Investment gap must be closed
Ivo Mulder, head of climate finance unit at the United Nations Environment Programme (UNEP)
There is a huge need to invest in assets that protect our nature and climate, according to Ivo Mulder, head of the climate finance unit at the United Nations Environment Programme (UNEP), who highlighted a startling lack of funding for sustainable land and other nature investments.
Speaking at the Sustainable Investment Festival, Mulder highlighted a huge discrepancy between the reliance of our financial systems on nature and the amount currently invested in nature-based solutions.
Pointing to data from the World Economic Forum, he noted that around 50% of the global economy is dependent on nature, translating to some $22trn in assets. However, at present, investment in nature-based solutions represent just 0.1% of global GDP.
While it is encouraging that renewable energy is now seeing higher levels of investment that fossil fuels every year – $280bn versus $103bn – investors and governments are overlooking the huge need to invest in sustainable land, said Mulder.
As of 2014, just $5.8bn was earmarked for land use related climate finance, while investments in soft commodities totals $1.7trn.
“There is a markable shift taking place, but the pace is not quick enough and will need to pick up,” said Mulder. “It is necessary to work along the entire food and supply chain to build nature and climate targets into the way our food and non-food commodities are being produced.”
The key reason for this investment gap is that governments and individuals are failing to factor the cost of the environment into the prices of products we produce and consume, he said.
“What this will require is governments to regulate this, but also for investors and banks to take this more seriously. To some degree, nature has not been on the prime radar for most investors, who have focused on renewables such as wind a solar.”
There are, however, huge opportunities for asset managers and owners to get involved in financing sustainable land projects.
For example, UNEP recently launched the AGRI3 fund, with funding from the Dutch government and Rabobank, aiming to direct $1bn in private and public capital towards sustainable, deforestation-free agricultural production.
The fund structure provides a partial credit guarantee to take away some of the risk taken on by investors, thereby making this investment solution more attractive to a wider investment base.
Mainstream asset managers and banks, including Schroders and HSBC, are also showing interest in this investment area. Earlier this year, Lombard Odier, HSBC Pollination Climate Asset Management and Mirova announced a partnership to launch the Natural Capital Investment Alliance, with the ambitious aim to mobilise $10bn of investment towards natural capital by 2022.
Mulder pointed to various other investment opportunities, such as investment in natural climate solution, sustainable land use and forests, as well as substituting steel and cement with sustainably produced timber. There are also thematic funds and sustainability linked loans that investors can consider.
However, he noted there are “relatively few pioneers in this space” and called for delegates of the Sustainable Investment Festival to take steps to invest in nature preservation.
“It will require you to walk the talk and make ambitious time bound commitments, and to participate and share some of the risk as well,” he said. “But I would hope you would be able to become part of the solution.”
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