Vast interest in nature-based solutions within private market sectors, marking a unique shift
In a significant shift, AXA Investment Managers (AXA IM) are viewing the demand for nature-based solutions (NbS) as an unprecedented investment opportunity. According to Jonathan Dean, deputy head of natural capital & impact PE at AXA IM, conversations about NbS often focus on transitioning from traditional forestry investments to a model based on restoration and protection.
This interest in NbS transcends the anti-ESG movement and environmental rollbacks happening in the US under the second Donald Trump presidency. The demand comes from three main sources: classic asset owners, corporates, and investors who have connected NbS with climate and social objectives.
Every single business relies on functioning ecosystem services, making it important for businesses to have a future-proof business model. Anna Väänänen, head of listed impact equity at AXA IM, has noted an increase in investor interest in the listed equity space for NbS.
AXA IM portfolio managers consider NbS as more than just an environmental necessity. They view it as an opportunity to generate financial returns while addressing critical environmental and social challenges.
To structure investments in NbS, asset managers employ various approaches that align financial returns with environmental and social impact. These include direct investment in ecosystem restoration and management projects, participation in sector-wide collaborative initiatives, utilising innovative conservation finance mechanisms, integrating nature-related risks and disclosures into investment decision-making, and ensuring the scientific rigor and durability of NbS projects.
These structured NbS investments are crucial for large asset owners for several reasons. Firstly, NbS investments contribute significantly to long-term climate mitigation and biodiversity targets, capturing up to 37% of needed carbon reductions by 2030. Secondly, exposure to nature-related risks translates into financial risk, so addressing these through structured NbS investments enhances portfolio resilience and risk-adjusted returns.
Thirdly, institutional investors increasingly face regulatory and market demands for transparency on nature and climate risks. Adopting standardised valuation and disclosure frameworks, such as the Taskforce on Nature-related Financial Disclosures (TNFD), helps ensure compliance and attractiveness to stakeholders. Lastly, large asset owners have a critical role in mobilising scalable private capital for NbS, enabling impactful environmental and social outcomes while meeting fiduciary duties to generate sustainable financial returns.
While 85% of NbS funding comes from the public sector, there is a growing pressure on institutional investors to fill the financing gap, as public sources are insufficient. Asset managers can offer a diverse range of investment solutions to help asset owners navigate the complexities of NbS investments.
This shift towards NbS investments has been partly driven by the Kunming-Montreal Global Biodiversity Framework and the publication of the TNFD's reporting recommendations. NbS investments need to quadruple before 2050 if the world has a chance of meeting its biodiversity and climate targets. A recent survey by investment manager Nuveen revealed a mismatch between nature risk awareness and nature investment strategies.
Investors with existing forestry or agriculture allocations may find it easier to allocate to NbS. The impact market has grown from $50bn in 2012 to $1.5trn in 2024, with a significant portion of that growth attributed to the recognition of NbS. Asset managers are moving towards offering a wider variety of investment solutions for NbS, aiming to protect, sustainably manage, and restore natural ecosystems while delivering social and economic benefits.
In conclusion, AXA IM's focus on NbS represents a significant shift in the investment landscape. By structuring investments in NbS through direct project investments, collaborative frameworks, innovative finance tools, and rigorous impact accounting, asset managers can help large asset owners manage nature-related financial risks, comply with emerging standards, and harness the financial and societal value of nature.
- The interest in nature-based solutions (NbS) has extended beyond the traditional financial sector, with investors from various backgrounds, including corporate entities, classic asset owners, and those focused on environmental and social objectives, recognizing NbS as an investment opportunity in environmental-science that can contribute to climate change mitigation.
- In the realm of real-estate, asset managers are developing diverse investment solutions to help large asset owners navigate the complexities of NbS, with the aim of protecting, sustaining, and restoring natural ecosystems to secure long-term financial returns, while addressing critical environmental challenges.
- To stay competitive and meet regulatory demands, institutional investors are increasingly adopting standardized valuation and disclosure frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD), which helps ensure compliance and attractiveness to stakeholders, as well as facilitating the flow of private capital into NbS investments, thus playing a pivotal role in achieving global biodiversity and climate targets.
