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Investment in Nature: the Next Big Opportunity?

Almost everything that we have is a direct or indirect derivative of resources found on our planet. Our world’s natural resources are pivotal, promising ongoing returns and bringing about prosperity. Nature’s value, however, is undeterminable – the value of resources highly depends on environmental events, such as rain in the case of agriculture. On the other hand, man-made products are comparatively easier to price as their value is determined by simple supply and demand mathematics. As a result, the unpredictability of nature’s movement, especially during an era of important climate change, has been the principal reason analysts and investors have given investment in nature a cold shoulder, until now. Before the year 2000, more than 85% of the world’s investors invested in sectors other than biodiversity, and in 2019, around 70% of  US investors regretted their stock-orientated investment decisions. Clearly, investors are starting to rethink their investment choices and therefore the investment opportunities available within biodiversity are most certainly worth looking into.

Strong track-record

Conservation policies are largely funded by philanthropic organizations or government grants. Investors on the other hand, have rarely stepped foot into this territory – mostly due to a lack of opportunity, as well as the high risks involved investment in the sector. However, investors do have the option to invest in projects which strive to protect the resources of the earth’s most critically endangered regions, such as the many underdeveloped countries, disaster-stricken areas affected by natural calamities, and the world’s many wildlife sanctuaries. These make up some of the best investment destinations to consider.

Moreover, amid a rising awareness of nature’s potential, as well as its direct and indirect impact on economic activities, a new wave of interest has been sparked in the world of finance. However, identifying potential and taking action based upon this knowledge are two very different things. A huge proportion of the investor-population still lacks crucial know-how in investment in fields of nature and biodiversity. Despite this, biodiversity-based activities still contribute $125 trillion to the world economy each year.

Two-fold benefits

Investing in biodiversity is not only profitable, but hugely impactful, and Bill Gates can vouch for that. He and his wife founded the Bill & Melinda Gates Foundation which spends nearly $2 billion a year to help free African nations from the claws of poverty and illiteracy, and in 2012 decided to invest in tackling the issue of drinkable water. Teaming up with Peter Janicki, they invented and developed the Janicki Omniprocessor, which is capable of sustainably turning human faeces into purified drinking water. This investment decision cost hundreds of millions of dollars, but has helped Africa take a giant leap in its fight against water-scarcity and has potentially saved the lives of millions of people. While Bill Gates initially struggled to acquire funding, after years of research and testing this contraption is now available to other developing countries in a similar crisis. The processor now also represents a phenomenal investment opportunity for investors and entrepreneurs from low to middle-income countries who can buy and operate the machine to produce not only water, but electricity and ash too. This serves to show that the benefits of investing in biodiversity and nature are two-fold: it has the potential to produce large returns and make a huge social and environmental impact.

Risks and how to reduce them

As with all investment decisions, investing in nature involves risks. Compared to stocks or similar investment destinations, investing in biodiversity is unpredictable due to its uncontrollable and often unforeseeable nature. Funding projects such as Bill and Melinda Gates’, or even those of much smaller scales, is a highly time consuming and risky operation, requiring careful consideration, planning, research and of course money, however, over half of the world’s investors struggle to perform such necessary planning[1]. Moreover, in order for sustainable solutions to become successful investments, they need to start replacing the old and conventional norms that have until now been unchanged. This can be a very challenging task when very often the world only seeks sustainable solutions once they find themselves in hot water – the sudden and unprecedented movement of environmental consciousness in the face of dramatic climate changes acts as a perfect example. In other words, there needs to be a trigger. Successful investors therefore must try to predict future sustainable solutions and identify key influential events in order to reduce risks and improve profit margins to the best of their ability, and the key to doing this is research and preparation.

Diversifying investment in nature

A responsible investor looking to invest in nature should consider both green infrastructure and gray infrastructure. Green infrastructure solves urban and rural environmental issues through sustainable solutions whereas gray infrastructure is purely construction-based. While green infrastructure seems to be a preferable investment destination due to its more obvious environmental benefits such as cleaner air and water, and better living conditions, gray infrastructure nonetheless has an important part to play. It is a fundamental player in waste reduction, land conservation, stormwater systems and storage basins. In order to best tackle the increasing climate change and the inevitable environmental issues that it leaves in its wake, investment in both gray and green infrastructures is necessary in order to improve our world’s sustainability as quick as possible.  

It can no longer be denied that investment in nature is beggining to gain traction. Climate change has pushed governments and companies to take greater environmental consideration and to become more socially responsible, and with this, investors are finding investment opportunities with high returns. Sustainability is now at the forefront of corporate agendas and of investment strategies, offering not only financial benefits but also a huge social and environmental impact.

[1] Cooper, G. and Trémolet S. (2019). Investing in Nature: Private Finance for Nature-based Resilience. The Nature Conservancy and Environmental Finance. London, United Kingdom.