This article was authored by Charlotte Selvey Miller for the Ecosystems Knowledge Network. Charlotte was a volunteer at the Natural Capital Investment Conference, which ran on 28th February 2019 at The Royal Society, London. The conference is organised by Ecosystems Knowledge Network.
After the Natural Capital Investment Conference February 28th this year we were left with some key messages and actionable outcomes from different sectors, outlined below. But firstly, thank you to everyone for attending, speaking and engaging with this important topic of building a UK market for investing in our natural capital. As Jennifer Pryce, from Calvert Impact Capital, stated during her keynote presentation, “conferences like these are seminal - it’s when change starts”.
The final panel of the conference was chaired by Justin Mundy (Willis Towers Watson), and consisted of Bruce Davis (Abundance Investment), Marie-Justine Labelle (PwC), Jim Totty (Earth Capital), Emily Briggs (Defra) and Andrew Mitchell (Natural Capital Finance Alliance). The panel were tasked with discussing and presenting the next steps for their particular sector in building a UK natural capital investment market.
Justin Mundy started off the panel discussions by explaining that until now we have seen and implemented green finance abroad, but failed to do so successfully in the UK. Bruce Davis highlights that timeframes for investment in ecosystems lend themselves extremely well to some existing financial mechanisms. Due to the longevity of ecosystem processes there are more chances for long-term revenues to be made. This forward thinking needs to be taken from just some investors, to the majority.
With the vast expanse of expertise and talent in the room actions can be advanced in order to build momentum and take environmental finance in the UK to the next level. These are the pledges.
Emily Briggs has pledged four areas where DEFRA is driving and will continue to drive investment into Natural Capital:
- Learning and Engagement
- Policy and Regulatory Space
- Natural Environment Impact Fund
- Green Finance Strategy
Emily firstly assured that Defra will continue to sponsor the Natural Capital Investment Forum, including a commitment for free places for all Local Nature Partnerships. This Forum provides news and webinars that engage with both investment and environmental thinkers. Supporting the growth of a natural capital investment community by sharing innovative case studies and actively promoting discussion and collaboration with targeted regional events.
Emily Briggs, Defra, during the final panel discussion. Photographs by Earthy Photography by the Ecosystems Knwoledge Network
Within policy and regulatory space, the new Environmental Land Management Scheme (ELMS), which will eventually replace the Common Agricultural Policy (CAP), offer land based businesses a meaningful income stream to stimulate long-term private sector investment for Natural Capital. We have been told to “watch this space” by Emily in relation to a new ‘environmental net gain’ principle, as current consultation processes take place to understand how net gain can be incorporated into the planning system to ensure biodiversity is left in a better state than we found it. In line with commitments made in the 25 Year Environment Plan, Emily also announced that £50 million has been allocated to strengthen the UK’s carbon market - another area for us to be excited about.
Thirdly, the Natural Environment Impact Fund is being developed, which will form a pipeline to help stimulate and encourage innovation to generate revenues long-term. Reports from Vivid Economics will be published to showcase what funded projects look like in order for others to follow a model framework. However, this idea firstly needs funding but something Defra is continuing to work towards.
Emily reiterates that Defra’s door is always open for collaboration. She emphasises that the ELMS process in particular is being developed iteratively so to continue improvement we are all welcome to bring ideas forward.
“Money itself is not the future, but investment is a claim on the future”
Bruce Davis highlights a problem with the term ‘resilience’, a term known to be out of fashion in finance. However, a way forward for Bruce is to use the community – “the ordinary” - to fund long term and resilient green projects to bring resilience into the forefront of finance to “encourage finance to search for the not-so-easy [and short-term] returns”. Bruce’s anthropological experience is drawn to the surface here as he explains how the term ‘loan’ meant ‘community’ in ancient Athens. This community support enabled them to survive both climate change and war. “Money itself is not the future, but investment is a claim on the future”. Bruce highlights this need for community to invest in the future, into long-term projects that naturally appeals to our long-term views. Natural Capital can provide these long-term projects that match the long-term investment plans of a community, where the project is not just about proving a return, but also for the wider and greater community good.
