Interest in investing in nature-based solutions is increasing globally, but that growth is notably lower among Japanese investors, a new survey by climate change investment and advisory firm Pollination has found.
Nature-based investment aims to back projects that tackle land degradation, rectify biodiversity loss and combat climate change. It has emerged as an area of interest for governments, central banks and corporations over recent years.
For many companies, sustainability and the maintenance of nature are potentially existential issues. Indeed, a PwC report this year found that 55% of global gross domestic product, equivalent to around $58 trillion, was “moderately or highly dependent on nature.”
But while there is a clear business case for nature-based solutions investing, human activity continues to push the earth beyond a livable "safe operating space," scientists reported last week. The landmark study, published in Science Advances, found that of the nine planetary boundaries — climate change, biodiversity loss, freshwater depletion, deforestation, synthetic chemicals including plastics, and nitrogen use — six had already reached the red zone.
Pollination, which released its report Wednesday, surveyed over a thousand institutional investors about their nature investment experiences and views of risks and opportunities, finding that “a significant population of institutional investors are actively working on nature and investing in nature opportunities.”
But Managing Director Zoe Whitton said Japan was something of a global outlier — with Japanese investors ranking lower than average when it came to interest in increasing their investments in the space.
“The Japanese investor base is slightly less keen than the average of the global sample that we looked at,” she said in an interview.
“Forty percent of Japanese investors said they are very interested in increasing their investments in nature improvement, nature solutions, in nature markets, and 42% said they weren't,” she said.
That is a different picture from Singapore, where 79% of investors said they were going to increase their investments in nature, and the U.S., where the number was 87%. Overall, 69% of those surveyed expressed an interest in increasing their investments in the space.
This could be for a variety of reasons, with Whitton explaining that higher levels of investment in nature-based solutions tend to occur in jurisdictions where domestic policy emphasizes nature investment as a solution.
Although the Japanese government unveiled its biodiversity strategy in March, in the investment space its focus has been on so-called GX bonds, with these targeting decarbonization and likely to finance technologies related to ammonia and hydrogen, among other things.
Another point of difference shown in the report was of the drivers for investing in nature — with 50% of Singaporean investors influenced by external pressure, compared with 22% of Japanese investors.
But while Japanese investors were overall less keen, nature investors in Asia as a whole will continue to grow, Whitton predicted.
Nature-based investment as a whole has gained a lot of interest — particularly compared with similar areas, with the picture being starkly different to how climate change-related investments were previously perceived.
“Compared to a similar point in time, where investors were starting to think about climate change ... investors globally are much more interested in opportunities in nature than they were in climate change,” Whitton said, explaining that it took “quite a while for the average institutional investor to start to think about climate change opportunities as a big part of their work on climate change.”
While there has been more of a recognition of opportunity, at the same time there are risks.
“The fact that investors are really keyed into that as an opportunity is great,” she said, but noted that as governments refine environmental policies that impact how companies operate, this could “generate quite a lot of risk” for investors.
“My concern at this point in time is that that risk is probably actually under anticipated by investors,” she said.
Another challenge as nature-based financing continues to develop as an area of interest is that the number of interested parties might outgrow the pool of investment opportunities, Whitton said.
“We spend a lot of time working with investors and companies trying to build nature-positive strategies, and one of the really big challenges they have is finding the solutions, the projects, the opportunities, the assets, that are nature positive in the way they’re run or that support their nature-positive strategies and targets,” she said.
Indeed, in many parts of the world with a significant number of investors expressing interest in investing in nature, there are limited projects to invest in.
“That creation of solutions, that creation of projects, that creation of assets is still hard, there's still not too many people who do it,” Whitton said, noting that “if this level of interest in nature continues ... there’s probably not going to be enough things to invest in.”
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