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Nature and its services as an asset | Rebalance Earth

Q&A with Robert Gardner, Co-Founder of Rebalance Earth

2024-04-29

Published by investESG

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Rebalance Earth recently published a white paper titled ‘The Nature Opportunity: Investing in our most valuable asset – Nature.’ Could you outline the attributes that, in your view, make nature the most valuable asset class? Additionally, could you highlight the key findings of this report?

The findings from our White Paper prove our dependency on Nature and the services it provides, highlight how the finance industry can embrace Nature and its Services (NaaS) as an asset class, and recommend how we can transition to a nature-based economy by having the companies that have the biggest dependency, impact, and risk on it pay for Nature’s ecosystem services.

The services that Nature provides, such as flood protection, drought reduction, water purification, crop pollination, and carbon sequestration, are worth an estimated $125-140 trillion annually, which is nearly one and a half times greater than global GDP. Ultimately, the whole economy is highly dependent on Nature. At a corporate level, 85% of the world’s largest companies depend significantly on Nature across their direct operations, while PwC reckons that 55% of the world’s GDP is exposed to material nature risks.

 

The services that Nature provides, such as flood protection, drought reduction, water purification, crop pollination, and carbon sequestration, are worth an estimated $125-140 trillion annually, which is nearly one and a half times greater than global GDP. Ultimately, the whole economy is highly dependent on Nature.

 

However, for 3.5 billion years, we have enjoyed Nature’s services for free. We have now exceeded the capacity limits of this “free trial” period. To continue benefiting, we must invest in upgrading to Nature’s “premium plan” in conservation, restoration, and regenerative systems. If we fail to upgrade, we risk losing Nature’s life-sustaining services completely.

So, how do we unlock the value of Nature to help protect and restore it? We need to apply the three key attributes that define an asset – cash flow, utility, and scarcity value – to NaaS, which we can do using seagrass as an example:

〉Does Nature have cash flow potential? Yes.

Seagrass meadows have substantial cash flow potential for local communities and businesses, starting with breeding and feeding grounds for numerous juvenile fish species, including bass, plaice, and pollock, which have commercial value if fished sustainably.

Furthermore, seagrass meadows are among the most efficient carbon sinks in the world. They account for 10% of the ocean’s capacity to store carbon despite occupying only 0.2% of the sea floor, and they can capture carbon 35 times faster than tropical rainforests.

 

Seagrass meadows are among the most efficient carbon sinks in the world. They account for 10% of the ocean’s capacity to store carbon despite occupying only 0.2% of the sea floor, and they can capture carbon 35 times faster than tropical rainforests.

 

We need to improve the science of how much carbon 1 hectare of seagrass can store. A report by the Intergovernmental Panel on Climate Change (IPCC), focusing on oceans and the cryosphere, points out that mangroves, salt marshes, and seagrass meadows can store up to 1,000 tonnes of carbon per hectare, much higher than most terrestrial ecosystems. If we restored half of our lost seagrass in the UK, then we would create over £1 billion in stored blue carbon.

〉Does Nature have scarcity value? Yes!

Seagrass is now in decline globally due to human impacts, threatening the loss of these free services. Once plentiful in UK coastal waters, these meadows are now diminishing alarmingly. Seagrass meadows shrank by over 90% from around 80,000 to 8,000 hectares. As they disappear, their importance and scarcity surge in value.

To maintain access to seagrass’ premium offerings, we must invest at scale in the conservation and restoration of our seagrass meadows in the UK before exceeding the limits of this natural NaaS provider. The same applies to other natural habitats in the UK that provide valuable free services, from salt marshes, wetlands, rivers, hedgerows, peatlands, and woodlands.

〉Does Nature have utility value? Yes!

Seagrass, in addition to supporting biodiversity, captures carbon, cleans the water, and helps mitigate floods and protect the shore from erosion – and on top of that, when you have seagrass, you get keystone species back like the seahorse. These utilities need to be paid for.