Jim Totty explained that pressure on Government is needed in order to start a “catalytic effect” of leading investment streams. Often when government markets lead, private markets follow, as seen with the European Investment Fund. There are exciting sectors for investment opportunities at present, especially within the food and agriculture industry such as insect proteins, with room to grow in private investment industries such as this. However, Jim warned that it is private sector responsibility to agree upon measurable impacts and to define whether a measurable impact is profitable. Furthermore, Jim touched upon ESG (Environmental Social and Governance – used to evaluate corporate behaviour) out performance, which has taken “leaps and bounds” recently and Jim describes this as “the most exciting of all”.
Andrew Mitchell and Marie-Justine Labelle spoke of the advancements in the development of the ‘Encore’ tool (developed by PwC and Natural Capital Finance Alliance), and how the tool can continue to improve in order to be used more widely.
Andrew Mitchell, Natural Capital Finance Alliance, during the final panel discussion. Photographs by Earthy Photography by the Ecosystems Knwoledge Network
Marie-Justine explained how the private sector needs to mainstream Natural Capital thinking: “we need companies within agriculture and real estate to adapt resilient practices to make better investment decisions”, to tackle flooding and coastal damage risks for example. From a corporate responsibility angle, financial institutions are under pressure to have more sustainable policies. PwC have piloted banks and looked at portfolios to find there are substantial risks to natural capital, which could lead to underperformance in portfolios.
“we need to change these rules, and change the movement of money”
The Encore tool has been developed to allow financial institutions to overlay their exposures to high risks and PwC help to assess this. This is important for financial institutions, not just to assess risk but to seek opportunities, such as Green Bonds. Banks could tap into this information to incorporate natural capital risks into their Green loans. Andrew Mitchell explained how the Encore tool has an exciting future, “most investors are blind to natural capital risks and blind to the effects of investment decisions, such as investing in palm oil or not investing in farmers who wish to green up their farms”.
There is no Natural Capital data in Bloomberg terminals - only financial. Andrew explained that “we need to change these rules, and change the movement of money”. Furthermore, Andrew described how Encore tool allows you to screen your natural capital and decide how dependant your sector is on that natural capital. Encore uses 167 ecosystem services and classes them into sectors in which your business may depend on. This allows ecological information to become relevant to the finance world.
Encore complies and aggregates dispersed data, then identifies the most relevant pieces. The next step to improve Encore would be to increase the practicality of the data and integrate this with financial information. In the next few years we have a pledge from Marie-Justine that we will see better methodologies to link ecology and finance within Encore. Andrew stressed that we need to embrace the broader world of natural capital, rather than just carbon. We need to include water and biodiversity next, to create a broader framework with better tools and metrics for us to report across institutions and areas.
Concluding remarks from Bruce Howard echoed and built upon earlier remarks from the day of talks, “we are all pioneers in this topic and we hope this is a challenge and opportunity for everyone”.
The Ecosystem Knowledge Network would be grateful for any feedback on the outputs of conversations you took away from this years conference, as well as what you would like to discuss at next year’s event. To stay up to date on the latest in this field please do join Natural Capital Investment Forum.
In the words of Jennifer Pryce - and the most quoted phrase of the conference – “embrace the imperfect and get stuck in”.
Our final panel: Justin Mundy (Willis Towers Watson), Bruce Davis (Abundance Investment), Marie-Justine Labelle (PwC), Jim Totty (Earth Capital), Emily Briggs (Defra) and Andrew Mitchell (Natural Capital Finance Alliance). As well as Jo Pike (Scottish Wildlife Trust) and Jon Rowan representing the Scottish Conservation Finance Project. Photographs by Earthy Photography by the Ecosystems Knwoledge Network