Nature tech companies are struggling to attract investment for biodiversity monitoring due to lack of corporate demand, with venture capitalists encouraging them to “survive” as the market is slated to grow within the next two years.

Unlike carbon, biodiversity monitoring alone is not financially sustainable for most nature tech firms, the Switzerland-based Inverto Earth and UK-headquartered Treeconomy startups told Carbon Pulse on the sidelines of the Hack Summit in Lausanne, Switzerland.

Both companies use technology to gather data on nature, though clients operating in the carbon market currently represent the bulk of their portfolio.

“We would like to work with biodiversity, but right now, there’s no market,” said Cameron Dowd, CTO and co-founder of Inverto Earth, which uses drones to support restoration activities across coastal ecosystems.

“At the end of the day, we have to sell our services, and carbon credits with biodiversity co-benefits catalyse the largest share of the market,” he told Carbon Pulse.

“At the moment, biodiversity is all about marketing. Companies want to claim they are preserving nature, but the majority is not really willing to invest.”

NO CLARITY

Over the past few years, compliance frameworks for nature-related disclosures, such as the EU’s Corporate Sustainability Reporting Directive (CSRD), and mandatory policies, such as the UK’s biodiversity net gain (BNG) legislation, have increasingly led companies to integrate biodiversity into their decision-making.

But these developments have not increased market opportunities for many nature tech companies, said Harry Grocott, CEO and co-founder of Treeconomy, which harnesses remote sensing techniques, including drone-based LiDAR and satellite imagery, to quantify carbon captured and stored by trees.

Even countries with their own compliance biodiversity credit frameworks, such as England, have no real market for ecosystem and species monitoring, according to Grocott.

“I don’t think there’s any clarity on what we should even be tracking,” he told Carbon Pulse. “Do I need to just tell you what kind of ecosystem it is? Or do I need to do connectivity?”

Grocott said Treeconomy works with re-wilding programmes that had been set up for biodiversity markets, but now have to look at carbon funding instead because the market is not growing fast enough.

“We’re trying to sneak nature restoration and biodiversity in through the back door. And that’s the only way we can see it working,” he said.

“If we were to wait for the biodiversity market to expand, we would go bankrupt multiple times by then. Focusing on biodiversity monitoring alone is not a viable solution.”

MARKET GROWTH

Although financing for nature tech companies has increased significantly in recent months, there are insufficient funds for all the initiatives seeking to move into the biodiversity market, Xavier Lorphelin, managing partner and co-founder at Serena, a Paris-based venture capital firm with $750 million under management, told Carbon Pulse.

In March, Lorphelin co-authored an analysis based on Crunchbase data of 910 venture capital transactions over the past six years, which found that funding for nature tech startups surged to $1.85 billion in 2023 from $1.56 bln in 2022.

The most significant growth was observed in the monitoring, reporting, and verification (MRV) and biodiversity credits category, with $204 mln of early-stage investments in 2023.

“However, most venture capital funds tend to include a limited number of nature tech companies in their portfolio, as they seek to diversify investments,” said Lorphelin.

“Also, the majority of nature tech startups are in the seed or pre-seed stage and lack a business model, as the market is not established yet. VCs usually do not support these companies, which should first apply for other kinds of funding, like grants.”

Lorphelin said he is confident that the biodiversity market will expand over the next two years, making it easier for tech companies to attract investments.

“In the meantime, they have to be pragmatic and adapt. They could do CSRD or some more carbon, because it’s true that right now, if you only work with biodiversity credits, it gets complicated.”

“Nature tech startups have to find ways to survive. Better times will come,” he concluded.

COMPANIES NEED DATA

Data collection is regarded as key to ensuring that companies do not harm nature. A lack of investment in MRV technologies is also bound to hamper the development of the biodiversity credit market, since patchy information exposes companies to greenwashing risks, according to Raviv Turner, data expert at the Nature Tech Collective, speaking to Carbon Pulse last week.

“Companies need data to be able to report [on nature],” Zoe Balmforth, co-founder of nature tech startup Pivotal, also said during a panel on MRV at the Hack Summit.

Alongside satellite and drone imagery, in the past few years, tech and intelligence firms like NatureMetrics have developed genetic tracking methods for monitoring nature on land and in water.

The use of environmental DNA (eDNA) is increasingly promoted as a non-invasive way to measure biodiversity uplifts, analysing genetic samples from the environment to detect a wide range of organisms without direct observation or disturbance.

Furthermore, the field of bio-acoustics, which involves using the sounds made by animals to gain insights about wildlife in a particular ecosystem, has developed into a scalable way to track biodiversity.

“Any company that needs to make a decision on nature or disclose an outcome needs MRV,” Balmforth said.

“You need data to understand if the actions that have been taken on certain lands should be having a positive impact.”

“If you don’t know what is working, you don’t know if you’re doing the right thing.”

By Giada Ferraglioni and Sergio Colombo in Lausanne – news@carbon-pulse.com

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