Investing in Nature: Scaling Natural Capital Solutions in Asia-Pacific

This episode explores how Natural Capital investments address Asia-Pacific’s environmental needs. Antoine Raes, Investment Director for Natural Capital in the APAC region at Mirova, shares insights into Nature-Based Solutions (NbS) that Mirova deploys in Asia, from sustainable agriculture to ocean conservation and land restoration, highlighting the region’s unique opportunities for driving both environmental and economic impact.

Transcript

SPEAKER_03 0:00

The demand for Earth's resources is growing and this really puts unprecedented pressure on nature. So joining forces with the private sector, with public capital, then it finds found solutions. If we want to address the nature financing gap, the only way is to scale our efforts together.

SPEAKER_02 0:17

Welcome everyone to Impact Investing Music, a podcast series where we delve into the ever-evolving world of impact investing and aim to connect, educate, and share knowledge to drive capital towards impact. I'm Vicasserora, Chief of Impact Investing at AVPN.

SPEAKER_00 0:34

And I'm Jackie, your host. In this episode, I discuss with Antoine Reyes, Investment Director of Murrava, a leader in sustainable finance with 30 billion assets under management. He shares real examples of how natural capital can drive both environmental and economic impact. Let's dive in.

SPEAKER_01 0:52

Antoine, thank you so much for jumping on board today.

SPEAKER_03 0:55

Hi, Jackie. First of all, thank you for the invitation by VPN to this podcast and uh happy to reflect on this uh experience of investing in nature-based solutions.

SPEAKER_01 1:03

Awesome. Well, how about just to start, would you just like to introduce yourself a little bit and where you're from?

SPEAKER_03 1:08

Sure. So my name is uh Antoine Reis. I am investment director at Mirova. Uh my area of focus with Mirova is uh nature-based solutions and uh impact private equity. And my main expertise lies in private sector investments with a specific focus on Asian and emerging markets.

SPEAKER_01 1:24

Great. So to kick us off, why not share a bit more about Mirova? What is it that you do and how do you define and approach natural capital or nature-based solutions?

SPEAKER_03 1:34

Sure, happy to. So um, I'll start with a quick word on Mirova. So we are a mission-driven global asset management company with uh$35 billion of assets that are exclusively earmarked to sustainable finance, which makes us one of the leading private fund managers for sustainable finance globally. And we are also active across both listed assets and the private sector. And within the private sector, uh we support energy transition, impact private equity, and natural capital strategies. So Mirova has invested in close to 70 nature-by-solutions companies, and we have a portfolio to date of a dozen of projects in the Asia-Pacific region. And our net cap strategy is really addressing three core pillars, uh, which are what we refer to land use, ocean, and uh carbon. Land use is referring to agriculture and forestry projects. Ocean includes uh seafood processing, for instance, but it can also include decontamination solutions like uh re-recycling or green shipping projects. And we also have carbon solutions uh that refer to reforestation and conservation projects that are generating carbon credits by fostering the roles of natural assets that, as you know, have a major role as carbon sinks.

SPEAKER_01 2:55

I think, especially in this part of the world in Asia Pacific, there's quite a lot of opportunity in this space. Perhaps you could share what are some concrete kind of projects and examples that represent the nature-based solutions that you're talking about?

