Contributing editor: Samuel B
Mr Mulder, who has over 12 years of experience within UNEP, private consulting frirms, and non-government organisations recently expressed considerable concerns about the amount of investments made into assets which ensure the protection of our environment, climate and nature. Mr Mulder has considerable experience in this field donating the vast majority of his working time towards it. He has founded the Natural Capital Declaration (NCD), Natural Capital Finance Alliance (NCFA), and worked towards developing a tool to address deforestation related to soft commodities in which he integrated water risk into bonds and stock valuation with ERISC.
When speaking at the Sustainable Investment Festival Mr Mulder brought up the massive discrepancy between the amount invested in nature-based solutions and the dependance of our financial system on nature. He used data from the World Economic Forum to argue this. According to the World Economic Forum 50% of the global economic is dependant on nature. Valuing around $22trn in assets. However, at this moment nature-based solutions represent 0.1% of the global GDP. Investments into renewable energy have been increasing relative to fossil fuel invesments ($280bn v.s $103bn), however according to Mr Mulder this isn’t enough and investors are overlooking the massive need to invest into sustainable land. Since 2014, only $5.6bn was put towards land use for climate finance, while the investments made into soft commodities totaled $1.7trn. Highlighting the risk of not investing in sustainable land.
Mr Mulder acknowledged the increase in investments; “There is a markable shift taking place, but the pace is not quick enough and it will need to pick up”, “It is necessary to work along the entire food supply chain to build nature and climate targets into the way of our food and non-food commodities are being produced’ He argued that one of the main reasons for the investment gap is that individual investors and governments alike are failing to realise and factor the environment into the prices of products that we product and end up consuming. “This will require governments to regulate it, but also for investors and banks to take this more seriously”, “Nature has not been on the radar for most investors, who have focused too much on renewables such as solar’
Opportunities have arisen however for asset managers and owners to get involved in financing sustainable land projects. The UNEP recently launched the AGRI3 fund, which gained funding from the Dutch government and Rabobank, a dutch mutli-national banking and financial service. They are aiming to direct $1bn in capital towards sustainable deforestation-free agriculatural production. More Mainstream banks and asset managers are taking notice such as HSBC and Schroders. Earlier this year the HSBC Pollination Climate Asset Managment and Mirova announced the launch of the Natural Capital Investment Alliance with the aim the mobilise $10bn worth of investments by 2022.
Mr Mulder pointed towards other investment opportunities such as natural climate solution, sustainable land use and forests. He mentioned substituting steel and cement with sustainbaly produced timber, along with thermatic funds and sustainility linked loans that investors can easily consider. He went onto mention that there are relatively few pioneers in this area and called for delegates from the Sustainable Investment Festival to take steps to invest in nature preservation. Mr Mulder went onto say “It will require you to walk the talk and make ambitious time bound commitments, and to participate and share some of the risk, but I hope you will be able to become part of the solution.”
With just over 17% of the Amazon rainforest being destroyed in the last 50 years and increasing numbers of deforestation over the last few years (see table below) you’d be lead to believe that investors would be vying to invest into sustainable land, to preserve the $22trn in assets which are dependant on it. The largest lumber company West Fraser Timber Co ($WFG) produces over 8.46million m^3/yr, has a market cap of 10.4bn. The largest oil company China Petroleum & Chemical Corp ($SNP) has a market cap of 79.29Bn. However, Orsetd a Danish energy company who specialise in eco-friendly energy has increased its market cap from $23bn in 2018 to $90bn by the beginning of 2021, showing the vast increase in investments into clean energy. It is difficult to determine investments into sustainable land, however it is very clear that unsustainable land managment in forests can fuel conflict over different land uses. The big four drivers of deforestation are; beef, soy, wood and palm oil. In the majority of these too much water is extracted for production which leads to forests being lost and many species eradicated, which is only leading us towards environmental and economical disaster. That being said notice is being taken towards stopping and reversing ecologically damaging processes. Recently G7 leaders called for the world to become net zero and nature positive. By nature positive they plan to enhance the resiliance of our planet and socities to halt nature loss. It has become a major movement with businesses, governments and many members of societies contributing to action. The G7 leaders announced that; “Our world must not only become net zero, but also nature positive, for the benefit of both people and our planet.” According to the World Economic Forum, comments like this represent a real paradigm shift in how nations, businesses, investors and consumers view nature. It’s not secret that investments into anything eco-friendly is met with great praise and generally pleases the masses. However, I completely agree with Mr Mulders assessment that not enough is being invested into sustainable land, especially since $22trn worth of assets are produced through it. I am sure anyone will agree that if we leave this too late, there will be no come back. Of course as Mr Mulder acknowledged an investment into this would of course be risky. But a risk that could easily be considered a necessity.
Annual Forest Loss (Amazon kg^2)
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