Nature-based Solutions

Unleashing the potential of nature finance: a pathway to mitigate risks and unlock benefits

Szilvia Szabó — Thu, 16 May 2024 15:59:49 +0000

Unleashing the potential of nature finance: a pathway to mitigate risks and unlock benefits

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Finance

Nature-based Solutions

Nature Positive Economy

Nature Conversation

Business

Economy

Topic

Nature Positive Economy

The loss of wildlife has rapidly accelerated and has reached a staggering 69% decline on average since 1970, according to World Wild Fund's latest Living Planet Report, which we could assume is an issue for environmentalists to deal with.

However, nature provides all kinds of ecosystem services that businesses leverage, directly or indirectly, and according to KPMG, more than half the world’s economic output depends on nature, and its contribution is estimated at more than $125 trillion USD annually.

“Businesses rely on nature for products and suitable operating conditions. If these services are lost, it will affect business profitability and viability,” says Gillian Power, Director of Communications and Marketing at the International Sustainable Finance Centre of Excellence (ISFCOE), also referred to as the Centre.

She adds:

“While the economic value extracted from nature has continued to grow, such as crop production, many of nature’s other contributions to people are in decline, like soil productivity or pollinator abundance.”

The Centre first released its scoping study, ‘Nature and biodiversity finance: Risks and opportunities for Ireland’ in 2022 to examine the biodiversity agenda and highlight nature-related risks and potential impacts on various sectors, such as agriculture, real estate, and manufacturing.

Gillian explains that “the financial sector drives nature loss through the activities it lends to, insures, and invests in and is also exposed to financial risks from short- and long-term nature loss.”

Gillian Power, Director of Communications and Marketing at the International Sustainable Finance Centre of Excellence (ISFCOE)

To put this in perspective, she shares an example of the greenhouse gas emissions induced by Canadian banks' investments and loans to fossil fuel companies being 100 times higher than the operational emissions from the banks themselves.

She underscores that the finance sector, with its pivotal role in directing capital flows, has the power to steer away from detrimental practices and towards more sustainable investments, thereby contributing to net-zero goals.

“Banks have allocated over $2.6 trillion to sectors predominantly accountable for biodiversity loss, with many lacking sufficient processes or policies to monitor or mitigate these impacts and their exposure to nature-related risks. Similarly, globally, publicly funded development banks are estimated to finance approximately $800 billion in harmful activities annually.”

Based on their first study, ISFCOE realised that more detailed research covering the full spectrum of biodiversity-related risks and opportunities for the Irish financial system was needed, which led them to publish the Nature of Finance report in 2023.

The Nature of Finance report is Ireland’s first study on nature-related risks and opportunities to the financial sector, published by Dublin-based International Sustainable Finance Centre of Excellence.

KPMG Sustainable Futures and ISFCOE co-authored the report with support from Skillnet Ireland to establish a baseline in this area, raise awareness of the sector's interactions with and reliance on nature, and ignite deeper investigations.

This first-of-its-kind landmark study found that more than half (58%) of Irish lending goes to economic sectors with a high dependency on biodiversity and nature, while 94% (€85 billion) of lending goes to industries that potentially have a high impact on nature.

It also showed a clear link between bank lending in Ireland and economic sectors highly dependent on ecosystem services and impact nature in areas like managing surface and groundwater, climate regulation, flood and storm protection, erosion control, and pollination.

In addition, it recognises that Ireland hosts one of the largest insurance services sectors in Europe, which could open up new opportunities.

“The insurance industry in Ireland is a key agent of change in the move towards a more sustainable economy and society.”

She adds: “Transitioning to a carbon-neutral economic model requires long-term financing, and insurers are amongst the most significant institutional investors.

Many insurers have started to screen their investments using ESG criteria and increase their sustainable investment commitments.

As a result, they have become significant investors in green, social, and sustainable financial instruments.”

Based on her experience, Gillian believes that insurers and reinsurers increasingly acknowledge the imperative of addressing nature-related risks within their risk management and underwriting frameworks.

“Loss of biodiversity and degradation of nature pose risks for the financial sector, including physical risk due to increased frequency and severity of natural disasters such as floods, droughts, and storms, leading to infrastructure damage and disrupted supply chains.

You will also need to manage market risk, which means consumers are shifting preferences towards environmentally sustainable products and services.

Besides, businesses operating in sectors dependent on natural resources may face increased credit risks due to their vulnerability to environmental shocks and regulatory changes.

Given the scale and complexity of nature-related financial impacts, risks, and opportunities and how underdeveloped this area is, the report proposed a draft Nature Finance Roadmap to position Ireland as a leader on the nature finance agenda.

Nature Finance Roadmap draft proposed in the Nature of Finance report as a next step.