SPEAKER_03 3:07

Yeah, so maybe I can tell you a bit about the market. I think what happens is that we're witnessing over the past three to five years a specific growth of an asset class that is referred to as natural capital. And I think there are several reasons for that. First, you have the market size, which is offering fully scalable model with um long-term growth drivers. You have also, interestingly, less penetration of financial services providers, which are posing less competitions to investors like us. And lastly, also because I think that uh there is a conducive policy and regulatory environment that is pushing NATO-based solutions. And so all of this is creating a conducive environment for an investor like us to invest, and this is luring the private sector. And I can give you some illustrations on uh why this is so important with some striking numbers. And I think the backbone of it is really because the demand for earth resources is growing, whether it is for primary food processing, for fiber needs, or construction materials, to name a few. And this really puts unprecedented pressure on nature. And to give you some examples, you have agriculture and food sectors, which account for approximately 20% of global greenhouse gas emissions, one third of fish stocks which are considered in critical danger or overexploited, and poor land management practices, which have led to the degradation of more than 40% of total land areas globally. So this creates an urgency for an investor like Mirova. And obviously, Asia is a major center of production, being an export giant, but interestingly also a net importer of transformed goods with over half of the global population in Asia, which ultimately creates a huge demand. And so if we move to product applications, indeed, Mirova has a long experience in financing NATCAP solutions. We've financed a dozen of agribusiness projects which entail primary food processing, but you also have interestingly a lot of byproducts such as organic fertilizers and biochar, uh, biopackaging or fuels to name a few. And as you know, bioinsurance are essential in agriculture to restore uh soil quality, for example. Or you could even consider valuing natural resources uh lost in the transformation process, such as uh husk or shells, which would otherwise become waste. And this can offer a virtual circle uh creating additional economic returns for farmers and positive benefits as well for the environment. If we look at uh timber and wood projects, so we'll finance numerous sustainable forestry management projects, and typically this is used for various industries, including uh construction or furniture manufacturing. And really, sustainable forestry management practice is essential to ensure preserving the density and quality of natural forestries, and at the same time, it is improving their carbon scene potential. And then if we go to the blue economy, which I referred to earlier, you can also find multiple industry applications beyond primary food processing, which are less known actually. In AIPAC, we invested in aquafed projects that is extracting what we call peptides from fish waste that are ultimately improving immunity and survival rates in aquaculture. Or you can also use what is called kaitosan, and kytosan is further extracted from dry shrimp shells, and it is used uh for the pharma industry, or even you could consider using it for the water treatment or bioplastics. We have invested as well in insect feed, so it's about growing black soldier flies lava, and they are used as uh animal feed, and typically it is good for the environment because it's an alternative to traditional soy mills that are traditionally used for animals, and this can sometimes generate uh detrimental impacts to the environment. And the same goes for projects we're financing seaweed. So, for instance, you can use seaweed as an emulsifier for clean beauty products, or we have also invested in circular models uh which are more familiar to the public. And so, for instance, we invested in the recycling of uh discarded petroleum-based fishing nets, which are used in the textile industry, or another one could be plastics recycling, where we transform low-value waste into high-grade flakes that are used by bottom manufacturers or by garment producers in the textile industry. So it's one way of transitioning the use uh of virgin plastics or introducing alternative textiles in your supply chain, which will reduce uh ultimately the pressure on the environment. So I think in conclusion to your question, it's to say there is an array of examples of projects which we have financed. And I think what's important to keep in mind is that uh we have a multiplicity of applications when we discuss nature-biased solutions, and also that the underlying business models are often robust and that they are sustained by long-term demand drivers. And so one of the key objective strategies of Mirova is to try to uh creating an efficient link between those corporate offtakers or sometimes also carbon credit buyers on the one hand and connecting them in a supply chain with the companies we finance on the ground who are the providers of those solutions for these corporates.

SPEAKER_01 8:45

Wow, that really is quite an array of different applications. What kind of impact metrics do you have to put in place to measure success?

