Japan Impact Investment Network (J-IIN)’s focus for 2023 was on Natural Capital and Biodiversity and we held a series of five webinars focusing on various aspects of these topics.These webinars provide a forum for entrepreneurs, investors, and global NGOs to exchange views on the business opportunities and developments in different global ecosystems including forests, oceans (“blue economy”), and agricultural land.
A total of nearly 200 institutional investors, companies,entrepreneurs, and ecosystem players from Japan and abroad participated in the discussions this year. We sincerely appreciate the enthusiasm, insights, and support of all the participants and panelists.
Some of the themes that we found re-occurring through the series:
Ongoing biodiversity loss
Biodiversity is facing rapid destruction globally due mainly to human activity. The destruction of biodiversity weakens natural capital and has negative impacts not only on the water, air, and soil, environmental systems but also on food production and its related jobs, human health, and
even the traditions and culture of human society. Climate change is also impacting biodiversity, magnifying the human impact.
The need to develop new investment frameworks,technologies, business models, and Monitoring, Reporting and Verification (MRV) players
To combat the ongoing damage to biodiversity, annualinvestments between $700 billion and $1 trillion are estimated to be required. This need has already spurred the creation of new investment frameworks, strategies, and business models that we were able to highlight throughout the webinar series:
- The Nature Conservancy (TNC), theworld's largest conservation NGO, advises on biodiversity impact, leveraging venture capital, private equity, and investment banks and fostering innovative financial mechanisms like blue bonds.
- BTG Pactual Timberland Investment Group (BTG-TIG), one of the world’s largest timberland investment management organizations (TIMO), has adopted a new strategy of
biodiversity restoration on degraded farmland, while entrepreneurs such as Fairventures Social Forestry, leverage public schemes to aim for solid commercial returns.
- Emerging start-ups in data collection and monitoring,exemplified by Wildlife Drones and PlanBlue, offer tailored information services.
- Growing companies like Dryad focuson early wildfire detection and Urchinomics addresses marine biodiversity restoration.
- Farming company Trifolium Farms uses nutrigenomics to accelerate regenerative agriculture.
- Finally, VCs and asset managers such as Silverstrand, Hatch Blue and Kempen all help fund these emerging businesses and aim to continue to allocate capital going forward.
Investing in Nature: Current Status and Prospects
We felt that compared to awareness in climate change issuesand mitigation, interest in biodiversity restoration and Nature-based Solutions (NBS) remains low. While the International Energy Agency (IEA) estimates that $1.8 trillion per year is being invested in clean energy to combat climate
change, the United Nations Environment Programme (UNEP) andother organizations estimate that investment in biodiversity is at the level of only $130 billion, with private investment accounting for less than 15% of that amount.
This year’s panelists also pointed out that, compared to climate change countermeasures, biodiversity tends to be more localized and individualized, and is more fragile and sensitive to changes in the environment around it. In addition, measuring success in biodiversity initiatives is complex because it involves various subject areas, including genetics and microorganisms. In addition, because measuring and investing in biodiversity is a new area, definitions, unified standards, and related data are not yet fully available.
Despite such concerns, interest in natural capital andbiodiversity is growing, one year now since the Global Biodiversity Framework (GBF) was adopted at the United Nations Biodiversity Conference in December 2022. Many global companies have begun to recognize the importance of biodiversity and have already set specific targets. While only 5% of Fortune 500 companies have set biodiversity goals, Unilever, for example, aims to protect natural ecosystems from deforestation and conversion and has set a goal of making its supply chains deforestation and conversion-free by 2030, by experimenting with blockchain technology to ensure transparency. It is expected that an increasing number of companies will use the Taskforce on Nature-related Financial Disclosures (TNFD) framework and other tools to identify their company’s impact on natural capital and biodiversity and set specific targets.
At the same time as existing businesses begin to consider setting targets and considering their biodiversity impact, other businesses are emerging to help prevent the destruction of biodiversity. These include businesses involved in improving the circular economy, decreasing pollution, and working to develop carbon sequestration methods and carbon markets, as well as other new technologies and business models. Together these are sometimes called "nature tech". These new businesses will be essential partners to help reach our global goals.
The biodiversity credit market has already started its pilotoperations separately from the carbon credit market, and certifiers such as Verra are now establishing their standards and methodologies, leveraging their experience in the carbon market, while others are drafting global frameworks and principles. At the same time, technologies for measuring biodiversity and natural capital are fast evolving, and we can expect to see many new start-ups and initiatives focused solely on biodiversity restoration.
For Japanese companies as well, with their long and global supply chains, it is important not only to understand risks and business opportunities related to natural capital and biodiversity but also to set
specific targets and implement investment schemes to achieve the targets. We cannot wait for a perfect system and ideal solutions. We need to take risks now, experiment with solutions, and seize business opportunities.
In 2024, J-IIN will continue to focus on biodiversity and natural capital, inviting front-line change- makers to discuss new business models, financing schemes, biodiversity credits, and other topics. We look forward to your comments and opinions.
In the meantime, we wish you all happy holidays! See you in2024!