With Earth Day 2021 right around the corner on Thursday 22nd April, we at Global Ethical Finance Initiative (GEFI) are taking the opportunity to look ahead to November 2021, when Glasgow will host COP26, the UN climate change summit. This is the most important climate summit since the landmark COP21 summit in Paris in 2015, when heads of state committed to restricting global temperature rise this century to ‘well below’ 2°C above pre-industrial levels and to pursue efforts to limit it to 1.5°C, in the Paris Agreement. COP26 is a crucial opportunity for nations to come together to review their commitments and strengthen ambition for the decade ahead.

Scotland is already leading by example with the Climate Change Bill making a commitment to becoming a net-zero society by 2045 – five years before the rest of the UK. The Scottish Government has also responded to the global climate emergency by adopting an ambitious new target to reduce emissions by 75 per cent by 2030. The Scottish National Investment Bank, which will be operational in the second half of 2020, will support the transition to net zero through a range of debt and equity products.

The financial opportunities and risks of transitioning to a low carbon, resilient global economy have catapulted climate change to the top of the agenda for investors, lenders and insurers across the globe. As well as setting ambitious targets to minimise their own greenhouse gas emissions many financial institutions are driving reductions in the climate impact of their financing activity by decarbonising their portfolios and increasing investments in solutions to climate change. With Earth Day coming up, it is timely to reflect on the key role nature plays in regulating climate as well as helping us to adapt to and mitigate against climate change. By conserving nature and restoring ecosystems we reduce climate vulnerability and increase resilience.

The sustainable management and use of nature can help tackle wider socio-environmental challenges such as water security, water pollution, food security, human health and disaster risk management. However, with ecosystems declining in size and condition by 47 per cent globally, and species populations facing extinction, the wake-up call on nature loss arrived at this year’s World Economic Forum where, for the first time, the Global Risks Report ranked biodiversity loss as one of the top-five global risks in terms of likelihood and impact in the next 10 years.

Around $44 trillion of economic value generation – over half the world’s total GDP – depends on nature and its services and sustainable use of our environment in Scotland accounts for 11 per cent of our total economic output – worth £17.2 billion a year – and one in seven full-time jobs. The global coffee market had retail sales of $83 billion in 2017 but 60 per cent of coffee varieties are at risk of extinction from a combination of climate change, disease and deforestation.

Nature and biodiversity loss therefore represent a significant financial risk. Insufficient accounting for the risks posed by nature loss have unintended consequences, such as short or long-term risk mispricing, inadequate capital buffers, and in extreme cases the potential for stranded assets.
In boardrooms nature loss continues to be largely a hidden risk. This needs to change, and quickly.

GEFI is working with the United Nations Development Programme and Scottish Government on a programme of collaboration that aims to raise awareness and position nature at the forefront of the COVID-19 economic recovery and for the long-term well-being of people and the planet. Within the programme, which forms part of our wider Path to COP26 campaign, we are actively looking to develop a financial instrument that accelerates nature-friendly investments at scale as well as draw upon our extensive global network to support other initiatives such as the Scottish Environment Protection Agency and Scottish Wildlife Trust’s challenge to unlock £1 billion of new investment for nature conservation in Scotland. We are also looking to explore the feasibility of a global framework for financial institutions measure and disclose nature-based risk.

With Covid-19 exposing the fragility of health security and financial systems there is a pressing need to build social, environmental and economic resilience. At GEFI, as we approach COP26, we are committed to working with our partners ensure nature joins climate at the top of the finance agenda to underpin a green and sustainable recovery, positioning Scotland as a leading global centre for ethical finance this Earth Day and beyond.

*A version of this blog post was published in The Herald on the 8th August 2020; it has been updated for 2021 .

Chris Tait
Executive Manager
Global Ethical Finance Initiative