This Roadmap mirrors Ireland's Sustainable Finance Roadmap introduced in 2021 and is structured around its five main pillars: developing talent, improving industry readiness, leveraging digital and data, creating a nature-positive enabling environment, and enhancing communications and engagements on nature and finance risks and opportunities.

It also recommends establishing a Nature Finance Roadmap Delivery Group as an additional Pillar 0, including experts and stakeholders from public, private, and academic institutions.

Gillian further explains that the public sector is currently the more prominent actor in nature-based and biodiversity finance, offering financial instruments that would encourage businesses to advance conservation outcomes through tax breaks and other incentives.

She points out that the State also has a critical role in attracting foreign direct investment as capability and critical mass of expertise emerges.

“Our ongoing research in the nature and biodiversity finance space has presented us with a unique set of opportunities for both private and public sector financial actors and businesses in Ireland.

We are also advancing efforts in the space through ‘Communities of Practice’ discussions and by working on developing an upcoming course for finance professionals on Biodiversity Finance.”

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Trailblazer collaboration sets new narrative for investing in climate action

Szilvia Szabó — Tue, 14 May 2024 15:23:36 +0000

Trailblazer collaboration sets new narrative for investing in climate action

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Climate Action

Nature-based Solutions

Nature Conversation

Collaboration

Topic

Climate Action

While Ireland has the optics of being a green island, it has one of the lowest rates of forest coverage in the European Union.

According to the Irish Agriculture and Food Development Authority, the country witnessed a drastic decline, with only 1 percent of native woodlands remaining compared to 80 percent six thousand years ago.

This might strike as an environmental issue far away from business as usual. Still, a newly forged alliance between a local family business and a charity writes a different narrative.

The Canopy shopping centre in Sligo facilitated a unique collaboration when its owners decided to acquire nearly 90 acres of land for restoration to support Hometree, a charity dedicated to establishing and conserving permanent native woodland.

Situated along the Easkey River in South Sligo, this land is a unique blend of peatland, blanket bog, pockets of ancient Hazelwood, and species-rich grassland.

Ray Ó Foghlu, Hometree's Development Lead, says: "We hope this location will become a showcase site for us and local landowners will see what is possible.

We have plans for a farmer outreach programme here, providing information and financial support for woodland creation along the Easkey River, besides other educational and community programmes.”

Bird`s eye view of the land along the Easkey River in South Sligo to be restored by Hometree. Image:Vincent Monahan, Duck Upon Rock Productions

Hometree's mission to restore Ireland's ancient oceanic woodlands aligns perfectly with The Canopy`s aim to go beyond the obvious when it comes to sustainability in its business strategy.

Neil Monahan, Director of The Canopy, says they were already familiar with the charity`s work.

When a piece of land became available, they started designing a project that could benefit the environment and people locally, in addition to the business sustainability element of managing their carbon footprint.

“Carbon offsetting can seem distant, but we can make it more relatable with this model. We are also in a unique position to create something entirely new, which can also provide learnings and data to other companies,”

Neil says.

He recalls that initially, they didn`t realise the magnitude of this project and all the positive `side-effects` that later justified their investment on multiple levels.

“At first, it was more about land restoration and planting. Then we realised the added benefits of having such rich biodiversity on site that we can further enhance and the opportunity to use this site for education and community engagement.”

Ray adds that as a science-led organisation, Hometree is now working on establishing the ecological baseline for this area by doing walkovers and surveys in addition to using drones and low-orbit satellites so they understand what`s there right now, allowing their expert team to draw up a tailor-made restoration plan.

He also emphasises that with these types of lands, preventing carbon from being released is the biggest win with restoration.

Ray Ó Foghlu (left) and colleague, Jon Dunt (right) from Hometree. Image: Vincent Monahan, Duck Upon Rock Productions

“It`s like putting a cap on a bottle since peatlands are slow to capture carbon but quick to release it,” Ray says, adding that globally, only 3% of the land is covered by peatland, but it holds 30% of the carbon, making degradation a significant threat."

Currently, they are planning for a 12–24 month period, putting measurable indicators into place so they can integrate the learnings to develop the project further.

Besides the positive environmental and community impact, Neil highlights that it makes perfect business sense since their new branding introduced in 2023 revolves around sustainability.

“We carefully designed the interior spaces of the shopping centre, integrating live plants and trees, even adding a green street within the facility where people can enjoy this environment all year round. We are also implementing solar panels to harness renewable energy besides exploring other areas to improve our sustainability.”

They also actively engage with small, sustainable local businesses and facilitate programmes to engage visitors through art, awareness weeks, educational exhibitions, and other events.

Neil admits that they are on the journey to fully explore the potential of a larger-scale sustainability strategy that would help them properly measure their impact across all main activities and engage their stakeholders, especially the shops operating in the centre.

