Investing in Nature Is Gaining Traction. Will It Be Enough?

Investing in nature to address climate change, support biodiversity, and protect ocean health—and more—is expected to reach record levels this year in response to more regulation and market demand, according to Cambridge Associates, a global investment firm.

Still, the amount of private capital invested to support natural systems will fall far short of what’s needed, according to the annual “State of Finance for Nature” report published in December from the United Nations Environment Programme.

A big reason is that nearly US$7 trillion in public and private finance was directed to companies and economic activities in 2022 that caused direct harm to nature, while only US$200 billion was directed to so-called nature-based solutions, or NbS—investments that protect, conserve, restore, or engage in the sustainable management of land and water ecosystems, as defined by the United National Environment Assembly 5, or UNEA5, the report said.

“Without a big turnaround on nature-negative finance flows, increased finance for NbS will have limited impact,” it said.

But the report also said that the misalignment “represents a massive opportunity to turn around private and public finance flows” to meet targets set by the United Nations Rio Conventions on climate change, desertification, and biodiversity loss.

The conventions aim to limit climate change to 1.5 degree Celsius above pre-industrial levels, protect 30% of the earth’s land and seas by 2030, and to reach “land degradation neutrality” by 2030. Reaching those goals will require more than double the amount of current levels of nature-based investing by 2025, to US$436 billion, and nearly triple today’s levels to US$542 billion by 2030, the report said.

Most of the US$200 billion invested in NbS today is by governments, but private investors contributed US$35 billion—including US$4.6 billion via impact investing funds and US$3.9 billion via philanthropy. The largest source of private finance was in the form of biodiversity offsets and credits. [An offset is designed to compensate for biodiversity loss, while a credit is the asset created to restore it].

Many wealthy individuals and families concerned about climate change and the environment so far have focused their investment dollars on climate solutions and innovations in technology and infrastructure, or in technologies supporting food and water efficiency, says Liqian Ma, head of sustainable investment at Cambridge Associates.

But “increasingly there is growing awareness that nature provides a lot of gifts and solutions if we prudently and responsibly manage nature-based assets,” Ma says.

Investments can be made, for instance, in sustainable forestry and sustainable agriculture—which can help sequester carbon—in addition to wetland mitigation, conservation, and ecosystem services.

“Those areas are not in the mainstream, but they are additional tools for investors,” Ma says.

Finance Earth, a London-based social enterprise, is among the organizations working to make these tools more mainstream by creating a wider array of nature-based solutions in addition to related investment vehicles.

Finance Earth groups nature-based solutions into six themes: agriculture, forestry, freshwater, marine/coastal, peatland, and species protection. Supporting many of these areas are an array of so-called ecosystem services, or benefits that nature provides such as absorbing carbon dioxide, boosting biodiversity, and providing nutrients, says Rich Fitton, director of Finance Earth.

Each of these ecosystem services are behind existing and emerging markets. Carbon-related disclosure requirements (at various stages of approval in the U.S. and elsewhere) have long spurred demand for carbon markets, the most mature of these markets.

Cambridge Associates, for instance, works with dedicated asset managers who have been approved by the California Air Resources Board to buy carbon credits, Ma says.

In its annual investment outlook, the firm said California’s carbon credits should outperform global stocks this year as the board is expected to reduce the supply of available credits to meet the state’s emission reduction targets. The value of these credits is expected to rise as the supply drops.

In September, the G20 Task Force on Nature-Related Financial Disclosures released recommendations (similar to those put forward several years ago by the Task Force for Carbon-related Financial Disclosure) that provide guidance for how companies can look across their supply chains to assess their impact on nature, water, and biodiversity “and then start to understand what the nature-related risks are for their business,” Fitton says.

The recommendations will continue to spur already thriving biodiversity markets, which exist in more than 100 countries including the U.S. In the U.K., a new rule called “Biodiversity Net Gain” went into effect this month requiring developers to produce a 10% net gain in biodiversity for every project they create.

Though developers can plant trees on land they’ve developed for housing, for example, they also will likely need to buy biodiversity credits from an environmental nonprofit or wildlife trust to replace and add to the biodiversity that was lost, Fitton says.

This new compliance market for biodiversity offsets could reach about £300 million (US$382 million) in size, he says.

Finance Earth and Federated Hermes are currently raising funds for a U.K. Nature Impact Fund that is likely to invest in those offsets in addition to other nature-based solutions, including voluntary offset markets for biodiverse woodlands and for peatlands restoration.

The fund was seeded with £30 million from the U.K. Department for Environment, Food and Rural Affairs—money that is designed to absorb first losses, should that be needed. The government investment gives mainstream investors more security to step into a relatively new sector, Fitton says.

