Nature-related investments

ESG.Guide: Why is it important for asset owners to integrate natural capital and biodiversity considerations into their investment strategy, process, and net zero emission goals?

Matt Orsagh: “About half of the world's GDP depends directly or indirectly on inputs from nature. Climate change, biodiversity loss and other environmental challenges such as water use and land use are inextricably linked to our ability to survive and thrive on earth. It is therefore incumbent upon asset owners to ensure that the companies in which they invest do not destroy these natural systems on which we depend.”

ESG Guide: What developments (e.g. regulatory, internal, accounting-related) are relevant for the investment industry to be able to efficiently contribute to halting and reversing biodiversity loss?

Matt Orsagh: "While the actions of each individual do make a difference, it is ultimately policy and regulation that drives incentives at the national level. One person who puts solar panels on their house is good, but a government that provides tax incentives for rooftop solar, has a much greater impact. Regulation and policy that provide the correct carrots (incentives) and sticks (enforcement of regulation) goes a long way to addressing biodiversity issues. Investors and financial professionals also need to work with standard setters to put proper values on the externalities of natural capital to combat the "tragedy of the commons" where common resources such as water, air, land, climate and others can be degraded at no cost to the entity doing the degrading, but with a real cost to society."

ESG.Guide: How exactly can asset owners integrate natural capital and biodiversity into their investment process and make sure the real-world impact is aligned with the goals they have set?

Matt Orsagh: “A number of standards are developing that help asset owners integrate natural capital and biodiversity into their investment process, such as the Taskforce on Nature Related Financial Disclosures (TNFD). The TNFD plans to form a structure similar to the TCFD which focuses on climate. The TNFD will give investors and asset owners a baseline to start from when managing natural capital issues. Education is also key. Integrating natural capital and biodiversity into the investment process is more art than science and requires an understanding of the issues. However possible, asset owners should educate staff on natural capital issues to determine which issues are material. Asset owners should also seek outside expertise when needed to make sure they have an understanding of the issues if they do not have that expertise in-house.”

Matt Orsagh, CFA, Sustainable Finance Expert, ED4S

Matt has been working in the sustainability world for over 20 years. He was part of the original team that started GovernanceMetrics International (now part of MSCI), where he helped develop the first iterations of current ESG analysis