Backing Natural Solutions to the Climate Challenge

An article from Chris Dowell of IMPAX Asset Management. Manager of the St. James's Place Sustainable & Responsible Equity Fund.

Environmental degradation has brought us close to irreversible tipping points for nature. The costs of inaction are inordinate: not only does over half of the global economy depend on nature but it also has a crucial role to play in mitigating climate change and its effects.

Put simply, global net zero cannot be achieved unless we protect and restore forests and other natural ecosystems and improve the management of agricultural land around the world.

In this context we must welcome the landmark pledge to halt deforestation by 2030 that was made by more than 100 countries on 2 November 2021 at the COP26 climate summit in Glasgow. Alongside sound policies that discourage the destruction of forests, financial tools must be employed to ensure environmental costs are fully captured in decision-making. The financial sector can play a critical role by both influencing companies to stop depleting natural resources and by deploying capital into nature-based solutions – at scale and without delay.

Our commitments

We believe our impact and influence can be greatest when we work in concert with peers. We are therefore delighted to have joined two investor initiatives, as part of our participation at COP26, that aim to tackle deforestation and catalyse investments in nature-based solutions.

Firstly we signed the Principles of Responsible Investment’s (PRI) Deforestation Commitment, under which Impax commits to working with fellow investors to bring a halt to agricultural commodity-driven deforestation. We believe we can add real value to this initiative through sharing our approaches towards engaging with investee companies and policy advocacy on how to support sustainable production of agricultural commodities. The COP26 Forest, Agriculture and Commodity Trade (FACT) dialogue is an example of this in action and we look forward to working with policymakers on how the transition to more sustainable land use can be achieved in practice.

Secondly, we have become a member of The Sustainable Markets Initiative’s Natural Capital Investment Alliance (NCIA). As a member of the NCIA Impax aims to help accelerate the development of natural capital and biodiversity as a mainstream investment theme. We believe the Alliance has the potential to be a hub for engaging the global investment management industry to mobilise capital efficiently and effectively for natural capital opportunities.

We strongly believe there are opportunities for investors and companies providing solutions that enhance and regenerate nature and help create a global economy based on principles of sustainability.

Impax has invested in environmental solutions delivering natural capital benefits for over 20 years. We invest in strategies aligned with natural capital solutions in areas such as clean energy, water treatment and infrastructure, pollution control, waste technology, resource efficiency and sustainable food and agriculture. We find it a compelling area of the market in which to invest given the structural growth in demand for environmental products and services.

The opportunity set continues to widen. The World Economic Forum has identified nature-positive transitions with annual business opportunities worth US$10 trillion that could create 395 million jobs by 2032. Finance-led initiatives can help seize these opportunities by integrating and promoting natural capital as an investment theme across different asset classes and by putting policies, practices and metrics in place to accelerate the transition towards sustainable production supply chains.

There is no time to waste in mobilising finance for these opportunities. Nature-based solutions could potentially contribute up to one-third of the global emission cuts needed by 2033. We are therefore delighted that natural solutions to the climate challenge have risen up policy and investor agendas.

An article published by IMPAX Asset Management - 6th November 2021

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The opinions expressed are those of the fund managers above using their independent research and are subject to market or economic changes. This material is not a recommendation, or intended to be relied upon as a forecast.