Group. Speaking in her capacity as chair of the Legal & General Master Trust, she acknowledged that she, like many of her peers was still at the beginning of the journey to allocating in nature. “Hopefully today’s conference will answer some of your questions and arm you with the knowledge to challenge your advisors and asset managers” she said.

Tangible impact

Pauline Vaskou, climate and responsible investment strategy lead at Aegon kicked off the debate by highlighting that the group has recently allocated £500m towards a nature positive investment strategy which firmly sits within its climate solutions. Besides asset allocation decisions, the best way for asset owners to drive change and use their resources was through stewardship and engagement with managers and corporates. Aegon uses expression of wish as a primary lever of engagement.

“We have a £200bn AUM. Yes, we can allocate to greener products but realistically if we are trying to restore ecosystems we need to know how we can leverage our entire portfolio to support the market to move from ignoring nature impact to at least making our investments neutral, if not positive” she stressed.

Anastasia Guha, followed up by adding the consultant’s perspective, stressing that nature and climate were inextricably linked. “We are not going to solve the climate crisis without looking at nature” she stressed.

A key priority of her work was to make nature impact tangible to trustees at portfolio level, Guha said. “It took us 18 months until we started working with a provider who is able to say to trustees this is what is happening in your portfolio” she said.

Guha highlighted that nature risks looked very different from broader climate risks and were predominantly found in Scope 3 measures. “The think we that is often left on the side [of carbon reporting] the value chain emissions, that is essentially your entire nature risks” she highlighted. This meant that different sectors, from materials over consumer staples to consumer durables ended up on the naughty step she warned.

Paul Bucksey, CIO at Smart Pensions added the master trust’s perspective to the debate. Unlike Aegon, Smart Pension is using split voting as a primary lever for stewardship and engagement. The £5bn master trust is also taking stock of deforestation risks across its portfolio and is currently eying investments in green infrastructure such as wind or green hydrogen he hinted.

Bucksey argued that the DC industry’s focus on cost was a key barrier to nature positive allocations. “We need to start looking under the bonnet of investment propositions we have to wean ourselves just looking at costs, that is acting as a huge barrier” he stressed.

Nature ‘bedrock of economy’

The second panel of the day focused on sustainable agriculture, with Nick Moss, head of nature-based solutions at Nuveen Natural Capital, stressing that natural assets are the “bedrock of our economy”.

Moss explained that Nuveen currently invests in timberland and farmland, both assets that have not only delivered solid returns over the past 20 years but also opportunities to meet Sustainable Development Goals through nature and restoration.

Following on from Moss’ introduction, Robbie Brett, environmental asset manager at the Church Commissioners for England, one of the largest landowners in the UK xplained the challenge of assessing the emissions of its big agriculture portfolio.

Brett explained that the Church Commissioners only has control of 40% of its land portfolio, meaning that on the other 60% it must have a “hands on engagement approach” to understand its carbon impact. However, on the land that the Church Commissioners have control of, carbon audits and farm letting assessments have been implemented, he added. 

Unlike the Church Commissioners, Chris Hart, nature investment strategy lead at the Phoenix Group, explained that natural assets are a new field to the £280bn asset owner, with it currently not having any holdings in the area.

Hart pointed out the various challenges surrounding investment into natural capital, including liquidity constraints and difficulties around data availability, suggesting that investors “don’t have to look at gaining direct exposure” to be invested in the asset.

To close of the panel, Danielle Carreira, head of finance sector engagement at the Tropical Forest Alliance, stressed the importance of blended finance in attracting investment in natural capital.

She explained that while many banks and sovereign wealth are putting money into the asset class, but there was still “not enough private capital” to ensure a “just transition for nature”.

Unfulfilled capacity

Josephine Richardson, head of research at the Anthropocene Fixed Income Institute called on delegates to be ambitious with the impact of their fixed income portfolio: “Fixed income engagement has the power to impact actors in a way that can not be achieved through traditional engagement strategies, the bond market has this year unfulfilled capacity for impact" she stressed. 

"Climate change is complex, lots of people don’t understand it, nature loss is easy to understand, we see it all around us, we connect with nature every day. That is its strength, it is helping us understand what is at stake" Richardson argued. 

A key trigger for incorporating nature risks could be when real losses as a result of nature risks were incorporated into credit ratings, a change, which could hit sovereign issuers in particular, she predicted. 

Timberland- more than carbon credits

Olly Hughes, managing director forestry at Gresham House kicked off the debate by outlining some of the portfolio characteristics of timberland. Gresham House has some £3.5bn invested in forestry across the UK, Australia and New Zealand. “Forestry can be purely seen as an opportunity to generate carbon credits but it can be so much more than that, it is a net absorber of carbon dioxide, irrespective of the carbon units that are coming out of it” he stressed.

