2020 was supposed to be the ‘super year for nature’, with the COP15 United Nations biodiversity summit in Kunming, China, having been due to take place in October.
However, despite the summit itself being postponed to next year, 2020 may still go down in history the year that finance woke up to nature’s importance.
Certainly, September could have been the ‘super month for nature’, as numerous impactful reports and initiatives were launched with the aim of rallying the financial sector to understand its intimate connection to nature and the ecosystem services that it provides.
TNFD
The informal working group (IWG) of the Task Force on Nature-related Financial Disclosures (TNFD) had its first meeting during the month. Several governments, including the UK, France, the Netherlands, Switzerland and Peru, are members of the IWG, as are, encouragingly, many representatives from the financial and corporate sector, in addition to the more likely environmental organizations, UN bodies and natural capital data providers.
The group has the daunting task to set the scope, structure and work plan for the TNFD – which will commence in 2021 and is expected to enter the market in 2023 – within six months.
That scope could, for example, be a set of recommended risk and even impact measurement requirements or disclosures whereby companies, financial institutions and perhaps even the public sector will be able to assess their risk exposure to nature as well as their impact on it.
What needs to happen is the building of a pipeline of investable projects for nature
In layman’s terms, that means understanding the extent to which companies are dependent on natural capital, and whether that natural capital is at risk due to land degradation, climate change or other factors. It also incorporates a company’s impact on nature – for example, deforestation within a supply chain.
The financial sector must move from knowing that it needs to do something to knowing exactly what it needs to do.
Research from the World Economic Forum, for example, shows that the worldwide loss of all pollinators would lead to a drop in annual agricultural output of about US$217 billion. But turning that data into something tangible that financial institutions can use to inform investment decisions is what will create change.
Impact
Some of this work is already happening on the ground.
ASN Bank in the Netherlands has calculated the biodiversity footprint of its investments and earlier this year teamed up with other Dutch financial firms, such as Triodos and Robeco, to launch the Partnership for Biodiversity Accounting Financials (PBAF).
This seeks to identify how a bank or investor could contribute to the protection and sustainable use of biodiversity and how the impact of these investments could be calculated or measured.
If this seems like a fringe activity, think again. ASN Bank also led PCAF (the C being Carbon) that this year became adopted by Morgan Stanley and Bank of America.
We need to turn ideas for nature restoration into financeable ideas
In September, PBAF released its first report, highlighting how financial institutions might consider each asset class with regards to biodiversity impact.
Offering encouragement to PBAF and the TNFD have been several large PR initiatives.
The World Wildlife Fund’s 40-minute documentary Our Planet: Too Big to Fail, which was also launched in September, featured interviews with leading figures in the financial community such as Steve Waygood, chief responsible investment officer of Aviva, Hiro Mizuno, former CIO of Japan’s Government Pension Investment Fund, and Mark Carney, the UN’s special envoy for climate action and finance.
With the background of footage taken from the Our Planet series, the documentary explains the role finance plays in the destruction – and therefore also the protection – of nature, and makes five key recommendations to the sector.
Two of these are assessing risk and impact. If that wasn’t enough, Britain’s favourite environmentalist, David Attenborough, made a plea to pension funds and the financial sector in a documentary about his life.
Project pipeline
What needs to happen, however, is the building of a pipeline of investable projects for nature.
To reverse the decline in biodiversity by 2030, analysis from the Paulson Institute, Cornell University and The Nature Conservancy suggest that, globally, we need to spend between $722 billion to $967 billion each year over the next 10 years. We are nowhere near this point.
Kudos to the Coalition for Private Investment in Conservation (CPIC) as it continues its work in identifying investment opportunities that invest in nature, and that also provide the risk/return profiles to interest the private sector.
In September, HSBC announced the creation of HSBC Pollination Climate Asset Management, which will establish a series of natural capital funds – and raise $1 billion during the next year. The challenge for the venture – as with all willing investors in nature – lies in the lack of a deal pipeline.
For this to happen, there needs to be much more joined-up thinking between policymakers, private finance and environmental NGOs on a regional basis. We need to turn ideas for nature restoration into financeable ideas, and then into investable and scalable action.
This will connect the myriad stakeholders who will provide not only the funding but also advice and even supportive policy tweaks over that inevitable multi-year journey.
If the financial sector wakes up to nature, but then sits and waits for prospects to be handed to it for investment, a huge opportunity will have been lost.
If 2020 is the year nature-based risks and challenges came to the fore, then perhaps 2021 can be the year we come together to start financing the solutions. That would be super indeed.
