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Why investors should consider investing in nature

The global economy depends more on nature and biodiversity than you may think.

Improving and preserving biodiversity is essential to our existence: human life on Earth needs a thriving global ecosystem to survive. Not only does restoring nature help lower global temperatures, but it also ensures farms can continue to provide crops. In addition, healthy ecosystems help prevent the spread of disease.

At the recent Cop28 meeting, leaders also focused on issues around nature, land use and oceans, and discussed how to best tackle climate change and the damage being inflicted by rising global temperatures. They reaffirmed their commitment to tackling the biodiversity crisis and pledged to place it “at the centre of climate action”.

Investment in nature restoration is desperately needed to ensure a broad range of markets and systems can continue to operate. According to the World Economic Forum (WEF), more than half of global economic value generation depends “moderately or highly” on nature.

One example is the coffee industry, which is highly vulnerable to nature degradation. Sixty per cent of wild coffee varieties are currently in danger of extinction owing to climate change or deforestation. This has a knock-on effect for the farmers who produce coffee beans, the companies who distribute coffee, and the cafés that serve it.

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For example, in 2021 Brazil experienced its worst drought for almost 100 years. This was followed by a spate of cold weather. These extreme weather events destroyed much of the coffee crop, causing prices to spike. The effects took time to overcome as coffee plants typically need several years to mature.

Investing to prevent further deforestation and degradation that in turn prevents the extinction of varieties of coffee and other crops would help to secure farmers’ livelihoods and related businesses around the world. And more businesses will look to protect their natural assets from rising temperatures or extreme weather.

Arguably, investment in nature restoration is needed to protect global supply chains. Many organisations may find they have hidden dependencies on the natural world. For example, the cosmetics industry relies heavily on natural ingredients such as shea and cocoa butter. Production has both been enabled and affected by deforestation. The World Wildlife Fund reports that Côte d’Ivoire lost 94 per cent of its forest cover between 1990 and 2015, and at least a third of that was due to cocoa farming. Finding more sustainable and long-term alternatives and improving local biodiversity should help safeguard these industries.

Thriving ecosystems play a vital role in carbon capture and sequestration. For example, maintaining a healthy and prosperous ocean will assist in absorbing harmful carbon emissions from the atmosphere. The ocean is the world’s largest carbon sink and captures a quarter of all CO2 emissions. Studies estimate that $174.5bn is needed every year until 2030 to meet the UN’s Sustainable Development Goal (SDG) 14, which looks to ramp up protection for sea life and oceanic ecosystems.

There is potential to invest in what has been dubbed the “blue economy”. In the UK, a major issue is the protection of critical infrastructure from coastal erosion. This can be done with seagrass beds or salt marshes. These can protect towns and villages on the coast from extreme weather, improve local biodiversity and capture and store carbon.

International regulation is shifting towards recognising the urgency of protecting biodiversity and nature. In 2023, the Taskforce for Nature-related Financial Disclosures (TNFD) launched a framework that aims to encourage companies and financial institutions to look more closely at their reliance and impact on nature. The new UK biodiversity net gain regulations also require developers to improve the biodiversity of the area of development by 10 per cent.

We believe that looking into innovative ways to improve the biodiversity of towns and cities, and for ways to reduce the impact of international financial markets on global ecosystems, will become important areas for investment as regulators focus on the need for action.

Investing in nature protection helps companies protect themselves against further nature-related risk and creates greater awareness of each organisation’s dependence on the natural world.

Admittedly, some biodiversity loss cannot be restored. As temperatures rise, even if the world does hit its global climate targets, there is an urgent need for adaptation – particularly in the agricultural industry. New techniques such as vertical farming, which can allow crops to be grown throughout the year, offer a potential solution.

There is a growing consensus that preserving and increasing biodiversity matters. Humans rely on nature: without adequate investment, we are at risk of losing essential supply chains and assets. We believe biodiversity restoration poses a vital opportunity for investment.

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