In the three years since the launch of our biodiversity strategy, the investment landscape has undergone significant transformations, particularly in the realm of biodiversity and nature finance.
This period has witnessed a deepening of knowledge among investors, corporates, and investment teams, in parallel with the maturation of the nature finance asset class. This evolution is largely influenced by heightened regulatory focus and innovative market strategies that align with environmental sustainability.
Regulatory advances and market shifts
The regulatory environment has been particularly dynamic, with the launch of disclosure initiatives such as the Taskforce on Nature-related Financial Disclosure (TNFD) and the Science-Based Targets for Nature (SBTN). These frameworks aim to integrate nature-related risks and opportunities into the financial reporting mainstream, an approach that supports investment strategies focusing on sectors and companies which stay ahead of regulation and embed nature risks and opportunities into their business models.
Moreover, the macroeconomic backdrop has presented both challenges and opportunities. Shortly after the launch of the strategy, markets saw a strong rotation favouring lower-growth, value names as we entered a hiking phase of the interest rate cycle. Geopolitical tensions have contributed to volatility, and the narrow tech-focussed leadership of the market has been a challenge. However, the recent normalisation of rates and tech’s performance has broadened market leadership and created a supportive platform for stock-picking based on fundamentals.
Strategic edge in biodiversity investments
Our impact team has maintained a competitive edge in this evolving market through its pioneering approach: initially guided by nature-related UN Sustainable Development Goals (SDGs), the team has now integrated targets from the Kunming Global Biodiversity Framework (GBF) into their investment strategy. This proactive decision enables the team to not only stay ahead of regulatory changes but also to engage constructively with investee companies, fostering both financial returns and impactful outcomes.
Partnerships with leading nature charities, like the Peace Parks Foundation and the Cambridge Conservation Initiative, underscore the importance of external expertise in tackling complex environmental issues. These collaborations enhance our understanding of the companies held in the fund, along with the quality of advice we can give to them.
The triad of regulation, innovation, and demand
Our investment strategy is built on three pillars: regulation, innovation, and consumer demand, each of which has seen significant developments in recent years. In the United States, landmark legislation, such as the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, has catalysed substantial funding in sustainable projects. In Europe, the Green Deal aims to deploy at least EUR 1 trillion by 2030 for initiatives that promote biodiversity and sustainable agriculture, and we are beginning to see the positive impact of this in corporate earnings.
Innovation continues to be a key driver, with corporates expanding their R&D efforts to meet new regulatory standards and consumer expectations. This has led to the emergence of new companies and the expansion of existing ones into new markets, such as biomaterials and sustainable agriculture.
Consumer demand has also shifted noticeably: increased public awareness of environmental impacts and dependency on natural ecosystems has influenced consumer preferences towards organic, locally sourced produce and eco-friendly products. This shift not only drives demand for sustainable solutions but also aligns consumer behaviour with biodiversity restoration goals.
Impact investing outlook
The investment landscape for biodiversity looks promising. Businesses are increasingly aware that their revenue streams are dependent on nature and the smart ones are investing ahead of their competitors to ensure stronger supply chains, stable earnings and superior performance; combined with a more benign market backdrop, this is an exciting time to be investing in the biodiversity theme.
In conclusion, the biodiversity investment landscape over the past three years has not only changed, it has matured into a sophisticated, dynamic field where regulatory foresight, innovative strategies, and evolving consumer demands converge to create significant opportunities for informed investors.
