Financing a green future

This Isn’t Philanthropy...

ROBERT GARDNER

...everything is at risk. Connecting finance and Nature to create a world worth living in is of critical importance – and time is running out.

As featured by Judith Vidal-Hall in The Ship 2023-24, the St Anne's College, University of Oxford Record (No. 113), the annual publication of the St Anne’s Society.

The crisis is largely attributed to our extractive capitalist system, but it might surprise you to learn that the main problem isn’t capitalism. It’s that we don’t value Nature.

Two of my earliest memories informed the start of my money activist journey. Born in Holland, the first is of ice-skating on the canals at Christmas time, something you sadly can’t do anymore because of climate change. The second is knowing that I was born below sea-level, which gave me a sense, even as a child, that the place where I was living was essentially under water and particularly vulnerable to climate change.

When I was six or seven years old, my parents moved the family to Argentina, and my connection to Nature deepened.

Here I was incredibly fortunate that I got to visit Perito Moreno – one of the most impressive glaciers in the world – with my parents, and the glaciers in Ushuaia, the southernmost tip of South America.

Witnessing the glaciers inspired my decision to study geography at Oxford University, specialising in glaciology and hydrology. Though the path might not seem immediately obvious, studying glaciers and rivers is how I ended up working in finance – inspiring the mission behind my life’s work – to redirect the flow of money to create a world worth living in.

At St Anne’s I first understood that glaciers are essentially ‘the canary in the coalmine’ when it comes to climate change. So, 25 years ago, I had a firm grasp on climate science, which in fact, hasn’t changed in terms of findings and conclusions, it’s just that today, we’re more confident in the causes of climate change and the need for urgent action.

When I graduated, I was offered the opportunity to study the impact of de-glaciation on the Hindu Kush mountains in Northern Pakistan, an amazing experience before embarking on my career in finance. I’ve no doubt that in a different world, I’d be a professor of glaciology and probably be in Antarctica studying the impact ofclimate change on our melting icecaps. My love of glaciers remains close to my heart. My work in finance means that, ironically, I have a chance to fight against climate change and Nature loss just as effectively as if I were a scientist in the Antarctic.

So, why is this important NOW? Well, aside from the twin climate and Nature loss crises we’re currently facing, we’re also fast approaching five years since the death of the Okjo?kull Glacier. In 2019 when ‘The OK’ Glacier in Iceland died, the Icelandic people laid down a tombstone to mark the moment and serve as a letter to the future. The tombstone read:

We know what caused this. We know why it happened. Only you will know whether we actually did anything about it or not.

At the bottom of the tombstone there is a number that reads, ‘415 parts per million (ppm) CO2’, and I believe that this is one of the important KPIs for our planet. We need to think of this as the BMI for our planet. 200-250 ppm is a healthy range and sadly in 1950 that figure increased to over 300 ppm which is neither healthy nor safe.

In fact, over 400 ppm is the CO2 equivalent of planet Earth being clinically obese, and if we keep going the way we have been with our extractive capitalist model, we are on track to reach a morbid level of 1,000 ppm. If this happens, the temperature of the planet goes up by more than 4 degrees – we will cook the earth to death, ice caps will melt and sea levels will rise – hitting especially close to home for anyone living in, or born in Holland, like me.

The crisis is largely attributed to our extractive capitalist system, but it might surprise you to learn that the main problem isn’t capitalism. It’s that we don’t value Nature. We need to redefine capitalism by creating a Nature-aligned economy, one where we make Nature an investable asset class, proving how investing in Nature can make money.

When we think of asset classes, we typically think of bonds, real estate and shares. Rarely do we think ice caps, glaciers and rivers. However, we need that to change. Not only is Nature, and the services it provides, the most valuable asset class on the planet, investing in and paying for Nature is the most efficient way to solve the twin Climate and Biodiversity crises, driving a thriving Nature-based economy and creating a world worth living in.

The services that Nature provides to our planet, such as flood protection, drought reduction, water purification, crop pollination and carbon sequestration, are worth an estimated US$140 trillion annually globally, which is nearly one and a half times greater than global GDP.

For 3.5 billion years, Nature's infrastructure has thrived on this planet, demonstrating unparalleled expertise in climate adaptation and resilience that we cannot compete with. For the past few hundred thousand years humans have enjoyed Nature's infrastructure services for free, and now it’s time to start paying for the services it provides and reinvesting in that infrastructure. To date, not only have we neglected to maintain and upgrade our Nature-based infrastructure; we have depleted 70 percent of all our wildlife globally. In short: everything is at risk.

