Why investing in nature makes ecological and economic sense

Nature is our lifeline. Our forests and the ocean are the lungs of the planet, not only regulating our climate but supporting the livelihoods of over a billion people.

The UN Framework Convention on Climate Change (UNFCCC) COP28 in Dubai was a clarion call to the global community - place nature at the heart of climate action or risk derailing the significant efforts underway to limit global warming to 1.5°C. The need for action has never been more urgent.

I am therefore honoured to have been nominated as the new Co-Chair of the World Economic Forum’s Champions for Nature community. This group, which includes leaders at the CEO and minister level, is dedicated to creating a more sustainable economy that benefits nature and people equitably. Our goal is to set greater ambition for environmental goals, influence narratives talking about nature as core infrastructure and build strong public-private partnerships. As Co-Chair, I will help ensure that business and financial decisions increasingly consider nature and biodiversity as key factors.

With almost $2billion committed to forest, ocean, and coastal ecosystem projects and a unanimous agreement that all countries should halt and reverse deforestation and forest degradation by 2030, the critical role of nature in addressing the climate emergency is now firmly established.

So, what does this mean for investors? Despite a growing regulatory focus on nature-related risks, impacts and dependencies, money continues to flow in the wrong direction. At least $5 trillion of private finance went to activities with negative impacts on nature in 2022, 140 times greater than current amounts going to nature-based solutions (NbS).

Given NbS have the potential to supply around one-third of mitigation needs and could save $104 billion in adaptation costs by 2030, the status quo makes little ecological or economic sense.

Degradation of the ocean and marine ecosystems risks costing the global economy around $8.4 trillion over the next 15 years, and the ocean is the most under-funded Sustainable Development Goal.

Moreover, ill-prepared investors risk being blindsided by the ambition and pace of new policies to halt and reverse nature loss, the number of which has doubled in the past 12 months.

The good news is that investible NbS including sustainable agriculture are proving profitable and scalable today, and have the potential to create over 390 million jobs by 2030.

Tackling deforestation is a core component of credible net-zero plans, and businesses and investors are better equipped than ever to place nature at the core of their decision-making processes, thanks to milestones such as the Kunming-Montreal Global Biodiversity Framework, the Taskforce on Nature-Related Financial Disclosures (TNFD), the Science Based Targets Network, Finance Sector Deforestation Action initiative, and the Nature Action 100 initiative.

Building on this, I propose the following three pillars to investors looking to leverage this significant opportunity:

Net-zero targets cannot be met without action on deforestation yet a number of key companies and financial institutions are persistently ignoring their role in exacerbating the problem. This needs to change and leaders within the sector are demonstrating how, with initiatives like the Tropical Forest Alliance playing a pivotal role in galvanising the finance sector on this critical issue.

Through the Finance Sector Deforestation Action Initiative, 35 leading financial institutions with more than $8 trillion assets under management (AUM), are committed to eliminating agricultural commodity-driven deforestation risks in their investment and lending portfolios and increasing investments in nature-based solutions by 2025.

In addition, the Investor Policy Dialogue on Deforestation, an investor-led sovereign engagement initiative supported by 81 financial institutions from 21 countries with approximately $10.5 trillion AUM, aims to halt deforestation in the most vulnerable biomes of the world, the Glasgow Financial Alliance for Net Zero (GFANZ), calls for members to embed deforestation into their transition planning and the Investor Agenda Action Plan guidance emphasizes how investors’ action will simultaneously support biodiversity and food security, whilst minimizing risk in the face of future regulations.

Since its launch at COP28, over 150 financial institutions and businesses are responding to this call to action and incorporating nature into climate transition plans, adopting science-based targets for nature and climate (SBT FLAG) and committing to nature-related disclosures through the TNFD.

This call to action also addresses the current inefficient, insufficient and unfair finance for nature in vulnerable countries facing a triple climate, biodiversity, and debt crisis.

The Taskforce on Sustainability-Linked Sovereign Financing for Nature and Climate aims to address this by scaling debt-related financial instruments. These include debt for conversions for nature such as those in Belize, Ecuador and Gabon and the sustainability-linked sovereign bonds in Uruguay and Chile.

Nature-based solutions are the most cost effective tool available to help vulnerable communities adapt to the reality of climate change. For example, mangroves, sea grasses and corals provide protection for humans and wildlife from both the causes and effects of climate change.

COP28 highlighted their essential role in the climate equation with the launch of the Mangrove Finance Roadmap. The Mangrove Breakthrough is already mobilising stakeholders bringing us closer to meeting the goal of conserving and restoring 15 million hectares by 2030 and reaching $4 billion in sustainable finance.

As countries develop enhanced, investable national climate plans (Nationally Determined Contributions) and biodiversity plans (National Biodiversity Strategies and Action Plans), they have an opportunity to provide clarity, reduce uncertainty and attract investment to their countries.

Similarly, investors who are willing to meet the nature and climate risks head on will reap the greatest rewards in the immediate future with opportunities totalling a possible $10 trillion annually.

We must therefore call on the support of public and private financial institutions to build on the commitments of COP28, ensure strong outcomes on finance at the upcoming biodiversity COP16 where the Champions for Nature community will release a compendium of insights on selected topics (e.g., natural capital), and foster dialogue on policy coherence with nature at the heart of ambitious climate and development agenda in the lead up to the climate COP29.

Razan Al Mubarak currently serves as co-chair of the Champions for Nature, a multi-stakeholder community hosted by the World Economic Forum, convening CEO and minister-level leaders who are spearheading the transition to a nature-positive global economy by raising ambition, influencing narratives and fostering partnerships.