16 Jan 2025
How sectors with natural habitat impacts are tackling nature risks
As nature preservation becomes an urgent priority, sectors with direct impacts on ecosystems – such as agriculture, forestry, infrastructure and real estate – are stepping up to address nature-related risks.
Asset managers, alternative investment funds (AIFs) and investors in these industries are at the forefront, as their physical assets directly shape the landscapes and habitats they operate within.
Agriculture and infrastructure investors, in particular, are leading the way.
Henry Morgan, a Sustainable Investment Associate at Foresight Group – a sustainable investment firm active in forestry, agriculture and renewables – explains: “From a real assets and infrastructure perspective, the physical presence of these assets and their direct interaction with the natural environment allow us to actively manage nature-related risks more effectively. Numerous tools and databases already provide detailed and actionable insights that support the management and enhancement of natural systems.
“In comparison, considering nature from the perspective of a large corporation with diverse business activities can be challenging. Many of these activities may not directly interact with the natural environment in the same way that infrastructure does. This makes nature-focused analysis and management more difficult,” he adds.
From adopting frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD) to using advanced geospatial technology, and sourcing financing to support nature-friendly practices, these sectors are establishing practices that others could follow.
Supporting UK potato farmers
NatWest, a major lender in the agricultural sector, incentivises its customers to consider nature-related risks where environmental impacts are material and visible.
McCain Foods and NatWest are collaborating to reduce financial barriers for potato farmers who are transitioning to sustainable agricultural practices. NatWest offers McCain farmers preferential asset finance support terms. McCain will make an additional contribution towards the interest payable for assets that support sustainable farming. This supports McCain farmers as they work to implement regenerative agriculture practices across 100% of their potato acreage by 2030.
“Agriculture is a really important sector to the bank; we are the largest UK bank for business and one of the largest for the farming sector,” says Rhona Turnbull, Head of Nature at NatWest, a new post created in 2023. “The farmers get to transition in a subsidised way and they maintain that supply chain relationship with McCain.”
To further support sustainable farming, NatWest also works with the WWF.
“We’ve been doing some work with WWF in terms of regenerative agriculture,” she says. “It’s about working with farmers, looking at both climate and nature together, and how we can support a just transition through financing.”
Technology as a tool for nature
Technology plays a critical role in assessing and managing nature-related risks. Geographic Information Systems (GIS), satellite data and other geospatial tools enable companies to monitor biodiversity impacts, track ecosystem degradation and comply with emerging standards and regulation.
NatWest Group has used the Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) tool to inform a broader TNFD LEAP assessment to identify its material nature-related impacts, dependencies, risks and opportunities across its lending portfolio.
“What that tool does is take our lending portfolio to see where our customers have the biggest impacts and dependencies on nature, and that's enabled us to prioritise the materiality of different sectors,” says Rhona.
Yet even with these tools, applying nature-focused data across complex customer portfolios can be challenging.
“When we’ve got hundreds of thousands of customers, in the hypothetical, matching geospatial data to understand ‘which plot of land equates to which customer, which equates to this amount of lending’, is a bit of a jigsaw puzzle.”
Nature as an asset class
Investor interest is growing in emerging nature investment opportunities such as regenerative agriculture, ocean conservation and sustainable forestry to accelerate the transition to net zero.
Regulatory frameworks are also beginning to define how companies manage and disclose nature-related risks. TNFD is emerging as a central guideline and more than 500 companies and financial institutions have now committed to its guidelines – a 60% increase since the start of 2024.
Rhona sees such frameworks as essential to move nature considerations into core business practices. “The expectations on organisations as to how they go about understanding and taking action on nature is changing, and I think a key lever to that has been the TNFD.”
“Now it’s about how we move away from nature finance being seen as a very philanthropic nature conservation piece to non-public finance being mobilised for nature restoration and regeneration on commercial terms.”
Bridging the divide between climate and nature
Climate and nature are, however, often treated as separate issues within many financial institutions, but nature targets may soon become as ingrained in business practices as net zero.
TNFD and the Glasgow Financial Alliance for Net Zero (GFANZ) are pushing companies to incorporate nature within their climate transition plans and Rhona thinks this trend will evolve further.
“We're starting to see it in a much more structured way, how organisations are expected to respond and then report to the market as to how they're considering nature, opportunities, risks, impacts and dependencies,” she says.
As nature, like climate, is integrated into everyday banking decision-making, investors who understand the complexities will be best-placed to respond to evolving expectations from regulators and their customers.
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