SPEAKER_03 8:54

Right. So measuring impact metrics is absolutely fundamental uh in our work, and all the more because if you look back at the market, so you have a global population to put some figures that is expected to increase by close to 1.2 billion between now and 2030. And this will create an increase in uh food demand that is forecasted by 35%, water close to 40%, and energy by 50%. But as you know, land is a finite resource, and even today, agriculture practices fail to fulfill global food demand. So the solution really comes with productivity gains and higher yields, but to do that, land must be restored and maintained. And what could be solutions? So solutions could be certifications, which are obviously essential to drive transformation with the implementation of um, say, decarbonization strategies or even biodiversity conservation programs. Or I think we also need to rethink our global supply chains and uh channel our efforts rather on sustainable practices that align the private sector investment with the long-term societal and environmental goals. And so, really, the KPIs on impact will depend on each bond specificity that are managed by Mirova. And you have generic principles and then you have ad hoc principles, which are very project-specific, as we need to adapt to the reality on the ground, which will differ naturally in uh each project. So, if we look, for instance, at uh land use strategies, uh, we could typically monitor the evolution of hectares under sustainable land management. Or if we look at uh climate mitigation, we look at the number of tons of CO2 that are removed and uh sequestered. Or for climate adaptation, we can look at how many farmers are benefiting from technical capacity with adequate training, and we also provide uh climate resilience programs to them. And then you have other KPIs that can be used, for instance, biodiversity, where we measure the number of actors of ecosystems uh conserved, or we would have also social metrics in all of our forms, like direct number of uh workers contracted, and also some uh gender targets that uh come with it. And so to do that, we run detailed environmental and social baseline analysis and entry, and we create what we call an action plan uh to monitor the gaps identified over time, and we support the companies to remediate these gaps uh with what we call technical assistance that we manage, and that can imply sometimes mobilizing external consultancy on the ground to support directly the project companies in which we would invest. And I think the last part that Mirova is uh working on, where our impacts also are, is really advocating. And Mirova is always transparent in reporting methodically on those impacts to the public, which is quite a key principle of our engagement. So you would find all our methodologies and projects that we are financed directly on uh a public access.

SPEAKER_01 12:02

And it must be different in every single country, right? Because especially in APAC, it's such a diverse region. There's a lot of different regulatory environments. I can imagine there's a lot of challenges that you face in this sector. What are some of the challenges that you've faced, you know, implementing and scaling some of these natural projects in APAC?

SPEAKER_03 12:19

Yeah, there are numerous challenges, definitely. And uh, we don't do an easy job. It's quite the opposite, actually. It's so diverse, and uh we need to adapt all the time. And the nature of challenges faced are also very different. I would say first you have investment risk, obviously. You have indeed the diverse regulatory environment, which is uh quite key. The lower capital penetration, I would say, is uh always an issue, and then you have the advocacy requirements, which I referred to earlier, to build further engagement. And uh it can be both uh a challenge and opportunity because sometimes in the APEC region we realize that uh the work that we do is not very well known or has not penetrated very well mainstream finance. And so if we take maybe first the challenges linked to investments, I think a key tool that we work on uh is really to provide hands-on support to the promoters uh who are the leaders of the companies that we finance, and it's really a day-to-day monitoring effort. One thing we can do, for example, is to leverage our network, to open access to third-party capital providers when companies can experience shortfalls. On the regulatory push, without a conducive government support, it's it's really difficult because not all APAC countries share the same economic realities. So if you look at the carbon market, Mirova has been one of the pioneers uh as investors trying to apply those methodologies and investing in high quality carbon credits. And even though there are always healthy debates around those topics, what I find interesting is more how a high-level consensus can be found when you have many nations, like at the COP29 around the table, that are pushing for a common agenda. The other issue I referred to earlier is about uh penetration of capital. The financing gap that is needed to reach the net zero equation is actually estimated that we need to quadruple investment amount allocated today to nature if we do not want to deviate from the net zero trajectory by 2050 that was set in the Paris Agreement. So, one challenge is that we don't necessarily see capital flows to finance this transition. And it's true that more and more we see some large corporates starting to invest in innovation and transformative CAPEX, but I do think that private capital mobilization is absolutely key for the net zero equation. And APAC could and should be certainly further mobilized. And one way, one solution that Mirova has to do it is through blended finance. So what it means is that Mirova, as a fund manager, is creating fund solutions which have a mix of senior capital providers that are served uh first in what we call a cash distribution waterfall. And then you have junior investors bundled together with senior capital providers and thus provide the concessional capital to the junior investors that is serving the risk buffer of private or senior capital through a first-lost trench. And I think the last item that I wanted to cover is about advocacy and really it's about raising awareness in the APAC region on our what I think is an interesting work and the challenges that we try to address and also the tools that we offer uh to investors who are willing to join us in that journey.

