The final weeks of 2022 saw many eyes focused on the World Cup in Qatar. December also saw another major global gathering in Canada for COP15, the United Nations Biodiversity conference.
Originally intended to be in China, the event was considerably delayed because of the pandemic. As a result, it was widely felt that agreeing action to conserve nature – animals, planets and habitats – was as urgent and overdue as tackling climate change. The major outcome from COP 2015 was the signing of a “once in a decade deal” for nature – the “30 x 30” agreement, which seeks to protect 30% of the planet for nature by 2030.
Unlike the World Cup, where only France or Argentina could win the final, a deal for nature and biodiversity is also a win for climate change. These two huge environmental challenges are closely connected. One of the commonalities between them is the use of land.
A recent feature by Aviva Investors explores how land use is important both to reducing greenhouse gas emissions, thereby limiting climate change, and to conserving nature.
“Nature-based solutions have the potential to provide one-third of net emission reductions required by 20301.”
As a significant asset owner with a sizeable portfolio of property assets, company shares and corporate and government debt, Aviva is (like many large companies) seeking to decarbonise its business operations and investments to achieve “net zero”. However, the company acknowledges that, realistically, it cannot reduce its entire portfolio’s carbon intensity to zero without in some way offsetting the carbon that it’s not currently possible to remove. Offsetting is a process whereby a person or organisation with a carbon footprint (all of us to some degree), pays into an activity that reduces carbon missions somewhere else. Aviva currently identifies forestry, peatland, and biodiversity as the most investable, effective, and beneficial methods of offsetting carbon.
When it comes to achieving environmental benefits, choosing the right offsetting scheme is as important as choosing the right investments. Aviva has looked for “local and expert partnerships” and chosen to plant trees in and restore peatlands in Scotland. As well as capturing carbon, some of the trees will be for the generation of timber, which will provide jobs. However, two thirds of the land will be planted with diverse native woodland. Other benefits expected to be derived from the projects include improved soil health, educational opportunities and health and well-being.
Net zero targets must not negate natural benefits
When utilising nature-based options to offset carbon, and allocating large areas of land to the process, it’s important not to pick the most carbon-absorbent option without considering if it causes any harm to wildlife and natural habitats. Too much dense forest, for example, can restrict regeneration of shrubbery which is home to many species of insects and animals. Planting a mix of species, particularly those found naturally in a region, should balance out carbon reduction and nature-enriching benefits, as does leaving land open for natural rewilding.
Landing on two feet
Finding solutions that assist with solving these two major environmental challenges is a win-win, with demand likely to increase as more and more organisations set net zero targets and potentially find they can’t meet them without using offsetting. The 30×30 target for nature will add to the quest for the right sites to be used in the right way.
The Department for Environment, Food and Rural Affairs’ (Defra) proposed Environmental Land Management Schemes (ELMs) outline a dramatic shift in how revenue will be generated from land this decade. Currently in pilot stage, the three schemes cover sustainable farming, local nature recovery, and landscape recovery. Landowners will be paid for delivering a range of environmental returns including clean and plentiful water, thriving plants, and wildlife through to the reduction of and adaption to climate change through long-term replanting and ecosystem recovery, instead of the flat hectare-based subsidy farmers currently receive.
Government policy is not the only driver supporting the use of land for carbon offsetting and nature regeneration. The finance and investment industry also has an interest. The price per unit of carbon offset is likely to increase as demand is expected to increase enormously by 2030. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) estimates the size of the carbon offset market could range from $5 billion to $50 billion by the end of the decade (an increase from $2bn in 2021). In future, it is possible that carbon prices will be factored into the selection of our investments as much as interest rates, inflation, economic growth, and currency exchange rates are currently considered.
We are walking on fertile ground for finance experts to cultivate new investment options for sustainable portfolios with appropriate potential for attractive returns, acceptable risk levels and liquidity, as well as funding climate change mitigation and nature conservation. There will be many investors, landowners, governments and environmental campaigners hoping that such products will become a key crop for sustainable finance and its role in tackling our climate and nature crises.
Sustainable investment is a rapidly evolving space and we are careful at Somerset WM to work with fund managers who are deeply rooted in sustainability, tend clients’ capital carefully, and are looking out for the new opportunities developing on the horizon.
*Please note that capital is at risk and these investments are designed for the long term.
Cop15: historic deal struck to halt biodiversity loss by 2030 | Cop15 | The Guardian
The Top 15 Anticipated ESG-Related Considerations That Will Influence Strategy in 2023 (harvard.edu)
