Close to two-thirds of asset owners are now incorporating nature and biodiversity into their sustainability strategies whilst a further one-fifth intend to do so, according to a survey by Pensions for Purpose, the UK-based industry body.

The report was based on interviews with 20 asset owners and managers across the UK, Europe, Asia-Pacific, North America and Latin America. These included the Bedfordshire Pension Fund, Cambridge Associates, PGGM, JANA Investment Advisers and the Wiltshire Pension Fund.

Asset owners are “at a critical point in their nature and biodiversity journeys,” said Sudip Hazra, director at the First Sentier MUFG Sustainable Investment Institute, which commissioned the report.

As more funds engage with the Taskforce on Nature-Related Financial Disclosure (TNFD) framework, “clarity is being sought on key motivations, challenges and gaps as the need for the theme to be integrated more deeply into portfolios progressively strengthens”, Hazra said.

Financial risk

As previously reported by Impact Investor, the European Investment Bank and the WWF struck an agreement in November to speed up climate adaptation in Europe by developing nature-based solutions aimed at addressing the twin crises of climate change and biodiversity loss. A recent WWF Living Planet Report found that species populations have declined by 35% on average in Europe and Central Asia since 1970.

Asset owners cited financial risk as a key driver to integrate climate concerns and nature and biodiversity into their schemes. One asset owner said it had started to realise that ignoring nature-related risks was not just a sustainability issue, but could also impact the bottom line.

“A large portion of GDP depends on natural capital, yet we’ve taken resources like water, clean air and timber for granted,” the asset owner was quoted as saying in the report. “We’re beginning to realise these resources are finite or renewable only if managed responsibly.”

Although there is growing momentum among asset owners to incorporate nature and biodiversity into their sustainability strategies, investors face “considerable challenges” when it comes to reporting on nature-related risks, according to the report.

While there is plenty of biodiversity data available, the problem lies in the variety of the data available, and its interpretation. While climate metrics, such as greenhouse gas emissions, are more standardised and widely accepted, asset owners told the report authors that applying quantitative metrics on nature often didn’t provide them with “the full picture”.

“In our research, we concluded that three points are essential to helping asset owners on their journey,” Bruna Bauer, research manager at Pensions for Purpose, told Impact Investor.

Asset owners should start with educating their decision-makers on the basics of nature-related risks, opportunities, impacts and dependencies. Secondly, asset owners should leverage existing climate efforts in, for example, ESG to include nature, which “can prevent the process from becoming exhausting”. And finally, “partnerships with external organisations can supplement internal efforts and bridge gaps caused by a lack of internal expertise”, Bauer said.

Opportunity set

Some asset owners lamented a lack of suitable investment opportunities in biodiversity, with one citing the lack of liquidity and viability as a factor.

“One key issue is that nature and biodiversity are still primarily viewed through the lens of risk mitigation rather than opportunity,” Bauer said. In order to change this narrative, “it’s essential to highlight the financial value of preserving and restoring ecosystems”.

Ultimately, increasing confidence in nature-related investments “will depend on showcasing success stories”, Bauer said, adding demonstration projects, case studies and collaborations with organisations like the TNFD can provide inspiration for investors.

Most of the asset owners Pensions for Purpose spoke to weren’t actively looking for investable opportunities because they were still at the stage of monitoring risk, impacts and dependencies on nature, according to Bauer.

“By addressing data gaps, rethinking risk in emerging markets and reframing biodiversity as an opportunity, asset owners can begin to overcome these barriers and integrate nature-focused investments into their portfolios,” Bauer said.

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