Asset owners and biodiversity: nature positive by 2030, anyone?

As awareness of nature-related risks rises in both the regulatory and the investment agenda, some asset owners have started to allocate capital to nature solutions, or at least think seriously about doing so.

The same alarm bells that sound for climate change also sound for nature loss and degradation. The much-cited World Economic Forum report showed that at least half of the global economy is moderately or highly dependent on nature, meaning that if ecosystems collapse, so too does the global economy.

Since then, the Kunming-Montreal Biodiversity Agreement – often described as nature’s equivalent of the Paris Agreement – has cemented aggressive nature targets in the political agenda, on paper at least. It lays out a comprehensive plan to halt and reverse biodiversity loss by 2030 and achieve recovery by 2050.

Its famous "30 by 30" target demands the protection and conservation of at least 30% of the world's land, inland waters, coastal areas, and oceans by 2030.

There is also a growing awareness of the climate-nature interlink: climate change exacerbates biodiversity loss and biodiversity loss – say deforestation – also worsens climate change.

While most asset owners now have some form of net zero by 2050 target, in line with the Paris Agreement, have they are also started to set up similar targets for nature? After all 2030 is only five-and-a-half years away.

The simple answer is no.

“We don’t see asset owners or managers setting nature targets at portfolio level like we do in terms of climate,” said Jane Wadia, head of sustainability, core products & clients at AXA IM.

However, asset owners are setting up mandates to allocate small portions of their overall portfolio towards biodiversity and “nature capital”, according to Wadia.

For example, Dutch pension fund ABP, one of Europe's largest, has committed at least €1bn to biodiversity-related investments by 2030. This allocation is part of a broader €30bn impact investment strategy, which also includes significant investments in climate solutions.

AXA Group itself, another major European financial institution, has committed €1.5bn to protect and sustainably manage forest ecosystems. This money will contribute to its goal of removing or avoiding up to 25 million tons of carbon dioxide each year.

AXA Group also invests over €500m in biodiversity equity portfolios.

"We see an increased interest in investments that directly contribute to natural capital," said Catalina Jugravescu, director at Pollination. This interest is not only due to the "thematic focus on nature" but also asset owners’ appetite for a "long-term cashflow profile and inflation-linked returns typically expected from timberland and farmland investments".

Wadia said that asset owners are also doing research to "better understand the financial risks and opportunities related to nature".

“First and foremost, asset managers are developing biodiversity equity solutions for clients looking for dedicated and targeted nature related investment strategies,” said Wadia. “In addition, they are incorporating biodiversity and nature into a wide range of portfolios via exclusions and engagement as well as assessing portfolios exposures and reporting on biodiversity.”

What’s holding asset owners back from setting climate-style nature targets?

Sources noted various reasons for the lack of a portfolio-wide “net-zero-by-2050-style” target for nature by asset owners.

One of the main ones is a lack of standardised metrics and data. Unlike climate change, where carbon emissions can be relatively easily quantified, biodiversity is much more complex and multidimensional. Reporting on progress towards targets can therefore be challenging.

“It’s still early for explicit target setting,” Wadia added. “In the next few years, the most asset owners are likely to do is make capital allocation commitments, incorporate pledges into overall investment strategy to varying degrees, and engage in stewardship.”

Similar in format to Climate Action 100+, Nature 100 aims to bring together a coalition of investors to engage with companies that have a significant impact on nature, encouraging them to adopt and implement strategies for biodiversity conservation and sustainable land use

It is perhaps the most visible vehicle for nature stewardship.

The Taskforce for Nature-related Financial Disclosures' work, Wadia added, is also “super valuable for asset owners and managers”. Once corporates start disclosing on nature, investors will be able to make much more informed investment decisions.

"The focus has predominantly been on understanding portfolio exposure to key nature risks, opportunities, and readiness to report, in line with both voluntary and mandatory standards such as the Corporate Sustainability Reporting Directive (CSRD) and the TNFD," said Jugravescu. 

While the net zero targets have largely built on the momentum from COP26, senior leadership buy-in and top-down commitments, she added, the approach to nature seems to be a lot more "bottom-up".

Corporate enrol in SBTN’s pilot programme

The Science-based Target imitative (SBTi) sets the gold standard for science-based climate targets.

The founding partners of SBTi - CDP, World Resources Institute, WWF, and United Nations Global Compact - subsequently established Science Based Targets Network (SBTN) to deliver on nature targets.

It finished its year-long corporate pilot in June with an initial group of 17 global companies, even including names such H&M Group, whose fast-fashion business model is often called unsustainable by environmentalists.

Over 160 companies are now are preparing to set science-based targets for nature.

The SBTN target-setting process is divided into five steps; Assess, Prioritize, Set targets, Act and Track. Each step contains methods, tools and additional resources to guide companies through the process.

The first two steps help companies assess and prioritize their environmental impacts and then set targets, beginning with freshwater and land. Biodiversity is integrated across its guidance. Ocean targets will be available in 2025.

The targets are grounded in the best available science and are intended to be specific, measurable, and actionable. This means that companies can set clear goals, monitor their progress, and adjust their strategies as necessary to meet these targets.

“The pilot programme taught us that nature targets are doable and add value but they’re also ambitious and there’s a sharp learning curve,” said Erin Billman, executive director of SBTN. “Information can be difficult to obtain, especially considering that value chains have not been designed with traceability in mind.”

Unlike the macro-target of net zero by 2050 for climate, nature has many “micro-targets”, she added, related to specific impacts on specific ecosystems, such as water usage.

“There isn’t nor should there be a single metric for measuring nature positive,” she added. “That means we’ll never see one uniform target but many interrelated targets working together.”

Pollination's Jugravescu sees the SBTN targets as one of multiple emerging frameworks for asset owners and asset managers to engage on nature with portfolio investments. Others include the Nature Action 100, the TNFD as well as thematic focused initiatives, such as the Investor Policy Dialogue on Deforestation Initiative (IPDD).