Nature needs a helping hand. According to Cambridge University’s Centre for Sustainable Leadership, 23 per cent of land is now degraded and ocean “dead zones” span an area larger than the UK.
It is not enough that we stop polluting, we need to commit to rebuilding nature. The scale of the challenge ahead of us demands that we focus not on what we need to stop doing, but what we can actually do.
Action has already started. BNP Paribas Asset Management recently launched an Ecosystem Restoration Fund to invest in companies dedicated to the preservation and restoration of our natural capital and ecosystems.
This is not a short-term sell. The space is nascent and packed with complex technologies. Finding commercial and scalable offerings is no easy feat, but those attracted to the space are not just here to lessen the problem, but find the solution.
We will need regulators to be more comfortable with investors funnelling cash into assets that cannot be easily marked to market, and which are – by their very nature – illiquid
Products like these show that it does not have to be a choice between doing good, or making money. Instead, products like these target companies that are going to be the leaders of the future, by adopting radical new approaches today.
Investing in rebuilding
This new focus on building a better future is to be saluted. But the question we have in front of us is how we build the scale of investment needed to switch the economy from stopping polluting to starting rebuilding.
I believe there are three solutions to consider: the first, highlighted by the chancellor of the exchequer, is obvious. We need to look towards where the asset pools currently are and direct some of the UK’s £2.2tn pension assets towards building a lower-carbon world.
This is not simple. To make this happen we need to first give pension investors a choice. According to data from the Pensions Regulator, currently 98 per cent of investors sit in the default option, meaning that only two per cent of people make any other choice when it comes to their pension investments.
To change this, we need to create a lower-carbon option and educate investors on both why this matters to them, and how to switch from a default option.
Swimming against the tide and going your own way can feel frightening, and many investors will be wary of doing this with the money that is set aside to provide them with a safe and happy retirement.
Allocate more to natural capital
Second, and building on the first, we need to target institutional investors more and help them allocate more to natural capital.
The long tenure of nature-based projects is ideal for pension and life insurance companies, and a firm commitment to a better future will help them attract clients and employees alike.
I believe that the main role of the asset management industry will be to help asset owners communicate to their clients about the positive impact their long-term investments can have on nature.
Showing a life insurance customer that their premiums will be paid out, but would also improve forests for future generations, would be a real win and could provoke the wide-scale engagement we want to see.
Long term is the goal
Third, we need investors to become comfortable with investing for the long term. For a retail investor, long-term investment can be seen as five to 10 years and have a specific goal in mind, such as the purchase of a house.
This is not anywhere near long enough to reap the benefits of a regenerated mangrove. Coupled with this, we will need regulators to be more comfortable with investors funnelling cash into assets that cannot be easily marked to market, and which are – by their very nature – illiquid.
We have moved from an old world where natural resources were there to be exploited, to a new one in which we are finally reducing our carbon output.
Our destination of a nature-positive economy lies far beyond this, but promises a legacy that will stretch for generations. This is a big challenge, but we have the willingness and understanding needed to succeed.
The retail investors that are behind every pension fund, Isa and life insurance policy are with us and want to move from being passively anti-pollution to actively pro-environment.
We just need to make it easier for them to invest, and communicate the positive impact their money can have. It is a big challenge, but it is in our hands.
Charles Clarke is client communications lead at BNP Paribas Asset Management and chair of the Investment Association’s Client Communication Working Group.