For example, by protecting and restoring seagrass in the UK, we can sell blue carbon credits to companies to help them on their Net Zero journey. The companies that benefit from cleaner water, protected shoreline, and increased tourism value also need to pay.

In the White Paper, we use the analogy of likening NaaS to the family home because for most of us, our home is the most important and most valuable asset we will ever own. We know that if we maintain, improve, and look after it, then it will be a comfortable and nurturing place that grows in value. It will be a home worth living in and something we can pass on to future generations of the family. This is the regenerative model of investment and economics, and we understand it at a personal level.

To date, our capitalist system has seen us treat Nature deplorably; destroying and asset-stripping it under the focus of short-term gains, while disregarding the long-term impacts on our environment and natural resources. In the family home analogy, it’s as if we’re stripping the roof slates, ripping up the floorboards, and dismantling the plumbing to sell or burn for short-term gain, heedless of the uninhabitable barren shell we’ll soon be left with.

Currently, we are not valuing Nature by paying for the services it provides, but the moment companies start paying for NaaS, it becomes an asset class – this has been the missing link to date. We need to invest at scale in Nature to reduce flooding, droughts, improve water quality, restore biodiversity, and capture carbon.

Investable solutions in areas such as natural flood management and water stewardship are growing in popularity, offering the potential for attractive long-term returns.

There are many UK companies which have high potential for paying for NaaS. The companies that benefit from reduced risks pay for those ecosystem services in the form of NaaS off-take agreements, BNG units (Biodiversity Net Gains), and carbon credits.

Given the estimated £50-£100 billion required for Nature restoration in this period, we identify a significant opportunity to direct a portion of the £5 trillion in UK pension assets towards impactful investments in Nature. Specifically, a ‘2% for Nature’ allocation could generate the necessary funds to redirect the flow of capital.

Many investors see biodiversity and Nature-related investment opportunities as a postponable and non-urgent risk management issue. What’s your perspective on this approach, and how might it be challenged?

To the contrary, we are noticing an increase in the perceived urgency of nature-related investment opportunities, especially among investors focused on long-term asset funds, such as pension funds. More and more investors in the UK are recognising the twin climate and biodiversity crises, so they are including nature-positive investments within their portfolios to manage risk.

The damage we have done to the planet is undeniable. In fact, in the UK, you’re more likely to see your house flooded than burgled. Hotter, drier summers and warmer, wetter winters impact the entire economy, such as supply chains or food production – so many pension funds are updating their investment beliefs to integrate nature-positive solutions.

The challenge lies in convincing a broader investor community to recognise the urgency of integrating biodiversity considerations into their risk management strategies, understanding that the preservation of Nature is not just an ethical stance but a pragmatic necessity for sustainable, long-term returns.

We need to unlock over £50 billion of private capital to protect and restore Nature in the UK, and we see long-term asset owners, like pension funds, as being instrumental in bridging the finance gap. We need pension funds to understand the problem and invest in solutions.

Our strategy aims to bridge the significant Nature deficit by expanding the demand side and enhancing the supply of nature-based solutions. As mentioned, we’ve identified five key benefits from restoring Nature at a landscape scale (reduced flooding, reduced drought, improved water quality, increased biodiversity and ecosystem health, and carbon sequestration), and these five key benefits should be paid for by the companies who benefit from them.

By embracing NaaS, we target business challenges for companies facing specific localized nature-related risks and opportunities, e.g., reduced flood risk to their assets, thereby unlocking wider opportunities for corporate investment in Nature.

Could you share some specific examples of successful investments in biodiversity and nature?

Good examples evidencing the financial viability for investing in Nature include: the launch of Biodiversity Net Gain (BNG) by DEFRA, the recent announcement of the £300m (€350m) Gresham House Biodiversity Co-Invest (GHBC) LP fund, backed by Willis Towers Watson (WTW), and the initiatives highlighted in our White Paper, such as Glasgow’s new urban forests and The RSPB’s nature-friendly transformation of Hope Farm.

