We advise wealth managers to be proactive in integrating nature and biodiversity into their portfolios, for several fundamental reasons.
The Taskforce for Nature Related Disclosures (TNFD)5, for instance, released its final framework in September 2023 with the objective of integrating nature into strategic planning, risk management and asset allocation principles, and to divert capital flows to a nature-positive economy. The European Union Regulation on Deforestation-free Products entered into force in 2023. It requires, from the end of 2024, that companies selling products in or exporting them from the EU must conduct due diligence to confirm they were not sourced from land which was deforested or degraded after 31 Dec 2020. While the legislation in both cases is European, it is reasonable to expect other regions to follow with regulation related to nature assets.
Investors need to respond and be ready for upcoming regulation. Many have already made progress on developing processes to address climate transition risks in their portfolios. They should now look at developing a holistic approach that incorporates nature-related risks and identifies potential investment opportunities.
Regenerative processes, agritech, agroforestry (the planting of trees along boundaries or in with crops) and mixed land use can all play a significant role in enhancing and evolving agricultural practices, with potentially attractive investment characteristics. We believe strategies such as these could become key parts of a broader natural capital allocation.
The universe of solutions for investors is expanding. Indeed, the World Economic Forum estimates that investments with nature-positive outcomes could attract $10 trillion of funds annually, generating 395m jobs by 20306.
The frameworks for incorporating nature and biodiversity considerations into investment portfolios are still emerging. Nevertheless, there are four immediate actions that wealth managers can take today to get started.
