Improvements in metrics are likely to entice billions of dollars in nature investments across biodiversity, carbon, and water over 2024, an executive at MSCI has said.

A key consideration for investing in nature is integrity in the accuracy of measuring project impacts, to de-risk them, said Guy Turner, head of carbon markets at MSCI.

“2024 will likely see the impact of improvements made on this front during 2023, which will both help deploy the $20 billion already raised and announced, in 2021-2023, for nature-based carbon projects, as well attract further billions in nature investments across all relevant markets – carbon, biodiversity, water, etc.,” Turner told Carbon Pulse.

Clarity on metrics, and international comparability, are needed to identify the right nature projects for an investor, he said.

Work on defining nature-related indicators and metrics by bodies such as the Taskforce on Nature-related Financial Disclosures (TNFD) and Science Based Targets Network (SBTN) will boost growth of nature markets beyond carbon in 2024 and 2025, he predicted.

In September, TNFD published its 14 final recommended general disclosures on nature-related dependencies, impacts, risks, and opportunities.

Nature markets “may also include a wide variety of hybrids that cut across nature, carbon, and water markets, as well as investors that use carbon projects as vehicles to invest in beyond-carbon nature and biodiversity impacts”, Turner said.

Investments in nature have moved up the agenda in recent years, as science has called for measures to tackle the biodiversity crisis with increasing volume, but they remain relatively small on a global stage.

In 2024, the importance of investments in nature will “only increase”, MSCI said in a report on sustainability trends. However, investors will need to carefully investigate which projects are credible, it warned.

DEBT-FOR-NATURE EXPANSION

Investment opportunities in nature conservation, or ecological improvement projects, are becoming “increasingly available” to private investors through mechanisms like debt-for-nature swaps, MSCI found.

“Conditions are set for an expansion of the debt-for-nature swap market in 2024, surpassing previous years’ levels,” Turner said.

The need to address mounting challenges associated with increased debt burdens, and biodiversity depletion, will drive the market, Turner predicted.

Debt-for-nature swaps allow countries to refinance their debt with private investment in return for national commitments to ecosystem conservation. For example, Ecuador completed a deal in May that will generate savings of more than $1 bln in return for conserving the Galapagos Islands.

“A number of developing countries most vulnerable to climate change have called for more of these swaps, with some potential deals under consideration,” MSCI said, citing 2023 research from the UN Development Programme.

However, challenges include complex structuring, difficulty assessing environmental benefits, and volatile political conditions, it said.

On Monday at COP28, Colombia, Kenya, and France said they will launch an expert review of the relationship between, debt, nature loss, and climate change.

NATURE BONDING

Biodiversity funding from bonds is set to be led by sovereign issuances, rather than corporate-led green bonds, according to Turner.

“Funding to biodiversity or conservation projects has been primarily via sovereign or municipal bonds, and corporates have not focused on biodiversity projects,” he said.

“While it is difficult to predict what green bonds will fund in the future, we expect this trend to continue, with biodiversity being a focus primarily for sovereigns and municipalities.”

Nevertheless, the number of green bonds linked to nature using the MSCI Green Bond Methodology tripled over the past five years, up from 24 in 2018 to 73 in 2023, the MSCI report said – though it did not mention their value. These issuances targeted protecting biodiversity, sustainable forestry, afforestation, and sustainable agriculture.

Last week at COP28, Zambian energy company Copperbelt announced it will issue a $54 million tranche of a green bond programme, the first from a firm in the country, with indirect benefits for biodiversity.

By Thomas Cox – t.cox@carbon-pulse.com

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