The launch of BNG is great news for Nature and the economy. BNG mandates developers to enhance Nature by at least 10% with each new project. It’s not just about protecting our environment; it’s about restoring it. By launching BNG, the UK is a global leader in the compliance credit market. Developers now have a compelling incentive to protect and restore Nature, either on-site or through purchasing units elsewhere. This marks the beginning of companies paying for Nature-as-a-Service, a groundbreaking move towards valuing Nature in our economy.

The GHBC underscores the integration of natural capital into mainstream client investment portfolios and highlights the growing demand for real assets tied to natural capital. The backing by WTW is a testament to the strong market demand and the recognition of Nature as an asset class capable of delivering both environmental impact and risk-adjusted financial returns.

〉Glasgow’s urban forest:

Once a global industrial powerhouse, Glasgow is best known today as the host of the historic COP26 Climate Conference. However, in the post-industrial age, Glasgow is dealing with the impact of that legacy on its nature-based assets: contaminated land, high pollution, and a creaking 19th-century sewage and road infrastructure that can no longer cope with the city’s notoriously heavy rainfall – all of which has left 170,000 Glaswegians at serious risk of flooding that could cost the metropolitan area £100 million by 2050.

Today, the city is investing in Nature to solve its problems. At its heart is the ambitious TreesAI urban forest project, an initiative Glasgow is piloting with the consultancies Dark Matter Labs and Lucidminds. This pilot project will see the city fund the planting of 18 million trees by 2030. The benefits of this Nature infrastructure investment are enormous: carbon capture, absorbing stormwater, improving biodiversity, providing insurance, boosting health, and creating green jobs.

By investing in urban forests – planting trees on derelict brownfield sites – the city is investing in nature-as-a-service and Nature as infrastructure. The trees are not just pretty to look at: they are an integral part of the city’s sewage system, flood defence, and air quality regulation. They contribute to improved mental and physical health through the creation of green spaces and Nature reserves.

Water companies can invest in reducing the risks of internal sewer flooding. Insurers are focused on reducing flood damage. Mortgage lenders can concentrate on flood risk that leads to property devaluation.

It allows public and private players to co-invest in nature-based assets. This comes into sharp focus with Moody’s confirmation that a city’s credit rating will be directly tied to its flood prevention policies.

〉The RSPB’s Nature-friendly transformation of Hope Farm

The RSPB took over Hope Farm’s 181 hectares in 2000, invested in it, and transformed it into a testbed for new wildlife-friendly farming techniques that work with, not against, Nature. Through simple but effective changes that put Nature at the heart of farming, the RSPB has created a wildlife boom while enhancing crop yields. Since then, the site has shown beyond doubt that the twin goals of running a profitable, food-producing farm and sustaining Nature are totally compatible.

Careful and sensitive management of crops, habitats, and watercourses has created healthy hedgerows, safe nesting, and plentiful insects. This is far better than the intensive production methods developed since the Second World War, which killed wildlife, depleted soils, poisoned rivers, and polluted the air.

 

These pollinating bees are worth nearly £700m to the UK economy, supporting a £120 billion farming industry. When we consider that hand-pollinating our crops would cost an estimated £1.8bn a year – with 20 farmers needed to replace the work of one bumblebee nest – the surge in bumblebee numbers alone is a huge return on investment in Nature as an asset.

 

The numbers of birds using the farm in winter have increased by over 1300% since the RSPB took over. Hope Farm also has 19 times more bumblebees than a local control farm. This is an incredible and important achievement since the food industry’s supply chain is highly dependent on bees, with 80% of the UK’s crops and wild plants depending on them for pollination.

On that basis, these pollinating bees are worth nearly £700m to the UK economy, supporting a £120 billion farming industry. When we consider that hand-pollinating our crops would cost an estimated £1.8bn a year – with 20 farmers needed to replace the work of one bumblebee nest – the surge in bumblebee numbers alone is a huge return on investment in Nature as an asset.

At the same time, Hope Farm’s wheat yields have increased substantially, and it now has seven crops in rotation, rather than the two crops cultivated 20 years ago.

