Building a public markets nature strategy
A flexible approach for directing capital toward the nature transition.
Profily autorov
The World Bank estimates that there is a $711 billion funding gap from the level needed to deliver global biodiversity goals by 2030, and that the business benefits and investment opportunity offered by nature investments could be significant. A report by the World Economic Forum highlights that shifting to nature-positive practices could unlock $10 trillion of annual business opportunities and 395 million jobs by 2030.1
As the theme of Natural Capital & Biodiversity garners more attention within the investment industry, there has been a steady rise in investment strategies seeking to gain exposure. However, given the complexity of the topic, it is not always clear to investors how to systematically integrate nature-related analysis alongside other sustainability factors and, going a step further, how best to build nature-related investment strategies.
This primer is the third in our Natural Capital & Biodiversity series. Building on our previous primer which introduces the methodology behind our proprietary model for analysing nature-related impacts, NatCapEx, this primer outlines how NatCapEx can be leveraged to define a meaningful investment universe for different kinds of strategies. Using the different pillars of the NatCapEx analysis enables us to classify companies into the different categories of:
- Nature improver. Companies which are highly exposed to nature-related risks but have robust indicators of management.
- Laggard. Companies which are highly exposed to nature-related risks with limited management of these externalities.
- Light leader. Companies in low or moderate risk sectors with strong management of these risks.
- Low Impact. Companies in low or moderate risk sectors with limited management of these risks.
- Solution Provider. Companies that, through their goods and services, enable the transition to a Nature Positive society.
By using this approach, we can overcome the challenges of consistently analysing nature-related exposures to build portfolios which meet specific objectives. We acknowledge that different clients will wish to optimise for differing end objectives – both financial and nature-related. These will determine where on the spectrum of potential nature investment a particular strategy will fall.
This primer outlines three illustrative types of nature-related strategies to demonstrate the approach in practice:
- Focused nature transition strategy;
- Broad-based nature-tilted index; and
- Integrated climate and nature transition strategy. The full paper is attached here as a pdf.
For more information about our proprietary model, NatCapEx, read our second primer here. For more information on why investors need to pay attention to natural capital and biodiversity, read our first primer here. This primer is accompanied by our Natural Capital & Biodiversity Cheatsheet, which outlines key concepts and frameworks in more detail to support understanding of this topic.
1 https://www3.weforum.org/docs/WEF_The_Future_Of_Nature_And_Business_2020.pdf
Profily autorov
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