With tomorrow (22nd April) being Earth Day, Ritchie Thomson, Senior Responsible Investment Associate at Aegon Asset Management, points to nature-based solutions as an invaluable partner in the fight against climate change and the need to increase their appeal to private investors.
“Climate change and nature are fundamentally connected: on one hand, unmitigated climate change can lead to significant loss of biodiversity and on the other hand, if the current rate of nature loss and degradation continues, the effects of climate change will be amplified, potentially leading us beyond climate tipping points.
“Nature has the potential to be an invaluable partner in our fight against climate change; indeed it is estimated that the biosphere and oceans currently sequester around 55% of anthropogenic GHG emissions[1], and this is where nature-based solutions come in.
“Nature-based solutions (NbS) are actions to protect, sustainably manage and restore natural and modified ecosystems. Some examples include afforestation, mangrove protection, agroforestry and green roofs and walls in urban areas. Although there is debate around the exact climate mitigation potential of NbS, there is broad consensus that the magnitude of that potential is large[2]. Unlike engineered-based mitigation solutions, such as carbon capture technology or direct air capture technology, NbS exist today and are cost effective to implement.
“In addition to carbon mitigation benefits, NbS offer a number of co-benefits including climate change adaptation, improving biodiversity, improving human health and providing sources of income. Take the example of mangrove forests. These are estimated to store up to four times as much carbon as land-based forests and sequester carbon 40% faster.
“In addition, they also protect coastal areas from extreme weather and coastal erosion, whilst being significantly more cost effective than concrete sea walls. And we’ve not even started talking about the biodiversity benefits, which can in turn lead to greater economic potential to local communities through activities like tourism or sustainable fishing.
“Investment in NbS has thus far been mainly the domain of government or philanthropic funders, but there is a significant funding gap relative to what is required. Private investment can help meet this gap. However, for a variety of reasons, such as deal size, revenue streams and risk/return profile, these projects often do not attract private investors.
“The exception to this is the carbon offset market, where corporates can offset their own emissions by purchasing NbS carbon credits that remove carbon from the atmosphere. Although carbon offsets can play an important role in mitigating climate change, companies must ensure that reducing their emission footprint is central to their decarbonisation strategy before offsets are used.
“In a recent study from the World Wide Fund for Nature (WWF) and South Pole[3], the Swiss based carbon finance consultancy, they identified 16 “bankable” NbS deals covering a range of different ecosystems. The study highlights that ultimately there isn’t a one-size-fits-all solution; however, in order to scale up NbS projects, collaboration between different stakeholders is vital at all levels.
“To summarise, the climate mitigation potential of NbS is significant, whilst also providing a number of other environmental and social benefits. However, to unlock this potential significant investment is required. Private investors can play a key role in this but work is still required to increase their commercial appeal.”