Our extractive capitalist system has seen us treat Nature deplorably, asset stripping it under the focus of short-term gains. We have exceeded the capacity limits of our ‘free trial’ period, and it’s crucial that we reverse this vicious cycle, because if we continue with the current approach, we will risk losing Nature and its life-sustaining, economic growth infrastructure services completely.

Our big idea is to put a value on Nature. We know that Nature provides invaluable Nature ecosystem services – the air we breathe, the water we drink, the food we eat – but despite understanding its value, we’re not valuing it. If we did, we wouldn’t be destroying it. So, how do we transition to a Nature-based economy, one where Nature is valued?

Though we are at crisis point, the good news is that we can still reverse the damage, and we believe we can work with the current capitalist system to do so. Investing in Nature is not philanthropy, it’s reprogramming Capitalism so that we’re still creating economic growth, but we are doing it in a way that doesn’t degrade Nature and, in fact, it will restore it.

So, how do we all start thinking about Nature as an Asset? An asset has one or more of the following three characteristics: cash flow, utility and scarcity value. But we haven’t conceptualised Nature in this way before. Using Seagrass as an example, I’ll show you how we can relate to Nature as an asset.

Does Nature have cash flow potential? Yes. Seagrass meadows have substantial cash flow potential for the local communities and businesses, starting with breeding and feeding grounds for numerous juvenile fish species, including bass, plaice and pollock, which have commercial value if fished sustainably.

What’s more, seagrass meadows are among the most efficient carbon sinks in the world. They account for 10 percent of the ocean's capacity to store carbon despite occupying only 0.2 percent of the sea floor, and they can capture carbon 35 times faster than tropical rainforests – and carbon capture via carbon credits provides cash flow.

Does Nature have scarcity value? Yes! Seagrass is now in decline globally due to human impacts threatening the loss of these free services. Once plentiful in UK coastal waters, these meadows are now diminishing alarmingly. Seagrass meadows shrank by over 90 percent from around 80,000 to 8,000 hectares. As they disappear, their importance and scarcity surge in value.

Does Nature have utility value? Yes! Seagrass, in addition to providing biodiversity which can be fished sustainably, captures carbon, cleans the water, helps mitigate flood and protects the shore from erosion. On top of all that, when you have seagrass, you get key stone species back like the seahorse. These utilities need to be paid for.

How do we get companies to pay for this?

We need to highlight the key problems that exist for companies here in the UK, caused and increased by climate change and Nature loss – flooding, drought, water quality, biodiversity and need to capture carbon – and work to solve these issues by demonstrating the significant benefits companies get for paying for Nature’s services to improve their resilience to one of more or these five problems. This payment creates a financial return for the investor, which in turn makes Nature an investable asset class.

These five problems would be paid for by the companies who benefit. We call these offtake agreements ‘Nature as a Service’ (NaaS). By embracing NaaS, we target business challenges for companies facing specific localised Nature- related risks and opportunities, like reduced flood risk to their assets. Then we calculate the impact of these risks on these companies and work with local authorities, landowners and farmers to restore the land for natural flood management by creating wetlands, restoring shorelines and rewiggling the rivers.

In doing this at a catchment level, we maximise the ecosystem impact while increasing the benefits for which companies pay. This in turn creates investment opportunities for pension funds in Nature. In this way, Nature becomes an investable asset class. This approach solves business resilience, like the flooding of a factory. By reducing their risk of flooding, this benefit is captured and paid for via tailored NaaS offtake agreement.

In a large value catchment like Plymouth and surrounding areas, you can build a portfolio of long-term NaaS contracts from a diverse group of companies, combined with creating biodiversity units and carbon credits, that can deliver attractive, long-term cash flow to pension fund investors, whilst adapting to and mitigating climate change and Nature loss.

By getting companies to pay for Nature via NaaS offtake agreements, is how we get Nature to generate cashflow. The moment Nature generates money, it becomes an asset, one with a tangible value, and we will start to take care of it. This is where we stop destroying Nature and start restoring it.

The Nature deficit in the UK requires an estimated ￡50-￡100 billion over the next 10 years. This sum sounds significant, but we see long term asset owners, like Pensions funds, as being instrumental in bridging the finance gap. In fact, a 2 percent allocation from the UK pension industry to invest in Nature could generate the necessary funds to redirect the flow of capital, making our ambition a reality.

By taking this approach, we will reduce risks for companies, create a financial return for pension funds, and create a UK worth living in.

Robert Gardner (1997, Geography) is financial activist, best-selling personal finance author and Co-Founder of Rebalance Earth