Dr. Stavros Siokos, managing partner at Astarte Capital Partners made the case that to truly make an impact, a global approach was needed as the global South offerd the most significant potential for change.  "Trees are the only proven method to take carbon out of the air, we need to go where there are a lot of plants where there are a lot of hectares and where we can have an impact" he stressed. For example, trees in Brazil are growing at a pace that is on average six times faster than in Scotland, he said. 

He also stressed that timberland could play a crucial role in the phase out of fossil fuels: “Anything that is produced by fossil fuels can be made out wood from formula one tyres to fibre for clothing” he highlighted. Consequently, he urged investors to go out of their comfort zone

He predicted that access to water, land and logistics to transport would become the defining factors for successful timberland developments.

Michael Littlechild investment manager at South Yorkshire Pensions Authority shares his experience of recent allocations to Timberland. The potential supply demand imbalance was one factor which had impacted the fund's decision to allocate. Littlechild believes that global demand for timberland is on track to increase significantly. Another advantage were the diversification benefits, with timberland being largely uncorrelated from traditional asset classes, he stressed.

Nature positive equities

The afternoon sessions started off with a panel on nature-positive equities, with the discussion focusing on the availability of data when investing in natural capital.

Lee Backhouse, senior manager responsible investment at Scottish Widows opened the discussion by highlighting that Taskforce on Nature-related Financial Disclosures (TNFD) reports can provide data on nature assets, but it has become a “tick box exercise, which was never the intention, it is there to drive risk management”.

Josh Brewer, responsible investment officer at £3.3bn Oxfordshire County Council Pension Fund, echoed the point that TNFD data can be “patchy”, particularly around location, making investment in the area difficult.

Brewer explained that members of Oxfordshire Pension Fund overwhelming voted for it to invest in natural capital, however the fund is looking to do this through private markets as opposed to equities.

James Monk, GPS investment director at Fidelity International, also echoed Brewer’s point on location and TNFD’s lack of “detail” that would be beneficial for investors.

“This is an area which needs more development, enabling better assessment of the risk of continued biodiversity loss and how it will impact and translate to different areas. This will change the minds of investors,” Monk stressed. 

Restoration - ground-breaking solutions

“The next panel of the day was focused on investing in nature restoration, with Andy Turnbull, senior investment manager, UK Nature Impact Fund at Federated Hermes, explaining that the scale of the nature market has the potential to be £3bn over the next few years.

Turnbull explained that currently Federated Hermes’ strategy is invested in peatland restoration and timberland but is focused only on the UK due to the “robust and government-backed” frameworks in the country.

Cain Blythe, CEO/founder of CreditNature, responded to Turnbull’s point by expressing that work with other governments will hopefully attract more investment into nature restoration outside of England. He explained that CreditNature is currently working with the Scottish government to increase the amount of “high integrity products”.

Adding to these points, Jacqueline Jackson, chief sustainability officer at London CIV, stated that “scale” and “quantifiable benefit” are two factors that will increase investor interest in this area.

“Investors need to see scale and credibility and a lack of this is daunting for investors”, she told delegates.

Jackson added that asset owners also want to see how investing in this space will minimise climate impact and social damage. She noted that marine eco-system solutions could be “ground-breaking” for investors as they are thought to sequester 20% of carbon emissions, “these are the benefits investors want to see”.

Real estate - new building materials

Paul King, CEO of Built to Nature opened up the discussion on real estate by highlighting that over the next 35 years, we are going to double the footprint of our built environment. The combined footprint of cement and steel is similar to that of China or the US, he warned, making the case that timber should play a key role in replacing some of these carbon intensive materials.

Mike Batley, project manager sustainable finance at Systemiq followed up by highlighting that real estate is one of the sectors which is most exposed to nature risks. TNFD could provide a crucial framework in measuring some of the risks and opportunities for nature investing, he predicted. From an investor’s perspective, making the case for timber as a scalable solution was essential, he added.

Restoring the oceans

The day was rounded up by Fuyao Wang, research analyst at Planet Tracker who highlighted the key role of marine restoration in order to reverse the impact of global warming. Wang outlined how investors can support this endeavour, among others by investing in the traceability of the seafood industry. This could help with reducing the impact of food waste she stressed. 

Another option to invest in marine restoration is through impact bonds, Wang showed. While blue bonds are an asset class which has received quite a bit of publicity,  blue recovery bonds aimed at steering back the tide on overfishing remain underappreciated, she said. 

Investors could also help restore the oceans through venture capital investments which offer exposure to regenerative aquaculture projects, for example farms producing seaweed. 

Wang closed off her presentation by warning of the potential impact of deep-sea mining, stressing that the total cost to the global economy could be equivalent to global defence spending.