Crucially, Hope Farm’s model is regenerative farming, rather than organic farming, which makes its example relevant and accessible to most farmers. It’s a way of farming based on boosting natural processes to work in favor of the farming system.

Private finance investment in such ambitious and effective land management schemes, that reward farmers for nature-friendly food production, can conserve and restore Nature.

It’s vital that governments across the UK countries develop ambitious, effective, and well-funded environmental land management schemes, rewarding farmers for the actions they take, such as regenerating species populations, improving water quality, protecting carbon stocks, and reducing greenhouse gas emissions.

Whilst we have a long way to go, I think we should be celebrating these steps in closing the financing gap and valuing NaaS as a necessary and an investable asset class.

In the quest for making nature ‘bankable’, there’s a pervasive undervaluation of ecosystem services since they are rarely directly paid for. Could the relentless pursuit of bankability potentially lead to the degradation of nature and costly, perhaps impossible, attempts to replace its services?

I’d argue the opposite. We need to make Nature bankable, and we need ways for businesses to invest at scale in NaaS. If we stand any chance of meeting our COP15 commitments to protect 30% of life on land and water, we need to transform NaaS into an asset class worth £50 to £100 billion over the next decade – which is possible by establishing long-term, off-take contracts. So, we need incentives for companies to invest in Nature, and we need to understand how to get them to pay.

Firstly, businesses need to understand impacts, dependencies, risks, and opportunities for investing in nature to help drive resilience in supply chains and business models. Our strategy is to target business challenges for companies facing specific localized nature-related risks and opportunities. By addressing the needs of companies across the UK’s 13 Critical National Infrastructure (CNI) sectors, we unlock wider opportunities for corporate investment in Nature, aiming to bridge the UK’s £50 billion – £100 billion Nature deficit.

Not only is this vital, but it’s also economically sensible. Investing in ecosystem services like flood defense, water purification, and carbon capture can be a game-changer. Those who directly depend on Nature should be contributing to its financial sustainability by integrating a ‘pay for nature’ principle.

 


Other publications by Rob Gardner

What makes Nature an asset? And how can we make investing in green pay?

Four ways any company can become ‘nature positive’ and help transition to a world worth living in


 

brief bio

Robert Gardner is a money expert, entrepreneur, and financial activist on a mission to make money a force for good for people and the planet, creating ‘financial wellbeing in a world worth living in’.

As a father of two, Rob understands the importance of financial education and long-term financial freedom. His life’s work has been to make money relatable and easy to understand, helping empower financial literacy in everyone from primary school children to pensioners.

In 2012, Rob co-founded RedSTART, a financial education charity aimed at planting the seeds for the financial freedom of young people. In 2016, he wrote the children’s book Save Your Acorns to help make conversations about money an ongoing part of family life. Additionally, he has delivered a TEDx talk on financial education among young people titled, ‘If You Leave Your Children One Thing, Make It This…’ He is regularly asked to speak about making money a force for good and has appeared on, or been invited to comment in, BBC Radio, Daily Mail, Daily Mirror, Good Housekeeping magazine, The FT, Sky News, The Times, etc.

In 2006, Rob shook up the UK’s pensions market with the launch of Redington. Now a leading investment consultancy, its mission is to create financial wellbeing for 100 million people in a way that protects the planet’s future. Having studied Geography at the University of Oxford, Rob’s love of glaciers and passion for the planet’s prosperity have heavily influenced his role in financial services. Responsible investment and using his position and expertise to drive better businesses for the earth and its people were crucial parts of his previous role as St. James’s Place’s (SJP) Director of Investments. Additionally, Rob is a member of the World Economic Forum and sits on their retirement council.

Rob is now a co-founder of Rebalance Earth, whose goal is to make money a force for good to help reverse climate change and biodiversity loss by creating high-integrity biodiversity credits. These credits put a monetary value on nature based on its ability to absorb carbon, protect and grow biodiversity, and support local communities that preserve it. Companies buy these credits as the most effective, quick, and verifiable way of being nature positive and achieving net zero.


All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.

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