Standard Life is blazing the trail for impact investing in nature

Britain’s uplands need rewilding to tackle climate change, flooding and biodiversity loss. The insurance industry has a fix.

Standing in the British uplands, one of our country’s most iconic landscapes, you would expect to find a nature-rich environment. Peat bogs proliferating the hills. Woodland creating and joining up a network of wildlife corridors. Maybe even a golden eagle soaring in the skies up above. But these habitats, and the important services they provide, got damaged—and in some cases lost—because of intensive land management.

Now, though, these habitats are coming back. Not on their own, of course. If all goes according to plan, one of the UK’s largest providers of insurance services, Standard Life, will be a driving force behind regeneration through its new acquisition of a former grouse moor for rewilding. Situated in a corner of the Cairngorms, the country’s largest national park, the scheme will involve planting more than 1.5 million native trees around the mountain range as part of a 1,440 hectare woodland and peatland restoration project. With rewilding well-suited to localised, rural production and supporting economic growth in communities that are too often left behind, Standard Life has confirmed that its venture will support 50-100 land-based jobs.

For Standard Life, this is about offsetting its carbon by investing in nature. The appeal is that peatlands and woodlands are in the top trio of habitats most important to carbon storage. Investment in these ecosystems forms a vital part of the journey to net zero and Standard Life has punchy targets. “We believe that being an early mover will give the Company an important advantage in future costs for offsetting as society moves to net zero by 2050,” Jason Baggaley, fund manager of Standard Life’s Investment Property Income Trust, explained following the acquisition. “Although the focus is on carbon offsetting the opportunities for wider ecological and net bio diversity gain are also being explored, which is important given changing legislation around development in the UK.”

Amid climate change, investment in nature is growing

As more and more investors acknowledge that climate and social risks are market risks, there has been a growing focus on incorporating Environment, Social and Governance (ESG) risk factors into investment strategies. A key part of this equation is natural capital, which classifies the world’s natural resources, namely ecosystems, species, land, air and water, as well as natural processes and functions, as financial assets. With this in mind, the economic framework recognises the flow of benefits to people from ecosystems, not least climate regulation, natural flood defences and biodiversity.

To give just one example, biodiversity is a characteristic of ecosystems. It enables ecosystems to flourish and supply the wide variety of services alluded to. From a financial perspective, just as diversity within a portfolio of assets reduces risk and uncertainty, biodiversity increases nature’s resilience to shocks, and thereby reduces risks to the ecosystem services on which we rely. For this reason alone biodiversity loss poses huge risks to financial markets. More than half of the world’s GDP, around £31.1 trillion, is moderately or highly dependent on nature and its services, according to the World Economic Forum.

Within this innovative framework investors are increasingly using impact investing to drive positive outcomes for nature through strategic financing of companies and funds. In fact, in a survey by Coller Capital, over three-quarters of limited partners surveyed ranked climate change and sustainability as the most influential mega-trend that will affect where they invest in the next five years.

When considering impact investments in Britain’s uplands the reality is that carbon storage is only the tip of the iceberg of how insurance companies could embrace rewilding to make nature, communities and assets more resilient to climate change, whilst simultaneously delivering core business objectives.

When it rains, it pours

Deep in the hills above Bury, in Lancashire, a pioneering conservation initiative is embarking on the landscape-scale regeneration of Holcombe Moor. It aims to restore degraded peatland to a healthy condition to return the moor’s ability to act as a natural flood barrier for local communities. “If you imagine a giant sponge which is covered in thousands of small holes and can hold large quantities of water — that’s what we’re aiming for here,” explains Maddi Naish, Rural Surveyor at the National Trust, which is heading up the project.“ The peat bunds stop rainwater rushing across and off the plateau and instead trap it on the moor…reducing flooding downstream.”

On Holcombe Moor, above Bury, thousands of bunds have been constructed to hold back rainwater. Restoration projects like these can slow the flow of run off water by up to 75% from upland peat.

Restoring natural processes in this context is quite simple: it involves constructing thousands of peat bunds, blocking up drainage with mounds of rocks and planting sphagnum moss to convert the moor into a ‘giant sponge’ to hold back rainwater. And there are early signs that this is starting to work. In January 2021, Storm Christoph was expected to bring flooding to the communities at the foot of the moor, but the houses avoided damage — unlike those in nearby Manchester, which were flooded by fast-flowing rivers running down from headwaters located in degraded Pennine peat.

The major emergency surrounding Storm Christoph cost insurance companies over £120m in payouts, but this is only the beginning. PwC has forecast that it expects flood-related payouts to rise as the planet enters an unprecedented era of climate change. “The continued adverse weather highlights the impact that storms, coastal and river flooding, and flash flooding can have on the British economy and the UK insurance industry,” it said in a stark warning that in the not-too-distant future the insurance industry will have up to £500m of weather-related costs each year.

Major towns and cities face increased flood risk from rivers with their headwaters in degraded Pennine peatlands as climate change brings extreme weather. Restoring the uplands is a cost-effective way of making communities resilient.

Fears surrounding the impact of climate change related flooding are well founded. Scientists predict that storm damage and floods are due to dramatically increase in the north of England by 2060, so nature-based solutions like those being implemented on Holcombe Moor will become increasingly important in making communities and economies more resilient. And, let’s face it they are remarkably cost effective compared to the price tag which accompanies flooding. What’s more, research by Severn Trent and the University of Leeds shows that moorland restoration slows the flow of run-off water from upland peat by up to 75% to help prevent flooding. In practical terms, that’s the difference between homes, business and infrastructure being inconvenienced rather than being submerged by overburdened waterways.

Adaptable models are not a world away

Whilst there aren’t yet examples of insurance companies snapping up moors specifically to rewild them for flood resilience, there are models from nature-based projects spearheaded by industry leaders which aren’t a world away.

In the Caribbean, AXA already underwrites the cost of conserving mangrove plantations to help protect communities from coastal flooding. In doing so, the company recognises that “Mangrove forests play a critically important role in coastal protection. They can dissipate wave energy, which can lower flood risk and minimise erosion”. In turn the investment reduces risk and flood damages by USD 65 billion (£47.2bn) annually. By replacing mangroves in the Caribbean in this scenario with Pennine peatlands upstream from major cities like Manchester, Leeds, Sheffield or York, we can see a clear route forward for addressing the mainstay of Britain’s flood risk.

The benefits of insurance companies buying up land to reduce flooding, protect communities from climate change and create a more resilient market are clear. It’s a win-win for nature, people and industry: one that insures a sustainable future for us all.

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