FINANCE FOR NATURE AND COP26

As the exhibition tents, plenary rooms and coffee stalls are being dismantled, and Glasgow returns to a form of normality, one of the overwhelming takeaways from the COP26 Climate Conference was just how important finance and financing nature will be for the journey to net zero.

Research by the World Economic Forum (WEF) has estimated that $44 trillion of economic value generation – more than half of the world’s total GDP – is moderately or highly dependent on nature and its services and is therefore exposed to nature loss1. Whether you are talking about algae carbon sequestration, women’s empowerment, indigenous land rights or how to create a green jet fuel, much of the conversation was focused on the topic of finance.

The key question is how can we change the financial system to better include nature?

While new public funding pledges were made, in the context of the undelivered $100bn climate finance for poorer countries and the covid pandemic, it is easy to remain sceptical. John Kerry (US Special Presidential Envoy for Climate) highlighted the role of private finance on the first day of the conference. Speaking at the American pavilion he stated that “no government in the world has enough money to fuel this transition as rapidly as we need it but the private sector does.”

While there is disagreement on whether The Glasgow Climate Pact was a success or not, COP26 has left exhibitors, delegates, attendees, protesters, the press and the world at large with the impression that it will matter more than ever now, where we put our money. Money will be our vote as private citizens, as businesses and as countries. It is the driver. It is the tool we can use to put pressure on moving things into a higher gear. Or indeed the thing that will hold us back.

The debate is now one of innovation and transition – namely to the way we include (or continue to exclude) nature from our accounts as Prof Dasgupta discusses, and whether our traditional investment models can accommodate new parameters such as nature, biodiversity loss (upstream or downstream) and social impact.

During the GEFI Finance for Nature in Nature COP26 programme we heard from business and financial leaders, regulators, multilaterals, NGOs and others who discussed frameworks and impact measurements around nature. Despite the recognisable complexity of practical implementation and the interdependency of climate and nature, momentum is building around the critical need for markets to better align to a net zero world.

The development of the TNFD (Taskforce on Nature-related Financial Disclosures) was acknowledged as a very useful tool that will help to facilitate reporting on the risks in relation to nature. Andrew Mitchell, (founder of Global Canopy) reflected that “we cannot ignore nature and only focus on climate or carbon. Covid-19 is the perfect example of this. The pandemic is an environmental problem”. Tony Goldner, (Executive Director of TNFD) noted in the same high-level TNFD panel that it is not if but when nature related risk disclosure is coming, however, we still need to create a language around this. Edward Lockhart Mummery (Convenor at the Broadway Initiative) called for the need to “create a new financial architecture for nature investment”. There was also an acknowledgement that there was currently insufficient pricing of externalities in respect of nature and that natural assets needs to be viewed as assets rather than liabilities.

Although GEFI has been looking at financing nature since 2018, regular COP participants expressed their delight that nature has finally being catapulted up the formal agenda. This was noted as being a step change in comparison to previous COPs. Hosting the GEFI nature programme within a beautiful national park provided an inspiring backdrop for participants to move from talk to action. It was also evident that the nature conversation has moved beyond a collection of environmentalists, scientists and policy professionals with financial institutions and corporates willing not to only listen and learn but consider the practical steps they must take to address climate change and protect nature and biodiversity.

Another common theme, despite the criticism that this COP had been too exclusive and elitist, was that young and indigenous communities are key to solving this crisis and their voices must be heard. Indeed, some argue that, as those most impacted by climate change today and in the future, they should be leading the conversations. They should not just be in possession of just a seat at the table, but rather the entire table.

Usha Rao-Monari (Under-Secretary-General and Associate Administrator of the United Nations Development Programme) made this point at GEFI’s opening session for Finance for Nature in Nature where she questioned whether young and indigenous communities are being provided with an appropriate platform and, on the occasions when they, are she expressed concern that their voices have been drowned out by the noise. This was echoed throughout the conference noticeably by Elizabeth Mrema (Acting Executive Secretary of the UN Convention on Biological Diversity Secretariat) and Patricia Espinosa (Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC)) to mention a few.

The GEFI COP26 programme presented several examples of how financing nature and nature-based solutions (NbS) (including community-led project), is not only possible but profitable. So, if financing NbS is key to solving the climate crisis, including financing indigenous peoples, where are we now? Mrs Mrema noted that only 3% of global finance is being spent on NbS – this figure is too low if we are to keep 1.5C alive. The wholly unequal distribution of these resources is a further hindrance.

The question that echoed around the GEFI HQ during COP26 was: is it all too late?

Having explored the halls of the Blue Zone and Green Zone, as well as hosted an array of events throughout the two weeks, there is a dichotomy between those who contend that solving the nature crisis is complex and others convinced that it is pretty simple! Seeing practical examples of how it can be done provide hope but challenges remain around transferability and scale. The confidence boosted by speaking to sustainable finance leader is quickly tempered when the next conversation it with a finance leader who just doesn’t get it.

However, on reflection, the prevailing sentiment is that this is doable. In the words of Professor Stern (leading climate economist) “we have to invest to get there, but we will get tremendous returns. Just look at renewable power”. Despite some media spin the majority of people involved in COP26, and across the GEFI programme, are far from ready to give up. We need to learn from what works, what has not worked and collaborate to ensure that finance flows to the right places, at the right levels and at the right time. This required existing investment models and measurement and reporting frameworks to be redesigned.

Willie Watt (Chair of the Scottish National Investment Bank) stated that GDP is not a sustainable measure of growth, and the sustainability of growth itself has to be reassessed, suggesting big changes are needed. Nonetheless, Abyd Karmali (Managing Director, ESG & Sustainable Finance at Bank of America) noted that ESG has helped move the financial world towards nature-based finance, signalling that change is happening and can happen quickly.

At GEFI we remain committed to raising awareness and inspiring financial institutions across the globe to recognise their role in financing nature. In 2022 we look forward to building on the progress we have made this year by supporting the Biodiversity COP15 in April and the Climate COP27 in November.

We will work to keep the conversation open, relevant and critical to support the industry’s movement towards change, so get involved where you can.

View all of the videos from our Path to COP26 programme at https://www.efx.global/cop26/.