Conservation finance: It is time to press on with sustainability

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Why it doesn’t make sense that economic theory has kept natural capital as an externality.

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A focus on just three of the UN Sustainable Development Goals (SDGs) would produce a domino effect that would see nearly all of the other goals reached, according to a paper put out by the University of Bath in September. The three were gender equality, life below water and life on land. 

They are not three topics that the financial industry has traditionally embraced, although in recent years, gender equality has attracted more attention from institutions either through regulation, shareholder pressure or through market forces that have led to the creation of gender lens investments and more focused financial advice for women

But the second and third of these SDGs that refer to nature have not enjoyed similar attention. They are the least funded of the SDGs, despite repeated warnings from the scientific community over the last 50 years that nature needs to have a price. It is neither free nor inexhaustible. 

Natural capital

It doesn’t make sense that economic theory has kept natural capital as an externality. 

Natural capital and the ecosystem services it provides have always been the fuel for human economic growth and expansion, from the hundreds of thousands of trees used to build fleets for exploration and war, to its provision of penicillin, chemotherapy drugs and materials used to make computers, smartphones and spacecraft. Growth cannot exist without nature. Its value is obvious, as is the need to protect natural resources so that economic growth may continue.

Yet giving nature a monetary value is complex – and there was little incentive to understand those complexities in the financial world because it would have led to lower profits – and markets do not voluntarily choose to reduce profits. 

Now, under the cloud of a climate crisis, we find that our natural resources have been degraded and depleted to such an extent that the threat is not simply to economic growth but to life on Earth. We are facing crises on two fronts.


To meet the 2030 deadline for the SDGs, we must pick up the pace 

We urgently need to bring nature into our economic thinking in a way that restores and protects it. And we need to direct flows of capital towards those aims. For this we need a Task Force on Nature-related Financial Disclosures (TNFD) in addition to the Task Force on Climate-related Financial Disclosures (TCFD).

It may seem daunting to work on a TNFD before companies have come to grips with the TCFD framework, but we simply have no choice. The two crises are interlinked: natural resources will decline with climate change, but those natural resources – through carbon sequestration – can help to slow climate change. 

When the TCFD framework was being written several key benefits were highlighted. One of these was that there would be better access to capital due to investor confidence that climate-related risks were being assessed. 

This is precisely what we need for nature. We have an estimated $250 billion annual gap in conservation investment. This can be met if we have more tools that investors feel can show a quantifiable impact. 

Awareness

Another benefit of the TCFD was “increased awareness and understanding of climate-related risks and opportunities… resulting in better risk management.” It is crucial to expand this to include nature-related risks. 

Stranded-asset risk goes well beyond fossil-fuel exposure into broader environmental risks that the TCFD alone will not uncover. These include pollution taxes, water pricing, natural resource extraction restrictions and agrochemical bans, as governments tire of paying the costs while industry reaps the profits. 

Huge systemic risk is building; we can no longer ignore it. 

The TCFD may not be perfect, but it provides a framework that can be used as the basis for a TNFD, and there is a strong body of research on the pricing of natural resources, built up over the past decade, which can help companies with their initial assessments. 

To meet the 2030 deadline for the SDGs, we must pick up the pace, and if tackling our marine and land ecosystems is the way to reach many more of the goals, then we cannot wait to get comfortable before pressing on.