investing in nature’s regenerative power.

Understanding the nature dependencies of our economy is the first step in valuing natural capital. A recent pwc¹ report examining 19 large stock exchanges concluded that more than half the market value of listed companies is subject to nature-related risk, due to their dependence on nature. The same report estimated that 55% of global GDP—equivalent to about USD 58 trillion—is moderately or highly dependent on nature. The European Central Bank estimates that 75% of bank loans within the eurozone are to firms that are highly dependent on nature’s free ecosystems services.²

For some sectors, the “free” ecosystems services that nature provides are critical. Farmers around the world, for instance, rely on pollinators to boost crop yields – researchers estimate that pollinating insects provide an ecosystems service worth up to USD 577 billion each year³, the equivalent of one tenth of the value of total world agricultural food production⁴. 

Other ecosystems services cut across sectors. The World Wildlife Fund estimates the total asset value of the world’s oceans at USD 24 trillion – this includes the fish they provide, the transport they enable, and the carbon they absorb.⁵  Meanwhile, mangrove forests are so important for protecting coastlines that they are estimated to prevent tens of billions of dollars in damage to property each year.⁶

Nature is the heartbeat of our economy.

Increasingly, the international community is recognising the vital role of nature and biodiversity in tackling the climate challenge. At 2021’s COP26 more than 100 world leaders, together representing around 85% of the world’s forests, pledged to end deforestation. A year later, delegates at the COP15 UN Biodiversity Conference reached a landmark agreement to protect 30% of all land and ocean environments by 2030.

This growing international focus on preserving and restoring natural landscapes is creating new alternative asset classes based on nature itself.

Real-world nature-based assets will command an investment premium. In Ghana, for example, since 2019, a government-led programme has helped farmers to plant shade trees across underperforming cocoa plantations, turning monocultures into agroforests and pushing back the tide of deforestation. The result has been a spectacular crop yield increase of 50%, as soils have been renourished and the shady conditions favoured by pollinating insects have returned. The benefit to the farmers has been threefold. In addition to the higher yields, their cocoa now sells at a premium to buyers with zero-deforestation supply chain commitments, and their income is further boosted by payments from the World Bank’s Forest Carbon Partnership Facility – in effect, carbon credits for turning degraded land into net carbon sinks.

This is an example of the nature premium. As ecosystems are restored, the underlying value of land will rise, yields will grow, the value of the regenerative commodities produced will exceed that of conventional production, and newly restored landscapes will attract carbon or other nature-based credits. 

At Lombard Odier, we believe that nature is currently the world’s most underpriced asset class, but that corporate demand for regenerative commodities – those produced in harmony with nature – will drive the biggest revaluation of this century.

Investors are currently under-pricing the climate risk. Through holistiQ, our unique partnership with systems change firm Systemiq, we take a science-based approach to identify opportunities for nature-based investment, offering investors the chance to achieve long-term returns and minimise the climate risk of their portfolios, while driving the transition to a nature-positive economy.

According to UN projections, nature-based solutions can provide necessary carbon sequestration and other climate mitigation measures needed to meet the Paris temperature target by 2030.¹⁹ We believe this will only be achieved if we invest in nature, valuing it not for what we can extract, but for its regenerative power. Furthermore, we must work hand-in-hand with indigenous communities, whose ancient wisdom plays a vital role in preserving healthy ecosystems. In Brazil’s Atlantic forest, for instance, deforestation has been shown to slow or even reverse as indigenous land rights are strengthened.²⁰

As a multitude of innovative new opportunities for nature-based investments arise, the thread common to all will be that healthy ecosystems are worth far more than degraded ones, and that we will maximise economic value not by exploitation, but cooperation with nature.