Rob Appleby, Founder of The Cibus Funds, explains how investment in natural capital can support climate action and deliver returns.
It was promising to see the majority of countries from around the world pledge a net-zero target somewhere between 2030 and 2070 at the COP26 climate summit towards the end of last year; yet how we might tackle one of the largest contributors to global emissions was not talked about in nearly enough depth. Currently, one-third of global greenhouse gas emissions derive solely from the food and agriculture sectors – from production, to packaging and consumption. Reducing, offsetting or eliminating this excessive fraction of greenhouse gases would help the world achieve serious progress towards net zero.
But how can we take on such a colossal challenge? Whilst effective policies, informative education and well-managed charitable projects offer some solutions, one crucial solution for curbing greenhouse gases is through sustainable investing: both public and private finance. One of the most unrealized areas of sustainable investing today is natural capital. Natural capital is one of the most fundamental forms of capital on our planet (other core forms include human, manufactured, social, and financial). But not only could natural capital investment help to significantly reduce the food and agricultural industries’ carbon emissions, it can also offer investors highly profitable and sustainable returns.
Defining natural capital
First of all, what actually is natural capital? Natural capital can be defined as elements of nature, which either directly or indirectly provide us with goods and/or services essential for human survival, wellbeing, and economic activity. Humans rely on natural capital for clean air, food, water, and so on, supporting everything we produce and consume – providing basic components for our existence and livelihoods. Furthermore, natural capital is also instrumental to climate regulation and maintaining the carbon and water cycle – ensuring the balance between humans and healthy ecosystems. It is therefore essential to ensure its protection, conservation, and enhancement.
However, as we know, we have more recently started to abuse natural capital. We have taken advantage of it, used it to our collective benefit, and outgrown demand. This has led to its degradation and tipped us to the point of an international climate emergency.
According to the World Economic Forum’s 2020 Global Risks Report, approximately US$44 trillion of economic value generated is moderately or highly dependent on nature. The agriculture industry, and the food and beverages industry, are two of the most highly dependent – at US$2.5 trillion, and US$1.4 trillion, respectively. And this reliance on nature will only get worse: the global population is forecast to grow from nearly eight billion today to ten billion in 2050, which will require us to produce more food over the next four decades than we have over the past 8,000 years.
Natural capital investing clearly has philanthropic and sustainable motivations behind it. But importantly, it also has widely untapped financial potential. There are many ways of monetizing natural capital, and converting it into other forms of capital (i.e. financial). Investors are starting to identify these costs and benefits from natural capital investing, whilst addressing its exploitation and degradation. Investments into sustainable technological innovations for the food and agriculture sectors are going to be key behind this opportunity.
Sustainable technological innovations
The United Nations Environment Programme (UNEP) has developed the world’s first tool (Encore) which identifies practical and investable examples of ecosystem services, which represent a benefit that nature provides to enable or facilitate business production processes, in turn driving investment prospects. Ecosystem services companies harness technology to leverage natural capital assets as a resource: improving the environment and generating revenue for investors.
For instance, one of UNEP’s examples includes investing in the improvement and maintenance of soil quality: which can ensure the continued capacity to sustain life on Earth, and mitigate climate change through carbon sequestration.
One company taking advantage of this opportunity includes Ostara, a Vancouver-based nutrient management solutions technology firm, which recovers excess nutrients including phosphorus, from where they shouldn’t be – such as agricultural water treatment systems – and transforms them into pure, eco-friendly fertilizers which improve crop yields. Ostara’s renewable product generates revenues for investors, and contributes to a circular economy, by closing the loop on phosphorous for future generations.
Another valuable example is investments into better water quality – essentially, efforts to maintain the chemical conditions of freshwaters, ground water, and salt waters, to ensure favourable living conditions for biota. Innovative companies, such as Moleaer, are delivering improvements in chemical-free water treatment, sustainable food production, and the recovery of natural resources, by employing nanobubble technology across a range of industrial aqueous processes and applications, which significantly improve productivity. Moleaer offers commercial benefit – for example, by reducing the number of harmful chemicals in the water treatment process, farmers can have enriched irrigation water for crops, which increases nutrient uptake, and prevents and suppresses pathogens.
Thankfully, natural capital has been coming into the lexicon more, particularly since the 2015 Paris Accord. There are already number of investors, partnerships and initiatives paving the way for the future of natural capital – for example, at the recent COP26, the Natural Capital Investment Alliance announced a US$10 billion commitment in private capital in order to alleviate pressure on forestry, biodiversity and ecosystems.
Reaching its full potential
Despite some progress, natural capital has not reached its full potential yet for a number of reasons – it’s a non-traditional asset class, it’s not as widely tried and tested as a model, and requires sound risk assessment. Nevertheless, the set of tools available to investors are improving by the day, with initiatives like the Task Force on Climate-Related Disclosures (TCFD) and the Task Force on Nature-Related Disclosures (TNFD) ensuring businesses are transparent on disclosing climate and nature-related risks.
This year, I believe that more investors will take responsibility, be open-minded to natural capital, and carry out thorough research into those companies – most notably in the agri-tech sector – which can generate high returns as well as conserve and protect valuable natural resources. Despite the perceived risks – which can be mitigated – we must remember that the real risk, is the risk of doing nothing. Investing in natural capital is a strong form of climate action; and key to inclusive, circular economic growth.