Still, these initiatives have already proven that taking climate action locally as a business brings multiple direct and indirect benefits, including cost efficiency, brand awareness, and customer engagement.

Therefore, they are committed to building on these initial steps and continuing to make a positive impact, including their land restoration project, which they envision as a long-term collaboration with Hometree that can transform local communities and help with climate mitigation.

When asked how the land could look if they succeed, Ray says he would be glad to feel wet under his foot walking these lands instead of dry and crunchy, to see a great variety of native birds returning alongside other species, and to see a site buzzing with life.

He adds that involving farmers is crucial to making this a reality. In the past 2.5 years, he has worked with hundreds of farmers on land restoration and biodiversity projects.

“I believe observation is the beginning of devotion – you have to see it to fall in love with something. In this case, once we can make farmers see what they have on their farms and understand the benefits, it can change their perspective, and they could become advocates for nature with an additional sense of pride.”

Ray hopes that this specific project at the Easkey River will act as an accelerator by delivering tangible results, feeding into their work to restore 4000 acres of native land through facilitating natural regeneration.

Although significant funding and dedicated resources will be needed to achieve their overall goals with the Wild Atlantic Rainforest project, the first steps are promising.

Headline image: Ray Foley and Jon Dunt from Hometree / Photo by Vincent Monahan, Duck Upon Rock Productions

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Supercharging carbon offsetting with nature-based solutions

Szilvia Szabó — Tue, 14 May 2024 08:50:47 +0000

Supercharging carbon offsetting with nature-based solutions

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Nature-based Solutions

Carbon Offsetting

Climate Innovation

Topic

Nature-based Solutions

Although the primary goal is to reach climate targets by extensively reducing carbon emissions, there is still an increasing need for offsetting, creating a significant market for validated carbon projects.

UK-based climate-tech company Earthly provides investment opportunities through high-quality nature-based solutions that remove carbon, restore biodiversity, and improve livelihoods.

The International Union for Conservation of Nature (IUCN) defines nature-based solutions as actions to “address societal challenges through the protection, sustainable management and restoration of ecosystems, benefiting both biodiversity and human well-being”.

Earthly's mission is to help businesses embrace this approach and remove at least 1 billion tonnes of carbon by 2030 by investing in nature.

Right after its launch in 2020, the start-up attracted prominent global brands, and Oliver Bolton, Co-Founder and CEO, says one reason is that they have a rigorous process to screen each project and invested the first two years not to cut any corners to establish a portfolio that partners can trust.

“With partnerships, it`s all about trust. We aim to build long-term strategic collaborations and offer tailored solutions to match our partners' values with geographic locations and delivered impacts,” Oliver explains.

Oliver Bolton, Co-Founder and CEO of Earthly

They developed an extensive assessment tool that analyses 106 data points and aggregates information from data partners to evaluate and rate investable projects based on their impact on carbon, biodiversity, and people.

In addition, a well-curated independent scientific board and satellite monitoring also feed into the screening process, ensuring that only the highest integrity and trusted projects are selected.

“There is huge nervousness around greenwashing at a time when showing climate leadership would be so important. Companies should be brave to talk about their climate action and not give in to greenhushing," Oliver adds.

To support partners in communicating their involvement, Earthly also provides a unique 3D digital visualisation tool that aggregates the partner`s impact into one visual as an island, presenting a proportion of the projects they invested in.

'“Nature is abstract, and we wanted to make it more realistic and relatable. It also offers an opportunity for our partners to better engage with their stakeholders, use these visuals in their external communications, or even make their ESG reporting more engaging.”

Each project is transparently featured on Earthly`s website with detailed information, a simple visual guide on the overall impact score, and a link to relevant SDGs besides the potential impact and type of investment needed.

Their project portfolio includes mangrove restoration in Pakistan, woodland regeneration in Scotland, and agroforestry in Kenya, among others.

One of their highest-rated projects is a peatland protection and restoration program in Indonesia that aims to bring degraded land back to life by protecting and rewetting 22,900 ha of peatland rainforest in Sumatra.

So far, it has prevented the release of over 2.6 million tonnes of CO2 into the atmosphere and improved a critical biodiversity region home to over ten critically Endangered Species and 19 Vulnerable Species, enhancing the livelihood of locals.

Image: Earthly / Eden Reforestation Projects

Mangrove planting in Madagascar is one of the investment opportunities offered by Earthly.

This trail-blazing project run by Eden Reforestation Projects has reforestation and poverty alleviation at its heart.

To date, they have planted over 334 million trees across eight countries and created opportunities for locals to work.

