If you needed any further evidence that natural capital is continuing to gain in prominence as an investment asset class all of its own, look no further than the news last week that Pollination, the Sydney-based consultant and asset manager, has received a $50 million equity injection from ANZ Group.
Pollination founding partner Martijn Wilder told Agri Investor that the investment was a vindication of the firm’s business plan and approach to date, and that it would help turbocharge the firm’s next phase of growth.
And how large could that growth be? Well, Wilder said the opportunity set for climate investments could be valued in the multiple trillions of dollars, with “far more” capital needed to accelerate the transformation and decarbonization of the global economy.
“There have been many large institutional investors in the last 12 months, like TPG, Temasek, BlackRock and others, that have allocated massive amounts of funds to decarbonization,” he said.
“A lot of it focuses on technology, but less is in the areas that we really want to focus on, which are nature, resilience and adaptation. If a company wants to reduce emissions by, say 50 percent by 2030, or 100 percent by 2050, they will need to go and find some technology, think about alternative investments, sell some assets that are high-emitting, or buy some offsets. That requires a whole strategy to be developed.”
Australia is in the thick of some of these arguments, amply demonstrated by the remarkable private capital-led bid to acquire AGL Energy this week, one of the country’s oldest and largest carbon emitters, with a fleet of coal-fired power stations. That bid, led by Brookfield Asset Management and supported by Grok Ventures, plans explicitly to accelerate the closure of AGL’s coal fleet and transform the company to a net-zero emissions firm.
While that investment obviously can’t be badged as a natural capital play, it is illustrative of the forces at play that will drive demand for these types of assets from a range of investors.
“Our view is that if we come in at the bottom end and work with clients on [decarbonization], and bring finance to that through our funds and with partners like ANZ, then we will get a lot more stickiness with clients.
“We’re really of the view that if you want to achieve net zero and have real impact, you need sage, competent advice that understands what is actually involved in this transition, and you need financing to back that up,” Wilder said.
“Our ability to do more requires capitalizing the business and growing it, to take advantage of that. We can see an exponential growth in demand for advice in the decarbonization space.”
The latest investment from Tenacious Ventures into software company Cecil, a management platform for investors and others to standardize and digitize workflows and reporting around natural capital projects, also highlights the potential for this type of investment to take off quickly in the months and years ahead.
Cecil co-founder Alex Logan told Agri Investor: “There are lots of funds popping up that manage millions of hectares [of land], with huge potential in all different corners of the globe. Capital markets will be created around these projects and we see trillions of dollars being invested in natural capital in the coming years.
“This is being driven by net-zero commitments – for the large asset managers with high-carbon portfolios, investing in natural capital is a phenomenal way to get great returns while also reducing their carbon footprint.”
The pace of change is accelerating in all sectors and natural capital is set to play an ever-larger role in helping the global economy transition to become much less carbon-intensive.