ASSET ALLOCATION, ASSET CLASSES, ASSET OWNERS, BIODIVERSITY, CLIMATE SOLUTIONS, ENVIRONMENTAL, IMPACT INVESTING, INVESTMENT STRATEGY, NATURE, NET ZERO INVESTING, STEWARDSHIP, SUSTAINABLE AGRICULTURE, WATER
Rob Appleby, Founder of The Cibus Funds, explains how investment in natural capital can support climate action and deliver returns.
It was promising to see the majority of countries from around the world pledge a net-zero target somewhere between 2030 and 2070 at the COP26 climate summit towards the end of last year; yet how we might tackle one of the largest contributors to global emissions was not talked about in nearly enough depth. Currently, one-third of global greenhouse gas emissions derive solely from the food and agriculture sectors – from production, to packaging and consumption. Reducing, offsetting or eliminating this excessive fraction of greenhouse gases would help the world achieve serious progress towards net zero.
But how can we take on such a colossal challenge? Whilst effective policies, informative education and well-managed charitable projects offer some solutions, one crucial solution for curbing greenhouse gases is through sustainable investing: both public and private finance. One of the most unrealized areas of sustainable investing today is natural capital. Natural capital is one of the most fundamental forms of capital on our planet (other core forms include human, manufactured, social, and financial). But not only could natural capital investment help to significantly reduce the food and agricultural industries’ carbon emissions, it can also offer investors highly profitable and sustainable returns.
Defining natural capital
First of all, what actually is natural capital? Natural capital can be defined as elements of nature, which either directly or indirectly provide us with goods and/or services essential for human survival, wellbeing, and economic activity. Humans rely on natural capital for clean air, food, water, and so on, supporting everything we produce and consume – providing basic components for our existence and livelihoods. Furthermore, natural capital is also instrumental to climate regulation and maintaining the carbon and water cycle – ensuring the balance between humans and healthy ecosystems. It is therefore essential to ensure its protection, conservation, and enhancement.
However, as we know, we have more recently started to abuse natural capital. We have taken advantage of it, used it to our collective benefit, and outgrown demand. This has led to its degradation and tipped us to the point of an international climate emergency.
According to the World Economic Forum’s 2020 Global Risks Report, approximately US$44 trillion of economic value generated is moderately or highly dependent on nature. The agriculture industry, and the food and beverages industry, are two of the most highly dependent – at US$2.5 trillion, and US$1.4 trillion, respectively. And this reliance on nature will only get worse: the global population is forecast to grow from nearly eight billion today to ten billion in 2050, which will require us to produce more food over the next four decades than we have over the past 8,000 years.
Natural capital investing clearly has philanthropic and sustainable motivations behind it. But importantly, it also has widely untapped financial potential. There are many ways of monetizing natural capital, and converting it into other forms of capital (i.e. financial). Investors are starting to identify these costs and benefits from natural capital investing, whilst addressing its exploitation and degradation. Investments into sustainable technological innovations for the food and agriculture sectors are going to be key behind this opportunity.
Sustainable technological innovations
The United Nations Environment Programme (UNEP) has developed the world’s first tool (Encore) which identifies practical and investable examples of ecosystem services, which represent a benefit that nature provides to enable or facilitate business production processes, in turn driving investment prospects. Ecosystem services companies harness technology to leverage natural capital assets as a resource: improving the environment and generating revenue for investors.
For instance, one of UNEP’s examples includes investing in the improvement and maintenance of soil quality: which can ensure the continued capacity to sustain life on Earth, and mitigate climate change through carbon sequestration.
One company taking advantage of this opportunity includes Ostara, a Vancouver-based nutrient management solutions technology firm, which recovers excess nutrients including phosphorus, from where they shouldn’t be – such as agricultural water treatment systems – and transforms them into pure, eco-friendly fertilizers which improve crop yields. Ostara’s renewable product generates revenues for investors, and contributes to a circular economy, by closing the loop on phosphorous for future generations.
Another valuable example is investments into better water quality – essentially, efforts to maintain the chemical conditions of freshwaters, ground water, and salt waters, to ensure favourable living conditions for biota. Innovative companies, such as Moleaer, are delivering improvements in chemical-free water treatment, sustainable food production, and the recovery of natural resources, by employing nanobubble technology across a range of industrial aqueous processes and applications, which significantly improve productivity. Moleaer offers commercial benefit – for example, by reducing the number of harmful chemicals in the water treatment process, farmers can have enriched irrigation water for crops, which increases nutrient uptake, and prevents and suppresses pathogens.
Thankfully, natural capital has been coming into the lexicon more, particularly since the 2015 Paris Accord. There are already number of investors, partnerships and initiatives paving the way for the future of natural capital – for example, at the recent COP26, the Natural Capital Investment Alliance announced a US$10 billion commitment in private capital in order to alleviate pressure on forestry, biodiversity and ecosystems.
Reaching its full potential
Despite some progress, natural capital has not reached its full potential yet for a number of reasons – it’s a non-traditional asset class, it’s not as widely tried and tested as a model, and requires sound risk assessment. Nevertheless, the set of tools available to investors are improving by the day, with initiatives like the Task Force on Climate-Related Disclosures (TCFD) and the Task Force on Nature-Related Disclosures (TNFD) ensuring businesses are transparent on disclosing climate and nature-related risks.
This year, I believe that more investors will take responsibility, be open-minded to natural capital, and carry out thorough research into those companies – most notably in the agri-tech sector – which can generate high returns as well as conserve and protect valuable natural resources. Despite the perceived risks – which can be mitigated – we must remember that the real risk, is the risk of doing nothing. Investing in natural capital is a strong form of climate action; and key to inclusive, circular economic growth.
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