Investing in nature

New research on nature funds, published by the University of Oxford, highlights the need for increased funding into effective nature-based solutions (NbS) and natural capital solutions to tackle climate change and support sustainable development.

The research was co-authored by Dorian van Raalte, an Advisor to the Environmental Change Institute at the University of Oxford who recently joined Gresham House, together with Dr Nicola Ranger, who leads the Resilience and Development programme at the Institute.

The study reviews nature finance globally, analyses the structures of transactions in the market, and develops a database of twenty-five of the largest emerging markets focused specialist nature funds to learn what works in delivering nature finance at scale.

It finds that to achieve global nature and climate goals requires a significant scale-up in private sector investment in nature protection and recovery. Recent analysis by the UN Environment Programme found that investment in nature-based solutions must almost triple by 2030 to $542bn to meet global climate, land and biodiversity targets.

Several barriers have held back the development of these markets for nature-based solutions, including the relatively long investment times and higher risks versus returns, the lack of a supportive policy environment and the need for specialist expertise.

Consequently, investment levels have struggled to exceed $200bn  per year and most of this (82%) comes from the public sector. To achieve global nature and climate goals requires a significant scale-up in private sector investment in nature protection and recovery.

Dorian van Raalte, Investment Manager at Gresham House, said:
“There are significant barriers to mobilising private sector investment into nature-based solutions which are often location specific and have relatively unattractive risk-return profiles. While mechanisms like carbon credits and payments for ecosystem services (PES) can modify the risk-return dynamics of projects, these markets remain small and underdeveloped. In this context, specialised financial entities are likely to play a crucial role in directing targeted investments towards nature, often acting as trailblazers”. 

The report, entitled Financing Nature Based Solutions for Adaptation at Scale: Learning from Specialised Investment Managers and Nature Fund, is a first output from “Global Tools to Unlock Capital for Investments in Nature-Based Solutions” of the Global Center on Adaptation in partnership with the Environmental Change Institute (ECI) at the University of Oxford and supported by UK International Development.

Key findings:

• Different shades of NbS investment: Investment opportunities vary drastically in nature and form, with many areas of investment in NbS able to generate attractive returns for investors. Most existing nature-based investments are in established economic sectors that deliver well understood and attractive commercial returns, including investments in sustainable or improved practices in agriculture and forestry. Moving at pace to accelerate investment in nature-positive value-chains in these sectors can bring major benefits both for the resilience of local communities and global supply chains, as well as biodiversity gains and commercial returns. More nascent areas of investment in NbS, such as conservation projects and green infrastructure like mangroves, are more challenging to scale, often possessing higher associated commercial, environmental, and social risks.
• Specialists acting as important trailblazers: There is an emergence of a new generation of investment managers and strategies specialising in nature-positive investing. Despite their modest size, these innovative specialists can deliver outsized impact and complement other actors such as development financial institutions (DFIs) through structuring impactful transactions, executing blueprint transactions and contributing to a collective knowledge base.
• Mainstream actors dipping their toes into nature finance: The nature finance space is evolving rapidly, with larger institutional investment managers beginning to venture into active management investment strategies focused on NbS through the launch of new strategies, joint-ventures, and acquisitions of existing strategies, including bringing specialist investment managers in-house.

Nature-positive investing

As a specialist investment manager, Gresham House is well placed to drive on-the-ground nature-positive activities with investment strategies covering key sectors such as Forestry, New Energy, Sustainable Infrastructure and Real Estate. This strategic selection of investment strategies derives from Gresham House’s aim to establish itself as a recognised leader in sustainable investment.

Tony Dalwood, CEO, Gresham House, said:
“At Gresham House, we believe cross-sector collaboration between knowledge centres, research institutions, private sector actors and government is imperative to overcoming barriers and scaling private sector investment into effective solutions to tackle the climate and biodiversity crises. We are implementing investment strategies, including in the area of natural capital, and will continue to work with other stakeholders to develop and launch further sustainable strategies that deliver attractive financial returns for investors as well as supporting global efforts to tackle these key environmental issues.”

Gresham House has grown its AUM from £250mn in 2015 to over £8.3bn in 2023. This growth has been underpinned by an aim to deliver value to clients through sustainable and superior investment performance, quality service provision and non-financial returns.

Co-author of the report, Dorian van Raalte recently joined Gresham House where he is working closely with the Forestry chief investment officer, David Gardner and the wider team to launch a Sustainable Finance Disclosure Regulation (SFDR) Article 9 Sustainable International Forestry (SIF) strategy, with a target size of €500mn. He remains affiliated with the University of Oxford’s Environmental Change Institute to assist with ongoing research into nature finance and facilitate cross-sector collaboration.

About the Global Center on Adaptation

Founded in 2018, the Global Center on Adaptation (GCA) is an international organization that works as a solutions broker to accelerate action and support for adaptation solutions, from the international to the local, in partnership with the public and private sectors. See: www.gca.org

About the Environmental Change Institute

The Environmental Change Institute at the University of Oxford was established in 1991. Its aim is to organise and promote interdisciplinary research on the nature, causes and impact of environmental change and to contribute to the development of management strategies for coping with future environmental change. The Resilient Planet Finance Lab was established in 2023 as a collaborative research and innovation programme hosted within the Environmental Change Institute, in partnership with the United Nations Office for Disaster Risk Reduction (UNDRR) and the Insurance Development Forum (IDF), to work with financial institutions, governments, civil society organisations and development finance institutions to deliver evidence and common metrics, toolkits, frameworks and guidance to accelerate the mobilisation of finance for resilience and nature. See: www.eci.ox.ac.uk