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How investing in natural carbon removal makes a difference

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This is a sponsored article from Aviva Investors.

Author: Greta Talbot-Jones, Associate Director Responsible Investment

Generations of land management practices are being overhauled as our relationship with the land and wildlife is changing for the better, as Greta Talbot-Jones explains.

A big difference compared to hundreds of years ago is the relative lack of trees and diverse species. Analyse the situation more closely and you will find wild grasses, biodiversity, the quality of soil and the contours and health of rivers have all been compromised. Intensive and chemical-based land practices have eroded nature’s carbon sinks, degraded ecosystems and halted natural flood defences.

Invest in the land

Land ownership lies at the heart of solving these issues. Nature-based solutions have the potential to provide one-third of the net emission reductions required by 20301.

While decarbonising buildings and infrastructure should be a top priority on any net-zero agenda, such initiatives will not reduce a portfolio’s carbon intensity to zero in the long term. Unless removal strategies are deployed, there will always be a gap between ambition and reality.

To inset the residual carbon balance across our portfolios2, credible direct investments in carbon-removal solutions must be found to plug the gap – the most investable of which currently are forestry, peatland and biodiversity.

Local and expert partnerships

Our first direct investment in natural capital was 6,300 hectares of moorland in West Aberdeenshire in Scotland. In partnership with Par Equity (Par), the Scottish-based forestry investment fund manager, over 3,000 hectares of land will be newly-planted, and 1,800 hectares of peatlands restored.

Over the project’s life, an estimated 1.4 million tonnes of carbon will be locked up via natural solutions. Up to one third (1,000 hectares) of the replanted land will be productive conifer, providing employment for the local community in timber production. The remaining 2,000 hectares of replanting will be diverse native woodland.

Savills forecasts that £2.5 billion of funding is ready to be invested in the UK land market. We expect the market will evolve over time to embrace shared ownership models between private landowners and institutional investors.

Nature-based solutions go far beyond carbon

Even within nature-based sectors, tensions arise between the prioritisation of carbon sequestration over biodiversity regeneration. Dense afforestation, though rich in carbon sequestration potential, can restrict regeneration of shrubbery which are home to many species of insects and animals. Planting a mix of species works to balance this out, as does leaving land open for natural rewilding.

When buying offsets, carbon removal seems almost instantaneous. However, in reality, sequestration timelines are decades long with the stacking of revenue streams common and cashflows pushed to the backend of those periods.

Fund structures, pricing and returns expectations need to match the nature of the underlying asset. With a growing focus on how net-zero targets will be reached, asset owners must start identifying managers that offer a robust investment strategy and deliver carbon units with traceable and credible origins.

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1Nature and Net Zero, World Economic Forum and McKinsey & Company, May 2021
2Insetting focuses on collaborative projects among the developer and stakeholders of one or more businesses. Credits will not be sold on secondary markets, instead inset to balance residual carbon in the value chain of a business. Offsetting develops projects primarily for the secondary carbon market with offsets sold to any purchaser.

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310651 – 30/04/2023

This is a sponsored article from Aviva Investors.