Responsible finance: A call to action for nature’s ‘super year’

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By:
Helen Avery
Published on:

There is finally an opportunity to integrate nature within financial decision making in the year ahead. How can we ensure it’s doesn’t become a lost opportunity?

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2020 has been dubbed the Super Year for Nature as several events take place that will be critical for forging a new deal for the environment. These include the International Union for Conservation of Nature World Conservation Congress in Marseilles, France, in June and the COP15 of the United Nations Convention on Biological Diversity in Kunming, China, in October.

The hope is that this will be the year that companies, governments and financial institutions recognize nature’s financial value and that environmental degradation due to pollution and habitat loss is going to cost us all vast sums as we lose the protection and ecosystem services that nature affords us. This is the year we start both pricing this risk in and investing in nature in earnest. 

This all begins this month in Davos, where it is hoped that a working group for nature-related risk will be announced to begin an education process, provide a paper and then an action plan for post-Kunming. The aim is to start building nature-related financial risk into the lexicon of the private sector and encourage engagement with natural capital measurements and metrics. 

Whether the working group will morph into or inspire a taskforce for nature-related financial disclosure (TNFD) will depend on how successful the year ahead is in galvanizing support for nature from the key stakeholders globally. 

That success will be determined by several things that collectively the financial industry needs to do and, just as importantly, not do. 

Consultation

Finance cannot afford to waste years in conferences discussing the ‘whys’. Joining the new working group or forming national working groups and ultimately supporting a TNFD with time-bound targets will be crucial. 

Also, there are several approaches to natural capital assessments already established by the likes of Trucost (part of Standard & Poor’s), Global Canopy, the Natural Capital Project, Economics for the Environment Consultancy (eftec) and CDC Biodiversité. 

Each has published case studies of local governments, companies and banks’ experiences with natural capital accounting. Green finance doesn’t need new measurements to be developed by banks or other institutions. If anything, it needs a collaboration of those working on these tools and metrics, and a greater testing pool to offer feedback and fine-tuning. 

The Climate Disclosure Standards Board – many of whose standards were adopted within the Taskforce for Climate-related Financial Disclosure (TCFD) recommendations – recently launched an open consultation period for all stakeholders to comment on its natural capital and environmental risk reporting framework proposals. That comment period closes in February. The British Standards Institute (BSI) is also working to define a set of national natural capital standards. 


We need to ensure that companies and investors see this not as something ‘being done for the environment’ but rather as a support for their decision making 
 - Ece Ozdemiroglu, eftec

What banking also doesn’t need – and this has to be the lesson learned from climate – is multiple new initiatives and coalitions, which can have the unintended effect of merely duplicating efforts and slowing progress. More helpful would be for current leading organizations on climate to build in broader environmental policies. 

For example, CDP (formerly the Carbon Disclosure Project) and the Climate Bonds Initiative have both looked to incorporate natural capital within their broader green/climate initiatives. The extent to which finance can incorporate natural capital within green bonds is something being explored. 

At the same time the industry has to work on developing more deal flow. The November report from the Nature Conservancy (TNC) and Environmental Finance provides excellent guidelines of how it might move towards greater asset allocation to nature. Among the suggestions are a TNFD, more blended finance and a responsibility of asset owners to work with their investees. Co-author of the report, Sophie Trémolet from The Nature Conservancy, highlights the importance of bringing together work in water, forestry and land use under one natural capital umbrella to ensure information sharing and swifter progress. 

Integration

Finally, the key to the adoption of natural capital in financial decision-making, whether on the risk or opportunity side, will be integration. 

Ece Ozdemiroglu, the founder of eftec and the convener of the BSI’s Assessing and Valuing Natural Capital expert group, makes the salient point that if all that is achieved over the year is companies ticking a box to say they are assessing natural capital risk, then change will have failed. 

“We need to ensure that companies and investors see this not as something ‘being done for the environment’ but rather as a support for their decision making,” Ozdemiroglu says. “Natural capital accounts need to be considered alongside ‘traditional’ financial reporting not just appearing on the side without any relevance to business decisions.” 

Similarly in the investment community, it was encouraging to see Cornerstone Capital’s report on the Sixth Extinction in December that highlights how investors can invest along themes such as animal welfare, habitat improvement and species protection. 

While this capital is much needed however, the financial industry runs the risk relegating nature to a theme rather than embedding it within all capital allocation decision making if it starts this year by treating it as such. 

At the core of all of these ambitions ultimately lies greater collaboration among a multitude of stakeholders and the recognition that working together will be faster and more effective.