The Nature Investment Paradox

An awareness of our dependency on nature is gaining traction among private and public sectors. Over half of the world’s GDP (USD 44 trillion) is moderately to highly dependent on nature and the services it provides.

And yet, nature investment poses a frustrating contradiction. Despite innovative natural capital accounting frameworks, biodiversity credit markets, ‘nature-positive’ conferences and ambitious global commitments, there is next to no private investment.  In 2022 only 18% of the world’s investment in nature-based solutions came from the private sector. Insufficient data and a lack of consistent guidance are often blamed for this lacklustre performance. But could our inability to overcome these barriers reflect a deeper scepticism: that investing in nature may not actually be profitable?

Like race cars investing in brakes, companies need only think one step ahead to realise the clear investment case. The fact is every organisation depends on natural capital somewhere in its value chain. Whether it is soils and waterways feeding agricultural produce, mineral quarries that provide building materials, or clean water to quench cities’ thirst or cool data centres. Crucially, organisations often depend on natural resources they don’t control. Natural capital is, at once, a public good and a vital component of every organisation’s value chain.

The financial risk inherent in these dependencies presents a clear case to invest in protecting your business and protecting your long-term value creation and organisational resilience.

Identifying Your Material Dependencies and Impacts on Nature

The business case for nature starts by recognising the organisation’s dependency on natural resources. This dependency can be direct, such as the procurement of foodstuffs, textiles, or construction materials. It can also be indirect such as flood protection for real estate assets or temperature and pollution control for the workforce.

Consider the financial impacts of the 2022 floods in Queensland and northern NSW. In 2018 Lismore was identified as one of NSW’s 20 “deforestation hotspots” with substantial clearing of wetlands, mangroves, and riparian vegetation. When the unprecedented floods hit, the degradation of these natural controls had devastating consequences. For insurers alone this cost was $6.4 billion, with 242,000 claims lodged. If insurers accurately priced the protective value of these natural assets, the business case to invest becomes clear.

A full awareness also considers your organisation’s material impacts on nature. Importantly, these may include impacts that derive from your business activities, as well as impacts caused by others that affect the natural capital you rely on.

Assessing Nature Risks and Opportunities

The next step is to consider: what will you do if these vital natural assets are no longer available, or if the cost of accessing them becomes prohibitive?

Risk teams needn’t reinvent the wheel here. They should use existing risk assessment methods to explore how nature loss affects the likelihood and consequence of existing enterprise risks. Comparing these outcomes to agreed risk appetites will articulate the severity of nature risk in a rigorous manner consistent with current risk management.

Where risks fall outside appetite or present an existential threat, a clear mandate emerges to invest in controls that reduce the likelihood of losing that natural resource.

But it is important to recall that this awareness may also yield opportunities. In identifying and addressing the risks of an unsustainable dependency on nature, your organisation may find a cost-saving business process innovation or gain a competitive advantage in developing products or services that protect or restore nature.

Building Resilience and Fostering Innovation

Managing risk and seizing opportunities by repairing and protecting natural resources can improve organisational resilience, reduce disruptions, and uncover exciting process, product and service innovations. For organisations ready to take the plunge, this may enable them to spend more time and resources than their peers on growth. Just as the best brakes help you lean harder into corners and outpace the pack, your nature awareness can help optimise your value creation model – and protect and restore our natural world.

Tackling nature loss remains a daunting challenge that no organisation can handle alone. However, any action starts by justifying and making the investment. There are several ways organisations can begin. The most thorough approach is the ‘LEAP’ assessment recommended by the Taskforce for Nature-related Financial Disclosures (TNFD) in 2023.

It is an evolving framework that benefits from years of industry feedback across many sectors, and sets a clear, staged method to locating, evaluating and assessing your material nature-related dependencies, impacts, risks and opportunities. The beauty of the TNFD framework is the relatively ‘low barriers to entry’. It has been designed to help businesses of all sizes and sectors ‘leap in’ to understanding, and addressing, their nature risks. A solid LEAP assessment serves as a foundation for an organisation’s strategic management of its material nature-related issues.

About the Author

Josue Castro is a Senior Strategy Manager and Nature Lead of sustainability strategy consultancy BWD Strategic, with extensive experience in urban strategy, economic development and geopolitics.

Liam Jouannon is a Strategy Manager of sustainability strategy consultancy BWD Strategic, specialising in sustainability risk with a background in banking and insurance.