The increasing appetite for nature-based investment

Pension professionals are growing increasingly interested in nature-related investment opportunities, according to research.

A recent poll by the Society of Pension Professionals (SPP) found that almost 90% of 200 people it surveyed intend to engage with clients on nature-related risks.

This was despite 76% saying they currently did not yet address nature-related issues with their clients.

SPP members were quizzed during a recent event. Just 2% said they engaged frequently on nature-related issues, and 22% said they did so “tentatively”.

Claire Keeffe, senior sustainable investment consultant at Barnett Waddingham, who chaired the event, said: “Although nature-related risk is a vitally important issue, it’s one that pension professionals have only recently started to take note of, so it’s not surprising that more than three quarters of attendees said they’re not yet engaging with their clients on the issue.

“However, it’s fantastic to find that 89% have stated they will now be engaging on this issue as a result of what they’ve heard [at the SPP event]. This powerfully demonstrates the positive impact that raising awareness and understanding of nature-related risk can have.”

A report from the World Economic Forum published in 2020 found that more than half of the world’s economic output was “moderately or highly dependent” on nature and biodiversity.

The construction, agriculture and food and drink sectors were particularly dependent on nature, the report said.

Rising awareness of nature-related risks has led the Pensions Regulator to urge trustees to integrate such considerations into their governance operations.

Earlier this year, it called for trustees to be early adopters of reporting on material social and nature risks ahead of new regulations coming into force.

Enter the TNFD
The Taskforce on Nature-related Financial Disclosures (TNFD) was launched in 2020 to work on ways to incorporate nature-related risks and opportunities into corporate balance sheets.

More than 400 organisations have now signed up to the TNFD, including financial services companies Axa, Bank of America, Cardano, Federated Hermes, Legal & General, Robeco and Schroders.

Brunel Pension Partnership, the Local Government Pension Scheme asset pool that runs more than £30bn, plans to start reporting in line with TNFD recommendations from next year.

David Craig, co-chair of the TNFD, said: “The ongoing uptake of the TNFD’s recommendations is further evidence that the mindset in business and finance is quickly shifting to a recognition that accelerating nature loss is imposing costs and risks on society as a whole as well as to individual business models and capital portfolios.

“Voluntary uptake now of the TNFD recommendations is the best way to meet these shifting expectations and the best way to meet new regulatory requirements.”

Joe Dabrowski, deputy director of policy at the Pensions and Lifetime Savings Association, said: “We have seen an increased focus on nature related financial risks over recent years and the introduction of the TNFD framework is a really positive step forward. It is important that it is integrated into pension fund strategies.

“Climate-related reporting is widely accepted to be far more mature than nature-related reporting and the mandation of Task Force on Climate-related Financial Disclosures [TCFD] reporting for pension schemes in the UK has gone a long way in supporting this.

“To make true progress in protecting the planet we live on, nature-related reporting will need to improve to compliment and build on climate reporting. We will continue to support our members in building their understanding of the issue of biodiversity loss and the importance of integrating nature-related risks into their investment strategies.”

In the future, Dabrowski said a single integrated framework incorporating both TCFD and TNFD would “provide a broader overview and be simpler to use and measure”.