Global Insights Series #1 • February 2023 • Natural Capital and Biodiversity

​Welcome to Acre’s first Sustainable Finance Insights Series. We are focusing first on natural capital and biodiversity as two of the most talked about areas of sustainable finance and of critical importance in combating the worst effects of climate change.

The recent COP15 highlighted the biodiversity finance gap of $700 billion per year, creating a huge challenge and opportunity for financial services. Looking across the industry, we see signs for optimism amongst some significant challenges still to be addressed.

When looking at biodiversity and nature, emerging markets across South Asia and Africa are among the most at-risk regions. These regions lack the regulatory frameworks to support the changes needed to protect them. Financial services firms need to play an integral role in supporting these markets by financing the transition of industries that operate and rely heavily on the natural environment.

Client demand is creating new opportunities to develop nature-related financing and investment products, but some market participants are struggling to mainstream such products and achieve scale. We are supporting specialist firms truly leading by example as well as larger institutions starting to take meaningful steps to insource the knowledge required to tackle the problem from a risk perspective and build the tools required to create solutions that capture the opportunity.

The insurance industry has a notable exposure to, and developing interest in, the changes and decline of nature and biodiversity as it directly impacts businesses and increases operational, transitions and physical risk. Although there is a growing market for environmental insurance, extending this to cover specific biodiversity and nature-based parameters is in its infancy. There is both an opportunity and a challenge for insurers to develop new products structured to provide better protection against the changes across nature and biodiversity.

More innovative investment managers are increasingly considering biodiversity and climate issues as risk factors and drivers of alpha to embed in all investment decision-making rather than relevant only for sustainable investment funds or as a regulatory issue. The recent report from Shareaction shows that there is still much work to be done in truly integrating biodiversity considerations.

For private markets funds, there are some great examples of focused engagement with portfolio companies unlocking value for investors. However, significant latency exists regarding the investment in data acquisition and common metrics for nature and biodiversity across investment due diligence, portfolio operations and regulatory reporting requirements.

So, who is doing what in this increasingly important space?
We are seeing emerging skillsets and expertise develop into defined roles, a sample of which are outlined below:

Job Titles:
•ESG Analyst & Biodiversity Lead
•Investment Stewardship Lead for Biodiversity
•Natural Capital Investment Manager
•Head of Natural Capital solutions
•Director, Biodiversity & Natural Capital
•Portfolio Manager, Natural Capital Global Equity Fund
•Investment Director, Natural Capital
•Investment Director, Conservation & Agriculture
•Investment & Impact Director, Resilient Landscapes
•Global Head of Biodiversity

Sample Responsibilities:
•Lead global stewardship programs, develop policies and environmental compliance mechanisms
•Model, develop and manage the natural capital income streams that financially underpin landscape restoration projects
•Lead on impact strategy and raising capital for sustainable and regenerative food systems
•Research and analysis on nature and biodiversity, specifically risks/opportunities posed to investors
•Investment facilitation and blended finance for biodiversity and climate, including conservation, regenerative agriculture and landscape restoration
•Programmatic research to understand ecological values and how people use and benefit from ecosystem services
•Develop investment screening tools and metrics to measure and report on the level of natural capital and biodiversity
•Critique existing biodiversity benchmarks
•Market analysis, thematic research and reputation checks for ESG and investment teams across land use and biodiversity
•Develop a sustainability framework, establishing and measuring KPIs for biodiversity, and climate risk
•Implement ESG scoring models for carbon, water and biodiversity
•Originate and structure natural capital investments
•Integrate biodiversity into sustainable and impact-oriented investment instruments engaging with portfolio companies to protect and enhance biodiversity
•Develop climate and biodiversity frameworks and footprint methodologies
•Develop process-led systems for biodiversity credits, biodiversity net gain and carbon sequestration
•Analyse and present the risks and opportunities of biodiversity on the “real” economy for investors
•Develop data tools to create a framework that demonstrates compliance with natural capital regulation and promote natural capital financing solutions
•Integrate biodiversity concepts across the bank’s business activities and decision-making processes
•Advise on best practices to mitigate environmental and climate-related risk across disclosures (TCFD, CDP, GRI, SASB, etc.), biodiversity, social responsibility, climate risk and Net Zero transition strategies

We hope you have found this to be a useful snapshot of the financial services sector and its approach to addressing the risks and opportunities associated with Natural capital and Biodiversity for the global economy.

Drawing on Acre’s extensive network of sustainability professionals across all sectors and geographies, we are advising our clients on how to incorporate the right expertise into their businesses and assess the best talent in the market.

If you would like to receive our monthly email with a more detailed, sector-level breakdown focused on banking, investment management or private markets funds, please get in touch: Ian.povey-hall@acre.com