Over the past 15 years, public policies and market initiatives have generated a
transition to sustainable finance, but increased focus is required.
Principles and Market initiatives
developed by Investors
and Corporates
Principles, guidelines and policies
backed by Governments or
multilateral bodies
They are doing so in response to the evidence that the natural capital that we all rely on is rapidly eroding and poses a significant risk to our general economic model. This – together with pressure from stakeholders, government guidelines, and normative changes – is leading to changes in investor behaviour and areas of interest.
Recognise the importance of nature-based investing and
incentivise companies to maintain a clear view of their dependence on
natural capital
Embrace the concept of natural capital in their investment strategies
AIR
Natural Climate
Solutions
WATER
Freshwater &
Ocean
LAND
Soil &
Subsoil
BIODIVERSITY
Plants &
Animals
Support the development of natural capital-based projects
Include risks and opportunities associated with natural capital in their asset allocation decisions
Source:
Investing in Nature Private
Finance for nature based reslience.
The Nature Conservancy
Sustainable finance is the broadest of the categories, and is intricately linked to ESG finance
Investments in sustainable finance have expressed robust growth in recent years, which seems to be continuing. According to McKinsey (McKinsey, 2018), these investments represent about 35% of all “professionally managed” assets
Green finance is narrowly defined and focuses on environmental and climate change issues. Investments in renewable energy and energy efficiency dominate this category, attracting about 1.6 billion in investments (Bloomberg New Energy Finance)
Natural capital or “conservation finance”, represents a small slice of all sustainable finance. According to a report by the Coalition For Private Investment In Conservation (2021), the overall market volume of “conservation finance” varies between $ 133 billion (United Nations Environment Program) and $124-143 billion provided annually by the public and private sector (Deutz et al.2020)
Natural capital investments are a subset of broader categories, such as ESG financing, sustainable finance, or green finance, as shown in this figure
According to the CPIC report, institutional investors, or asset managers with institutional clients, represent the most prominent category of investors – as shown in this chart
There is a diverse mix with regard to “conservation investments”, with a greater focus on private debt, real assets (such as infrastructure and land) and private equity
Without Outlier
With Outlier