Nature finance – the key to nature positive business?

Last updated: 12th September 2023

Becoming nature-positive is the next big thing in sustainability, but do you know what this really means and how to make it happen for your company? Natural capital finance promises to enable the transition and the market is developing fast, offering a wealth of opportunities to deliver positive outcomes for business, nature, climate and local communities. Bruce Howard, Director, Ecosystems Knowledge Network explains...

It is now clear that there will be no net zero unless we can enable businesses to become nature-positive. The same is true of our capacity to adapt to the changing climate. Alongside this, the biodiversity crisis can only be resolved if we aim for more than simply the avoidance of nature’s decline.

Nature finance is emerging as a key tool for organisations to become nature-positive. It is about far more than an offsetting with a small margin of ‘net gain’ for nature – it is a whole new world of financial innovation that treats nature as an asset class. But, let’s be honest, for many, it still feels difficult to navigate. So, what exactly is nature finance, and is it the key to nature-positive business?

At its heart, nature finance is about hard-wiring the restoration of land, water and nature into the monetary transactions of business and government. Organisations need to assess their carbon and nature risks and dependencies and create and deliver a strategy to not only mitigate their impact, but to achieve net gain for nature. The outcomes then need to be accounted for, using global tools such as the Task Force on Nature-related Financial Disclosures framework and methods developed by the Science Based Targets Network.

Nature finance, also known as natural capital finance, is first and foremost about the trading of services provided by a restored natural environment. These services include carbon capture in vegetation, soils and sediment, as well as the protection of water resources.

The challenge for land and marine managers has been how to access revenue from private sources alongside public funding and philanthropy. Progress is being made though. Despite uncertainty over agri-environmental support schemes, landowners are selling carbon credits and biodiversity units. A group of investors are participating in a nine year (£1.5 m) scheme to reduce flood risk in a river catchment in Northern England by slowing the passage of water over farmland.

Businesses driven by advances in digital technology are also stepping in to bring together a range of landowners, buyers and investors to transact carbon and biodiversity credits. CreditNature is an example. It is developing a digital token representing the restoration of ecosystems and has recently won a contract from Scottish Government to produce a biodiversity credit platform.

Funds that will enable return-seeking investment in nature restoration are probably the hardest to bring to market. They need to offer scale, ideally £500m+ for institutional investors. But progress is being made. Advisor and fund manager Finance Earth has teamed up with investment manager Federated Hermes Ltd to build the UK Nature Impact Fund. This will support high-quality nature-based projects that deliver social and environmental impact, while generating financial returns for investors driven by new environmental revenue and enterprise. It is based on a seed investment of £30 million from UK Government.

As with any form of trading, market rules and oversight matter. Even if nature finance is the key to a nature-positive economy, it is impossible for everyone to be content with every transaction. But with the launch of the British Standards Institute’s Nature Investment Standards Programme and Scottish Government’s Interim Principles for Responsible Investment in Natural Capital, things are starting to come together here too. Buyers and sellers of carbon credits can now gain confidence through schemes such as the Woodland Carbon Code, the Wilder Carbon Standard and the UK Peatland Code.

Nature finance is an exciting area, packed full of opportunity to deliver positive outcomes for business, nature, climate and local communities.

If you’d like to discover the latest in UK nature finance, why not join EKN’s Nature Finance Learning Hub or get tickets to their sixth natural capital conference, Nature Finance UK Conference 2023 on 26th September at Guildhall in the City of London. Explore the latest nature-based solutions market innovations with expert speakers, attend masterclasses and build your network. Edie is the media partner.

EKN is an award-winning non-profit organisation for the exchange of innovation in the stewardship of land, water and nature across the UK. Membership is free.

Article by Bruce Howard, Director, EKN

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