SPEAKER_01 15:26

It sounds like you have a lot of diverse stakeholders because you have obviously these financial institutions, you have to work in close partnership with the governments and blended finance, you even have to work with smallholder farmers in some way. How are these partnerships crucial to being able to prove this model and scale up impact?

SPEAKER_03 15:42

Yeah, and this is absolutely right. And uh indeed it's a central part of our work. So we have one fund in particular that is the uh land degradation neutrality fund that is uh managed by Mirova. And for instance, this fund was designed in partnership with the UNCCD. So it's the United Nations Convention to Combat Desertification, and it has engagement with focal points in the majority of countries we have invested into. So you have concrete examples of uh projects made by this fund in AIPAC. So, for instance, we have down investment in a forestry and timber project in Laos that is benefiting from uh concession from the country department of forestry, and where we conducted a full due diligence assessing plantation and facilities, including uh community and prior worker consultation. Or um, interestingly enough, we are invested in another project uh that is a Hazelnut project in Bhutan, uh, which was founded as the kingdom's first 100% FDI in a public-private community partnership with the aim of creating sustainable income for farmers and also generating positive environmental benefits. And then we have also partnerships at fund level. So we can uh often mobilize what I referred to earlier as a technical assistance facility that is supporting us on the ground, connecting our projects to local stakeholders. And we also secured on some occasions uh direct partnerships agreements with what we call certification agencies. So, like for instance, uh the Rainforest Alliance certification, active in sustainable farming, to further extend our cooperation efforts and implement batch practices on the ground for our projects.

SPEAKER_01 17:23

What do you think you're most looking forward to as more people are getting involved, more partnerships are being formed? What has the most potential, especially for this part of the world in Asia?

SPEAKER_03 17:32

Yeah, a lot of exciting things. You have a strong demand for food, fiber, and medicinal plants, and it's really skyrocketing. And 70% of world food supply to smallholder farmers, actually, and Asia is interestingly enough largely dominated by such models. And so one opportunity that I find particularly exciting lies in sustainable land use solutions, which comprise methods uh such as regenerative agricultural practices as a way of, for example, ensuring long-term soil health and fertility, introducing livestock into farming, agroforestry practices, water retention programs, or also you can find preservation of biodiversity and ecosystems. And so Reginag is really that holistic approach of farming that is providing a set of principles resulting in a diversification of your revenue streams. You can generate uh carbon credits from soils and also a higher productivity on your agriculture's outputs, and so healthier soils can also produce better yields. And so that opportunity really lies with corporates to ensure traceability from small order farmers to downstream markets, understanding, for example, which entrants were used, where it was produced, or for example, um the uh relationship with small other farmers. And so when corporates do so, the today relative fraction of their sourcing, which become traceable, ensuring adequate returns to farmers. And if you apply the the right farming certifications, it can sell at a premium to the market, which is typically anywhere between uh 15 to 30 percent, uh, in my experience. And so this really creates a win-win value proposition that is promoting a better use of resources on the one hand, and it also helps at the same time transforming supply chains on the other hand. For me, what I find exciting is how we can try to move the needle. We propose solutions that are win-win models, and ultimately it's really to try to encourage authors to join us in that journey.

SPEAKER_01 19:31

Hopefully that's what we're doing today. When people hear this story, they'll be more intrigued to find out more and see how they can get involved. I know we're running out of time. Is there anything that I didn't ask you that you would like to share with the listeners?

SPEAKER_03 19:41

Thank you very much. We covered most of the topics that I wanted to address. It's really about advocacy, uh, what we try to do. And we would really like to spread the word on the best practices that can be implemented in nature-based solutions. And mostly it's about joining forces. So, joining forces with the private sector, with uh public capital, landed final fund solutions. I think the key is there. And if we want to address the nature financing gap, the only way is to scale our efforts together.

SPEAKER_01 20:08

That's a perfect way to end the conversation. Thank you so much.

SPEAKER_03 20:12

Thank you, Jackie.