COP is here again. The 27th United Nations Conference of Parties on climate change (COP27) is being held in Egypt right now.

Underlining the critical role that nature needs to play in the fight against climate change, November 16 has been designated as Biodiversity Day.

There’s growing acceptance that we won’t achieve a successful transition to a low-carbon world without the protection and restoration of nature.

The alteration of land and marine ecosystems is a major cause of greenhouse-gas emissions. But these very same natural systems can be carbon sinks – absorbing more carbon from the atmosphere than they release – if they’re looked after.

Unfortunately, in recent decades the world has experienced tragic levels of nature loss. Nature is woefully undervalued and overused. This degradation needs to be halted as healthy ecosystems underpin our economies and provide a vital tool in climate-change adaptation.

We’ve published a new report, Preserving natural capital – Our approach for investments, which explains what we’re doing to address this crucial area of responsible investing.

What is natural capital?

Natural capital are the stocks of renewable and non-renewable resources (e.g. plants, animals, air, water, soils and minerals) that combine to yield beneficial flows to people.

At the same time, ecosystem services are the benefits gained from the flows of natural capital and provide services such as pollination, protection from extreme weather, pest control, and even waste disposal¹.

How is economic activity affected?

Many economic activities affect (and rely on) nature, but it’s predominately those primary industries – agriculture, forestry, fishing, extractives – where the biggest impacts and dependencies tend to occur.

That said, other sectors and businesses are also exposed to the financial risks and opportunities through supply chains and their own activities. In turn, this creates risks and opportunities for many of the assets that investors are exposed to.

What’s driving change?

We’ve identified three important factors:

• Increasing financial materiality. The impact from the degradation of nature is being felt more than ever, especially in those sectors with the highest dependencies on natural capital.
• Changing policy and regulation. Increasing policy and regulation leads to increased transition risks.
• Growing investor demand and expectations. Asset owners expect key sustainability themes to be considered within investments. Investors are asking how asset managers are integrating the recommendations of the Taskforce for Nature-related Financial Disclosure (TNFD).

Taskforce for Nature-related Financial Disclosure?

The aim of the TNFD – an international group with more than 650 members – is to develop a global framework on financially material nature-related disclosure for businesses.

This is really important because currently this type of corporate disclosure is poor. This information helps investors identify the most critical risks and opportunities associated with the assets they invest in. It also helps investors spot the leaders and laggards.

What’s abrdn doing?

As a TNFD forum member we believe that consistent approaches to disclosing natural capital-related risks and opportunities are critical.

We support the need for stronger policies to incentivize action to reverse the tragic degradation of natural capital.

In addition, we’re also looking to develop data and tools to embed the protection of nature even further within our investment process.

Our approach to natural capital is focused on six areas:

1. Research & Data. Enhancing our understanding of the implications of unsustainable use of natural capital across asset classes and regions; providing/sourcing data to measure this;
2. Investment Integration. Building upon the data and tools we use to enable decision makers to make informed choices when considering the preservation of natural capital within portfolios;
3. Client Solutions. Understanding clients’ expectations and develop investment solutions that can help deliver nature-positive outcomes;
4. Active ownership. Better understand how the businesses we’re investing in manage their nature-related risks and opportunities. We’re also using our leverage to challenge investee practices and encourage improvements;
5. Collaboration & Influence. Collaborating with relevant industry associations and initiatives; engaging with peers and policy makers to encourage improvements and develop best practices;
6. Disclosure. Encouraging better disclosure in line with TNFD recommendations.

You can find more details on these in Preserving natural capital – Our approach for investments.

Final thoughts

While it’s likely that nature will play an increasingly important role in climate talks, nature is so much more than just a source, or sink, of carbon.

Post-COP27, we’re looking towards COP15 ( the Conference on Biological Diversity) where progress on the conservation and restoration of nature will be viewed through more than just a carbon lens.

Collectively, biodiversity loss, pollution, over-exploitation of nature and climate change affect millions of people. That’s why coordinated global action is needed.

We hope that COP15 doesn’t disappoint.

¹ Source: The TNFD Nature-related Risk & Opportunity Management and Disclosure Framework Beta v0.1 Release. [Online] (accessed 12/05/2022).

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