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Nature Positive Investing: The Investor Pathway to Net Zero

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The shift to a decarbonized economy in our global race to net zero by 2050 is reshaping the global economy as the interdependencies between biodiversity loss and climate change accelerates climate action towards a nature positive future. Often described as ‘carbon neutrality’, the term net zero refers to the significant reduction of the amount of greenhouse gas emissions contributing to global warming which is then supplemented by balancing the amount released by the carbon dioxide stored by carbon sinks. With 92% of Global GDP committed to reach net zero by 2050, maximizing investor impact towards real world decarbonization requires identifying decarbonization pathways aligned with 1.5°C degree target of the Paris Agreement which inform climate risk mitigation strategies that enhance strategic allocation opportunities in the global transition to a net zero economy.

Maximizing Returns within a Net Zero portfolio: A Nature Positive Approach

Accelerating corporate-level climate action commitments to achieve net zero depends on investors defining climate risk mitigation strategies while measuring climate portfolio alignments to construct resilient climate transition portfolios. Identifying climate risk mitigation strategies which actively reverse nature loss during the global transition to a net zero economy builds ‘joint solution’ decarbonized portfolios, aligning with a 1.5 C net zero emissions, nature positive future. A nature positive, net zero portfolio focused on the crucial role of forests in carbon sequestration, for example, could provide net zero solutions to the more than 54 percent of human-induced carbon dioxide absorbed yearly by land and oceans.

Preserving natural capital through a nature positive, net zero portfolio accelerates a nature positive future through restoring and enhancing natural capital as the main driver in achieving portfolio emissions reduction targets. Setting clear, science based targets to guide the direction of risk adjusted net zero strategies (https://www.iigcc.org/resource/net-zero-investment-framework-implementation-guide/) not only acts as a means of monitoring strategy effectiveness. It also ensures that a nature positive, net zero portfolio accurately measures nature related risks and dependencies across supply chains, asset classes, companies, and climate risk adjusted investment portfolios. By accurately measuring portfolio nature related risks and dependencies, the urgent capital reallocation required to drive the transition to a nature positive, net zero economy becomes strategically allocated towards protecting the estimated $44 trillion of global economic value at risk from biodiversity loss, saving entire ecosystems from the adverse effects of climate change for generations to come.

Defining Strategies and Aligning Investments for Net Zero and Positive Nature Impact

The worlds first net zero corporate standard, the SBTi’s science-based Net-Zero Standard, makes clear that vital emissions reductions of 90-95% before 2050 are crucial to reach our global net zero goals.

The SBTi standards have proved to be highly effective, with research proving that companies who implement validated science based targets (SBTs) were able to reduce their emissions by 25% between 2015 and 2020, in comparison with a global increase of 3.4% of global emissions from companies choosing not to implement science based targets. Setting defined science based targets within a well diversified portfolio allows investors to fully incorporate the risk-adjusted returns on climate impact mitigation to the Return on Equity (ROE), fully positioning portfolios for climate risk mitigation while maximizing net zero investment opportunities.

Taking real world action to ensure that companies set emissions reduction targets aligned with 1.5°C throughout their entire value chains involves cooperation across the public and private sector, such as the United Nations race to zero campaign which seeks to build momentum to accelerate the shift toward a resilient net zero economy. Combined with global sustainability standards developed by the International Sustainability Standards Board (ISSB) at Cop26 at Glasgow and the recommendations of the Task Force on Climate Related Financial Disclosures, investors are able to make better informed strategic allocation decisions through climate materiality risk assessments identifying opportunities for portfolio rebalancing and reallocation, away from high carbon emitters and towards companies actively reducing emissions.

Actionable Insights: Strategies for Building a Nature Positive Net Zero Portfolio

Building a resilient, net zero, and nature positive portfolio requires implementing the appropriate strategic allocation strategies integrating company-level net zero transition planning frameworks within a holistic nature positive approach. These climate risk adjusted strategic asset allocations may include:

  • Invest in companies with Science-Based Targets: Investors may consider investing in companies that have set targeted SBTs as these companies are likely to be more resilient in the face of climate-related risks.
  • Incorporate nature-based solutions: Investors may consider incorporating nature-based solutions (NBS) into their diversified portfolio. NBS are targeted actions that protect, restore, or sustainably manage ecosystems to address societal challenges, including climate change. For example, investing in companies that utilize sustainable forestry practices, protect biodiversity, or restore degraded land can help create a nature-positive portfolio that supports both climate and biodiversity goals.
  • Climate Thematic Investing: Climate thematic investing involves investing in companies that are addressing climate change through innovation, technology, and other means. This approach focuses on sectors like renewable energy, energy efficiency, and sustainable agriculture, and seeks to identify companies that are well-positioned to benefit from the transition to a low-carbon economy

By combining these strategies, investors may transition to a well diversified net zero and nature positive portfolio that is aligned with climate and nature goals while also delivering long-term climate risk adjusted financial returns respecting the risk/return parameters of a portfolio's broader return targets.

Become Allies with Nature and Join the Race to Net Zero

A Nature positive, net zero economy is a global call to enact real change to reverse the biodiversity loss exacerbated by the climate crisis. Transitioning to a net zero, nature positive portfolio protects both current and future generations from the most negative impacts of climate change. Having a net zero investor focus requires being nature positive while rebalancing portfolios for climate risk exposure minimization and optimizing net zero investment opportunities within the global focus on building a net zero, nature positive future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Aisha Williams

Entrepreneur, futurist, and sustainability activist, Aisha is dedicated to reimagining the future of impact and sustainability as the Founder and CEO of ImpactVest. Recognized as a prominent emerging asset management firm and a member of the Council for Inclusive Capitalism, ImpactVest is committed to a mission that drives positive change.

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