“We need the public sector and philanthropy to take a bit more downside risk,” he says. That way Finance Earth can tell mainstream investors “look, I know you haven’t invested in nature directly before, but we are pretty confident we’ve got commercial-level returns we can generate, and we’ve got this public sector [entity] who’s endorsing the fund and taking more risk,” Fitton says.

Since December 2022, when 188 government representatives attending the UN Biodiversity Conference in Montreal agreed to address biodiversity loss, restore ecosystems, and protect indigenous rights, several asset managers began “creating new strategies or refining strategies to be more nature or biodiversity focused,” Ma says.

He cautioned, however, that some asset managers are more authentic about it than others.

“Some have taken it seriously to hire scientists to do this properly and make sure that it’s not just a greenwashing or impact-washing exercise,” Ma says. “We’re starting to see some of those strategies come to market and, in terms of actual decisions and deployments, that’s why we think this year we’ll see a boost.”

Fitton has noticed, too, that institutional investors are hiring experts in natural capital, recognizing that it’s a separate asset class that requires expertise.

“When that starts happening across the board then meaningful amounts of money will move,” he says. “There’s lots of projects there, there’s lots of things to invest in and there’ll be more and more projects to invest in as more of these markets become more and more mature.”

LIKE MARVEL VILLAINS, most fashion writers have origin stories. Mine began with a navy nylon Prada purse, salvaged from a Boston thrift store when I was a teen in the 1990s. Scuffed with black streaks and sagging, it was terribly beat-up. But I saw it as a golden ticket to a future, chicer self. No longer a screechy suburban theatre kid, I would revamp myself as sophisticated, arch, even aloof. The bag, I reasoned, would lead the way.

That fall, I slung it against my shoulder like a shotgun and marched into school, where a girl far more interesting than I was called out, “Hey, cool bag.” After feigning apathy —“I don’t know, you could use a Sharpie on a lunch bag and it would look the same”—we became friends. She introduced me to a former classmate who worked at a magazine. That woman helped me get an internship, which led to a job.

Twenty years later, I still wonder how big of a role that Prada purse played in my future—and whether designer bags can function as a silent partner in our success. Branded luxury bags took off in 1957, when Grace Kelly posed with an Hermès bag in Life magazine. (Hermès renamed that bag “the Kelly” in 1973.) The term “status bag” was popularised in 1990 by Gaile Robinson in the Los Angeles Times, describing any purse that projects social or economic power. Not surprisingly, these accessories are costly. Kelly bags cost over $10,000; ditto Chanel’s 11.22 handbag. Some bags by Louis Vuitton and Dior command similar price points. The cost isn’t repelling customers—both brands reported revenue surges in 2023. But isn’t there something dusty about the idea that a branded bag carries meaning along with your phone and wallet? How much status can a status bag deliver in 2024?

Quite a lot, said Daniel Langer, a business professor at Pepperdine University and the CEO of Équité, a Swiss luxury consulting firm. Beginning in 2007, Langer showed a series of photo portraits to hundreds of people across Europe, Asia and the U.S., then asked them 60 questions. Those pictured carrying a luxury handbag were seen as “more attractive, more intelligent, more interesting,” he said. The conclusion was “so ridiculous” to Langer that he repeated the studies several times over the next decade and a half. The results were always the same: “Purchasing a ‘status bag’ will prepare you to be more successful in your social actions. That is the data.”

Intrigued, I gathered various Very Important Purses—I borrowed some from friends, and others from brands—to see if they could elevate my station with the same unspoken oomph as a “Pride and Prejudice” suitor.

First, I took Alaïa’s Le Teckel bag—a narrow purse resembling an elegant flute case and carried by actress Margot Robbie—to New York’s Carlyle Hotel on a Saturday night. The line for the famous Bemelmans Bar stretched to the fire exit. “Can I get a table right away?” I asked the host, holding out my bag like a passport before an international flight. “It’s very busy,” he said in hushed tones. “But come sit. A table should open soon.” I sank into one of the Carlyle’s lush red sofas and sipped a martini while waiting—a much nicer way to kill 30 minutes than slumped against a lobby wall.

Wondering if this was a one-time thing, I called up Desta, the mononymous “culture director” (read: gatekeeper) who has worked for Manhattan celebrity hide-outs like Chapel Bar and Boom, the Standard Hotel bar that hosts the Met Gala’s official after party. “Sure, we pay attention to bags,” he said. “Not too long ago at Veronika,” the Park Avenue restaurant where Desta also steered the social ship, “we had one table left. A woman had a Saint Laurent bag from the Hedi Era,” he said, referencing Hedi Slimane , the brand’s revered designer from 2012 to 2016. “I said, ‘Give her the table. She appreciates style. She’ll appreciate this place.’”

