Banking on nature

The UK government recently launched its Green Finance Strategy on the heels of legislation that will result in the UK becoming the first country in the G7 to move to net zero emissions by 2050. These policy measures are certainly impressive. Policymakers and investors are clearly getting the picture that without robust, investable technologies deployed at scale we all face the catastrophic consequences of accelerating climate change. Yet it is crucial they do not become fixated on green energy as a panacea.

While the UK’s record on cutting emissions through the greening of the energy sector has been world class, policies aimed at directing capital into renewables must go hand in hand with investment in biodiversity, natural capital solutions and environmental sustainability.

Research carried out by economists Eunomia Research for the Green Purposes Company (GPC) has mapped the landscape of green investments in areas relating to the five green purposes of what used to be known as the Green Investment Bank (GIB), now referred to as the Green Investment Group (GIG).

A not-for-profit company, the GPC owns a special share in the GIG to safeguard its green mission. In addition to reducing greenhouse gases and advancing the efficiency in the use of natural resources, the green purposes aim to protect and enhance the natural environment and biodiversity, as well as promote environmental sustainability.

Fulfilling these purposes should include natural capital solutions, according to the report. Overall, such solutions are not sophisticated technologies that need high levels of investment. Reforesting millions of hectares sequesters billions of tonnes of carbon dioxide, supports livelihoods and boosts economic growth.

Although there is a strong international consensus to restore and protect land-based ecosystems, there has been little concerted effort by governments and investors to advance these solutions, which provide a cost-­effective path to a lower carbon and more environmentally sustainable world. Research by the Nature Conservancy and 15 other institutions found that with concerted global action between now and 2030, better land stewardship offers 37 per cent of the solution for keeping global temperatures to 2C or below  –  the same as if the world today put a complete stop on the burning of oil.

Water companies in England have announced plans to plant 11 million trees as part of a wider commitment to improve the natural environment and achieve their goal of a carbon-neutral water industry by 2030. It’s clear that tackling the environmental and climate emergency needs a full arsenal of investable technologies aimed squarely at cutting emissions to net zero. But this must go hand in hand with investment to reverse the alarming decline in nature by all utility companies.

There is, however, a surprising imbalance in investment in nature-based solutions, despite pioneering work, for example, on peat uplands by some water utilities, which globally trail renewable energy and energy efficiency financing by a factor of 10:1 despite evidence they have worked around the world on a large scale.

Admittedly, financial returns from renewable energy generation and energy-from-waste are generally lower risk because the technologies have matured and long-term contracts and other financing mechanisms have become established over recent years. For biodiversity, natural capital and environmental sustainability investments, direct revenue streams are not so readily available, but such opportunities do exist.

Utility companies are well-equipped with the skills and expertise to transition into new business areas, with the impressive transition to renewables evidence of what is possible. But the bottom line is that underinvestment in innovation and natural solutions, combined with insufficient consideration of the societal costs of outdated solutions, will lead to critical vulnerabilities in the future.

We encourage utility companies, the GIG and investors more widely to take inspiration from novel investment mechanisms that have been successfully developed in other parts of the world, as identified in our report.