By Bruce Howard
The plight of global biodiversity and the climate system has received increased attention in the past two months, courtesy of two international summits. Bruce Howard, Director of the UK’s Ecosystems Knowledge Network, argues that while governments are behind the curve in addressing the systemic risks posed by nature and climate, this opens the way for substantial opportunities for the investment sector.
At the COP16 biodiversity summit in Colombia last month, investors and corporates made some of the biggest noises in favour of action on nature. From food to fashion, businesses are working hard to manage supply chains and infrastructure with specific dependencies on healthy habitat. Government signatories to the Convention on Biological Diversity, meanwhile, were not on the front foot in Colombia. Only a minority have fulfilled a straightforward commitment to publish National Biodiversity Strategies and Action Plans.
Nearly 13,000 km away in Azerbaijan, the COP29 climate gathering closed. Over 60,000 delegates were part of it. Some progress has been made, including early agreement over standards for a global voluntary carbon market. The UK delegation presented a UK Government set of principles for voluntary carbon and nature markets. Negotiations on money to aid developing countries in their climate transition have, however, been sluggish. Much of this rests on the blending of public and private finance. The multilateral development banks have stepped up their contribution on climate finance to US$120 billion for developing countries by 2030, with one third going to adaptation.
As the recent nature and climate COPs now find their place in the chequered history of global environmental summits, investors and insurers are left with a bitter-sweet mix of challenge and opportunity relating to nature and climate.
Thanks to the recent COPs, it is clearer than ever that governments cannot be relied upon to work together to manage the state of the natural environment on behalf of business, investors and society. They find it particularly hard to pool the financial resources to support those nations and people groups that are disproportionately disadvantaged by environmental limits being crossed. This should be no surprise. Environment-related targets set by global government consensus are usually too little, too late. And they are rarely fulfilled.
This is a bleak situation. But it is one in which responsible investors can find opportunity. In particular, land, water and nature can be managed in ways that deliver greater climate resilience (or at least reduce the impact of extreme weather). In June this year, the Green Finance Institute, working with leading research establishments, identified a potential 12% hit on UK GDP in the coming few decades due to the combined effect of climate change and nature degradation.1 In response, investors, including those managing assets owned by the insurance industry, now have a clearer line of sight into the ‘natural capital’ investment arena. Natural capital is essentially the ‘machine’ – made of components like groundwater, soils, water courses and vegetation – that delivers value for businesses and the economy. Climate resilience is a major part of that value.
Natural capital for climate resilience is now being eyed at the regional level. Look for example at the investable proposition that Rebalance Earth – boutique asset manager – is forming around Plymouth City Region in the UK, with support from the pensions industry.2 The Nature Finance UK Conference in London earlier this month gathered over 400 professionals to explore investment opportunities of this type, including the nature markets that underpin them.
The role of natural capital investment for climate and biodiversity outcomes is particularly heightened for asset management in the insurance industry. After all, insurance plays a pivotal role in enabling investment in land, water and nature. Howden’s latest ‘Great Enabler’ White Paper – published at COP29 – sets out the vision for this.3 Insurers need to work with investors to ensure that private capital can be deployed expediently to address the inter-woven nature and climate vulnerabilities of so many businesses, financial institutions and economies.
All investments carry risks, and this is no different for nature-based projects such as the restoration of degraded natural habitat on the basis of its contribution towards net zero and flood risk reduction. The expertise available among insurance investment is so key to this.
The convening of separate climate and nature COPs is now out of step with the realisation that these aspects of the natural world are intrinsically connected. The insurance investment sector does not need to wait for governments and inter-governmental bodies to see this. Insurers – and those that manage their assets – can find commercial advantage in delivering the urgent collective action of governments is unable to do achieve.
Nature and climate are intrinsically linked. The same can now apply to insurance and responsible investment.
About the Author
Bruce Howard directs the annual Nature Finance UK Conference in London, as well as the Ecosystems Knowledge Network; a UK wide non-profit harnessing the expertise of 4,000 professionals in the environment, planning, health, corporate and finance sectors.