Although Earthly`s main role is to screen projects, derisk investments, carry out ongoing evaluations to monitor impacts, and report on outcomes, Oliver shares that they are now exploring opportunities to co-invest in origination projects, which means they would get involved in creating projects from scratch.

Talking about challenges, he says, “Budget cuts will push these projects aside first, and you can only fight funding challenges by showing the relevance and return on investment in an easy-to-understand way that gets all your teams and departments to see why this is important.”

As of today, over 600 partners have invested in nature-based projects through Earthly, which allows Oliver and his team to increase their impact and further develop their operations.

On a personal level, Oliver feels it is such a privilege to work in a way that turns money into impact and that he gets to see the result of his work. “Having my son born, I would like to have a conversation with him that this is what I have worked in.”

His passion doesn`t stop at building Earthly. He has a track record of building purpose-driven ventures, such as Europe's first B Corp drinks company, Waterbomb, and other projects.

He recently embarked on a new adventure by launching the Wilding Earth monthly video series on YouTube that features the UK's leading nature regeneration projects and the inspiring people behind them.

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New action plan urges finance sector to scale nature-based investments

Business Spirit News reporting — Fri, 08 Oct 2021 15:01:33 +0000

New action plan urges finance sector to scale nature-based investments

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Business

Sustainable Business

Natural Capital

Nature-based Solutions

Topic

‘Triple Crisis Action plan’ was launched to call upon investors to embrace natural capital solutions at scale to address climate challenges.

A natural capital investment firm, Cultivo launched a ‘Triple Crisis Action plan’ to call upon financial institutions, corporate investors and private capital to address the triple planetary crisis of global warming, biodiversity loss, and water stress.

With this 5-step action plan, Cultivo wants to help unlock investment opportunities in nature at scale to address these emerging global threats.

The company promotes the approach that natural capital is an emerging asset class that values the natural world.

In their opinion, this economic strategy makes it clear why a tree is worth more alive than dead.

“The triple crises of climate change, biodiversity loss and water stress are interconnected, and we must address them together and with urgency.

High-quality nature-based solutions can tackle these triple crises, and we need to unlock investment in nature at scale and at speed.

It is critical we take a holistic approach when it comes to investing in nature,” says Dr Manuel Piñuela, Co-Founder and CEO of Cultivo, on why they created the action plan.

Dr Manuel Piñuela, Co-Founder and CEO of Cultivo, Image: Cultivo

In the light of the latest alarming IPCC report (Sixth Assessment Report), Dr Pinuela and his team felt the need to activate the finance sector and mobilise more private capital in investing in nature-based solutions.

The Intergovernmental Panel on Climate Change (IPCC) is the UN body for assessing the science related to climate change.

It provides political leaders with periodic scientific assessments concerning climate change, its implications and risks, as well as to put forward adaptation and mitigation strategies since 1988.

The recent IPCC report provides new estimates of the chances of crossing the global warming level of 1.5°C in the following decades and finds that unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach.

IPCC-2021 report, The Physical Science Basis Summary for Policymakers, Image: IPCC

Dr Piñuela adds: “We hope that the hard-hitting nature of this year’s IPCC report helps galvanise us all into action and gives private financial institutions and corporations across the world the motivation to work with us and adopt the plan we are launching today.”

According to Cultivo, research shows that by 2050, total investment needs for nature-based solutions will amount to USD 8.4 trillion cumulatively, reaching over USD 536 billion per year, four times the amount invested today.

Currently, only 14% of finance for nature-based solutions comes from private capital.

Therefore, scaling investment from private capital companies is essential to fill the trillions of dollars of financing needed.

To bridge this gap, Cultivo is proposing a 5-step action plan for investors and private capital:

Offer nature as an attractive asset for investment
Use technology to reduce transaction costs and create market efficiencies
Take a holistic approach
Measure the right attributes, and choose the right standards
Make data transparent

One example of Cultivo’s Action Plan at work can be seen in Northern Mexico, where they are working with landowners to restore degraded land using Sustainable Grasslands Management.

The project will reintroduce bison to the area, which is a step towards restoring the region to pre-human levels of biodiversity.

The region acts as an international biodiversity corridor that serves as a habitat to species, such as an endemic subspecies of black bears, puma, wildcat, coyote, etc.

Of the animals, 63 of these species are under some risk category, out of which 8 are endangered species.

The restoration of grasslands will also generate certified carbon credits and means the project aligns to SDG goals related to Life on Land and Climate Action.

Dr Piñuela and his team work passionately to prove that investing in natural capital can generate healthy financial returns for investors, nature and society.

They use proprietary algorithms and technologies to find high-quality nature-based projects and then packages them into investment products targeted at financial institutions.

Offsets generated by these projects are then sold, providing returns to investors and a long-term reliable income to landowners and local communities.

Headline image: niko photos on Unsplash

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