Jeff Bartel
Chairman and Managing Director
With investors showing ever-increasing interest in changes to the environment and biodiversity conservation, private equity firms are taking notice. There is a growing effort to make sustainability more than just a moral issue with the addition of an equal interest in generating growth in long-term financial value. Despite the presence of several challenges, private equity does have an opportunity to set the course of biodiversity with strategies positioned to support both the environment and investor financial success.
The Growing Importance of Biodiversity in Private Equity
Investors are more focused today on opportunities that make a positive environmental statement or impact, and private equity and venture capital firms are responding with more focused and strategic biodiversity investments to support ESG investing goals. With this demand for sustainability in investment, the moral demand for biodiversity is merging with interest in creating long-term financial value. Greater priority on biodiversity helps private equity lower risks, follow regulatory requirements, and take advantage of new opportunities in areas like renewable energy, ecological-friendly agriculture, and make an overall positive environmental impact that offers strong returns.
Investment Strategies for Biodiversity Conservation
There are several investment strategies that help with private equity biodiversity conservation while still providing financial returns, including:
- Investing directly in conservation ventures
- Finding partners in sustainable business
- Incorporating biodiversity metrics
- Implementing nature-based solutions
- Supporting carbon offset projects
- Developing sustainable forestry and regenerative agriculture
Nature-Based Solutions (NbS) and Conservation Projects
Nature-based solutions are a popular investment strategy that helps protect and grow natural habitats, lower carbon emissions, and support biodiversity through sustainable land projects, reforestation, and wetland restoration. By supporting nature-based solutions and conservation investments, private equity firms can provide their clients with sound financial returns that meet popular environmental goals while also showing themselves as leaders in eco-based investing.
Sustainable Agriculture and Regenerative Practices
With a desire to invest in companies interested in sustainable and regenerative agriculture, private equity sees the benefits of increasing biodiversity, reducing climate change, and controlling the misuse of resources. Solutions for creating stronger systems include supporting ecosystem diversity, reducing the use of chemicals, planting more biodiverse and soil-stabilizing crops, and restoring the overall health of soil. Strategies for investment that also meet ESG goals have a positive effect on the environment, increase the chances of long-term food stability, and support financial growth with increased consumer demand for ecologically friendly goods. Regenerative practices also position firms and investors to succeed with solutions that lower the risk of supply disruptions, offset regulatory demands, and encourage climate stability.
Risk Mitigation and Long-Term Value Creation
Climate change and a loss in biodiversity worldwide, private equity firms are seeing more risks to operations and financial opportunities that include increased environmental regulation and a higher potential for damage to investor reputation and portfolio performance. These risks can be reduced by leading more investment into biodiversity conservation that reduces the chance of regulatory penalties and increases resistance to environmental effects on potentially volatile markets. Overall, protecting agriculture, energy and the forests has an impact on future natural resource sustainability, and investment strategies that include biodiversity can improve opportunities for stakeholders and set them up for long-term value creation.
Measuring and Reporting on Biodiversity Impact
Private equity firms have a commitment to connect the specific needs of investors with established biodiversity regulatory requirements, and this requires accurate impact measuring and reporting. Two useful metrics available to private equity to help accomplish this are the Natural Capital Protocol and the Task Force on Nature-related Financial Disclosures, and they help determine how investment impacts ecological systems and natural resources. By using these tools, private equity firms can highlight their dedication for responsible investment, stay current with constantly changing regulations, and present their efforts in biodiversity conservation as drivers of long-term returns.
Challenges and Opportunities in Biodiversity-Driven Investments
Navigating constantly changing regulations is a major challenge in biodiversity-related projects due to complex legal issues and varying standards attributed to local and regional environments. There is also a matter of the lack of metrics specifically for measuring the impact of biodiversity available to private equity firms. This makes assessing investment success and long-term viability a problem because biodiversity is not always measured accurately over short durations. There are still viable opportunities, however, with both the governments and the public showing increasing interest in biodiversity conservation. Some of the changes being made to drive greater support include the creation of new policies, changes to existing regulations, and increased incentives like tax breaks and carbon credit.
Our Work in Biodiversity
With an eye toward biodiversity conservation and seeking strong returns for investors, private equity firms are actively strategizing how to meet ESG goals, reducing risk, and taking advantage of new opportunities in ecologically focused areas. So, too, are a wealth of start-ups seeking to enter the marketplace with an eye on social and environmental good. Despite numerous challenges, there are still considerable opportunities to be found for firms to take a leadership position in biodiversity investments and to offer their investors the opportunity to gain long-term financial returns. At Hamptons Group, our private capital, real estate, strategic advisory, and impact investing segments are involved in various projects and positions in these very areas.