Making a difference with natural carbon removal

3 October 2022
| By partnerarticle |
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Generations of land management practices are being overhauled for the better as our relationship with the land and wildlife changes, as Greta Talbot-Jones explains.

A big difference compared to hundreds of years ago is the lack of trees and diverse species. Intensive and chemical-based land practices have eroded nature’s carbon sinks, degraded ecosystems and halted natural flood defences.

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

While decarbonising buildings and infrastructure is a priority, such initiatives will not reduce a portfolio’s carbon intensity to zero in the long term. Unless removal strategies are deployed, there will 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.

Our first direct investment in natural capital was 6,300 hectares of Scottish moorland in West Aberdeenshire in Scotland. In partnership with Par Equity, a Scottish 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, around 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 £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.

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 who offer a robust investment strategy and deliver carbon units with traceable and credible origins.

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  1. Nature and Net Zero, World Economic Forum and McKinsey & Company, May 2021
  2. Insetting focuses on collaborative projects among the developer and stakeholders. 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 market.

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Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material.  AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1Raffles Quay, #27-13 South Tower, Singapore 048583. In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business Address: Level 27, 101 Collins Street, Melbourne, VIC 3000 Australia., Australia.

310651 - 30/04/2023


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