RADICAL REALIST

Nature as an asset class

Why investing in Earth is our only chance to save it, by Walid Al Saqqaf

Nature is our global infrastructure. The whole economy is highly dependent on the essential services it provides, from flood protection to drought reduction, water purification, crop pollination, and carbon sequestration. Nature and its ecosystem services form the most valuable asset class on the planet, contributing an estimated $140 trillion annually to the global economy, more than double the world’s GDP.

However, for the last 3.5 billion years, we have taken nature for granted, enjoying its services for free, without restoring or reinvesting in that essential infrastructure. This has left the UK one of the most nature-depleted countries in the world. As the UK faces increasing environmental challenges, it is crucial to treat nature as infrastructure, recognising its potential to address major issues like flooding, drought, and water quality more cost-effectively than human-made solutions.

The biodiversity net gain (BnG) market, which seeks to ensure that land development projects leave places more biodiverse than they started, is valued up to £275 million annually in the UK, and the voluntary carbon credit market could be worth less than half that similar. However, the total value of planned public and private investment in major infrastructure projects in the UK is £164 billion over the next two years. If we consider nature as infrastructure, the potential market could surpass the combined BnG and carbon credit markets significantly.

Investing in nature infrastructure, such as the maintenance of clean and healthy rivers, can be more cost-effective than traditional infrastructure made of concrete and steel. For instance, healthy river systems naturally mitigate flooding and improve water quality, reducing the need for expensive engineering projects. The natural filtration provided by wetlands can be more effective and less costly than building new water treatment plants. Similarly, reforestation can stabilise soils and prevent landslides, offering a sustainable solution to land degradation.

Innovative technologies like blockchain, artificial intelligence (AI), and digital twinning can bring credibility and efficiency to investments in nature infrastructure. By using blockchain, we can create immutable records that verify the impacts of investments, preventing issues like greenwashing and ensuring funds are allocated correctly.

Digital twin technology allows us to create virtual models of real-world ecosystems. These models can simulate various interventions, helping investors see the potential impacts of their contributions on environmental restoration and resilience. For example, digital twins can simulate increased rainfall or land use changes, showing investors how these factors affect ecosystem health and, consequently, the businesses reliant on these ecosystems.

Investing in nature infrastructure provides measurable economic benefits. For instance, restoring a river catchment area can enhance biodiversity, improve water quality, and reduce flood risks, all of which have direct and indirect economic benefits. Businesses that rely on these ecosystem services, such as agriculture, fisheries, and tourism, can see improved productivity and reduced costs. Nature infrastructure investments can also generate carbon and biodiversity credits, which can be sold in the market, providing an additional revenue stream.

Consumers, investors, and regulators are increasingly demanding that businesses take responsibility for their environmental impacts. By investing in nature infrastructure, businesses can demonstrate their commitment to sustainability, enhancing their reputation and competitive advantage.

Treating nature as infrastructure and leveraging advanced technologies can unlock economic and environmental benefits to a much higher degree than relying solely on carbon and BnG markets. By investing in nature infrastructure, we can address challenges like flooding, drought, and water quality more effectively. This approach helps protect our planet and makes good business sense, providing measurable returns and enhancing the resilience of our economy.

As we move towards a more sustainable future, it is essential that we recognise the value of nature and invest in its preservation and restoration. By doing so, we can create a more resilient, prosperous, and sustainable economy for future generations.

Walid Al Saqqaf is Co-Founder and CTO of Rebalance Earth, a highly innovative UK-based pension fund manager, hoping to make nature an investable asset class by redirecting the flow of private capital towards a nature-based economy.

Share with a friend