Some say a status bag can open professional doors, too. Cleo Capital founder Sarah Kunst, who lives between San Francisco and London, notes that in private-equity circles, these accessories can act as a quick head-nod in introductory situations. Kunst says that especially as a Black woman, she found a designer bag to be “almost like armour” at the beginning of her career. “You put it on, and if you’re walking into a work event or a happy hour where you need to network, it can help you fit in immediately.” She cites Chanel flap bags made from the brand’s signature quilted leather and stamped with a double-C logo as an industry favourite. “People love to talk about them. They’ll say, ‘Ohhh, I love your bag,’ in a low voice.” They talk to you, said Kunst, “like you’re a tiger.”

For high-stakes jobs that rely on commissions—sports agents or sales reps, for instance—a fancy handbag can help establish credibility. “It says, ‘I’m succeeding at my job,’” said Mary Bonnet, vice president of the Oppenheim Group, the California real-estate firm at the centre of Netflix reality show “Selling Sunset.” As a new real-estate agent in her 20s, Bonnet brought a fake designer bag to a meeting. To her horror, a potential buyer had the real thing. “I work in an industry where trust is important, and there I was being inauthentic. That was a real lesson.” Now Bonnet rotates several (real) Saint Laurent and Chanel bags, but notes that a super-expensive purse could alienate some clients. “I don’t think I’d walk into [some client homes] with a giant Hermès bag.”

Hermès bags are supposedly the apex predator of purses. But I didn’t feel invincible when I strapped a Kelly bag around my chest like a pebbled-leather ammo belt. The dun-brown purse cost $11,800, a sum that prompted my boyfriend to ask if I needed a bodyguard. Shaking with “is this insured?” anxiety, I walked into a showing for an $8.5 million apartment steps from Central Park. I made it through the door but was soon stopped by a gruff real-estate agent asking if I had an appointment. No, but I had an Hermès bag? Alas, it wasn’t enough. The gleaming black door closed in my face.

“What went wrong?” I asked Dafna Goor, a London Business School professor who studies the psychology behind luxury purchases. “You felt nervous,” she replied. “That always makes others uncomfortable, especially in a high stakes situation,” like an open house with jittery agents. Goor said recognisable bags from Louis Vuitton and Christian Dior are also often faked, which can lead to suspicion if not paired with “other signals of wealth.”

“You can’t just treat a bag as a backstage pass,” said Jess Graves, who runs the shopping Substack the Love List. Graves says bags are more of a secret code shared between potential connections. “I’ve been in line for coffee and a woman will see my Margaux [from the Row] and go, ‘Oh, I know that bag.’ Then we’ll chat.” Graves moved from Atlanta to Manhattan in 2023, and says she’s made some new, local friends thanks to these “bag chats.”

I had my own bag chat that night, when I brought Khaite’s Olivia—a slim crescent of shiny maroon leather—to a house party thrown by a rock star I’d never met. In fact I knew hardly any guests, but as I stood in the kitchen, a woman in vintage Chanel pointed to my bag and asked, “How did you get that colour? It’s sold out!” Before I could tell her my name, she told me the make and model of my purse. Then she laughed about her ex-boss, a tech billionaire, and encouraged me to buy some cryptocurrency. The token I picked surged nearly 30% in about a week. Now I was onto something—a status bag that might bring not just status, but an actual market return.

Thanks to their prominence on social media, certain bags have gained favour among Gen Zers. “TikTok and Instagram make some luxury items even more visible and more desirable to young people,” said Goor. I experienced this firsthand on a stormy Saturday morning, when a girl in a college hoodie pointed at my Miu Miu Wander bag as I puddle-hopped through downtown New York. The piglet-pink purse is a TikTok favourite seen on young stars like Sydney Sweeney and Hailey Bieber. “Your bag is everything!” yelled the girl from the crosswalk. “Thanks, can I have your umbrella?” I shouted back. She laughed and left. My Wander had made a splash—but it couldn’t keep me dry. I ran to the subway, soaked. The bag looked even better wet.

Changing the Status Bag Quo

Everyone loves an ingénue—fashion insiders included. Perhaps that’s why at Paris Fashion Week in September, newer handbags from Bottega Veneta and Loewe jostled for space and street-style flashbulbs.

“These bags, especially ones by independent labels like Khaite, are quieter signals of cultural access,” explained Goor. “Everyone knows what an Hermès Kelly bag is. So now there need to be new signals” beyond traditional status bags to convey power.

Sasha Bikoff Cooper, a Manhattan interior designer, says there’s a less cynical explanation for why these bags have captured celebrity fans—and more important, paying customers. “They’re fresh and also beautiful,” she said. “Hermès is always classic. It’s like a first love. But you want newness, too.”

The Wall Street Journal is not compensated by retailers listed in its articles as outlets for products. Listed retailers frequently are not the sole retail outlets.

Investing in Nature Is Gaining Traction. Will It Be Enough?

Some designer handbags like the Hermès Kelly have implied power. But can a purse alone really get you a restaurant table—or even a job?

Changing the Status Bag Quo