Session Summary
Sagarika Chaterjee led the discussion on the pivotal role of the finance sector in addressing biodiversity and climate change challenges.
Impact of US Elections
The discussion started with Richard Folland sharing his views on the implications of the upcoming U.S. elections on climate policy ahead of COP29 in Baku. He notes that the election results, particularly whether Kamala Harris or Donald Trump wins, will significantly influence the U.S. stance on climate issues.
If Harris wins, she is expected to continue President Biden’s climate policies, particularly those outlined in the Inflation Reduction Act, which aims to bolster clean energy and support international climate initiatives. Harris is likely to remain a constructive participant in the COP process, while also addressing climate justice concerns.
In contrast, a Trump victory could lead to a regression in climate policies. Richard mentions that during Trump’s previous term, the U.S. withdrew from the Paris Agreement, and speculation exists about the possibility of a complete withdrawal from the UNFCCC if he returns to power. This could have severe repercussions for global climate action.
Richard also highlights a contradiction in U.S. policy: while the Biden administration supports transitioning away from fossil fuels, the U.S. remains the largest oil and gas exporter, leading to some policy adjustments from Harris regarding fracking. If Trump wins, he is likely to prioritise increased oil and gas production for energy independence, potentially taking a tougher stance against China regarding electric vehicle tariffs and clean energy imports. However, state-level actions may continue to support renewable growth, even in Republican states.
Overall, Richard provides insights into how the U.S. elections will shape climate negotiations and policies moving forward.
An Investor Perspective
David Sheasby emphasises the complexity of addressing climate change and biodiversity, acknowledging that ongoing education for investment teams, clients, and companies is essential.
As an asset manager at Martin Currie, he views his firm as a partner to the companies it invests in, promoting best practices and healthy competition among peers to drive improvements in sustainability. David highlights recent educational initiatives, such as a program in collaboration with Oxford University, which focused on biodiversity and its assessment within investment portfolios.
He notes a growing interest in biodiversity, illustrated by the high demand for related courses compared to climate courses. However, he also points out significant challenges, including the lack of a unified metric or goal for biodiversity, unlike the more straightforward carbon emission targets.
In discussing data requirements, David underscores the importance of balancing the need for perfect information with the reality of uncertainty in financial decision-making. He stresses the necessity of company disclosures, particularly regarding carbon emissions and biodiversity policies. While many companies acknowledge biodiversity as a material issue, fewer provide adequate disclosures, highlighting a gap that needs to be addressed. Location data is particularly critical for understanding biodiversity, as it is context specific. David advocates for enhanced disclosure practices, emphasising the need for companies to integrate biodiversity considerations into their strategic decisions and capital allocation processes. He expresses a desire for more comprehensive data to inform investment strategies, ensuring that conversations about sustainability extend beyond reports to engage with leadership on how these factors shape long-term company objectives. This comprehensive approach to education and data will be vital for navigating the intertwined challenges of climate change and biodiversity.
Data and Regulations for Financing Nature
Arianna Manili emphasised the need for the finance industry to adopt regulatory compliance and reporting, which are becoming increasingly globalised, highlighting a clear trend in the EU and beyond. She noted the importance of understanding the risks and dependencies that financial institutions have on nature, stating that a wealth of tools, including over 180 provided by the Taskforce on Nature-related Financial Disclosures (TNFD), exists to help assess these impacts.
Arianna pointed out that data comparability across regulations is crucial, as biodiversity transcends national boundaries. This necessitates collaborative efforts in developing regulations to prevent greenwashing and ensure clarity in data disclosure from financial institutions. Additionally, she suggested that financial institutions need to voice their challenges regarding data disclosure to promote a level playing field and help address data gaps.
Data and Regulations for Climate Finance
Richard Folland then shifted the conversation towards mandatory disclosure in the finance sector, recalling the evolution from voluntary to mandatory reporting since the establishment of the Task Force on Climate-related Financial Disclosures (TCFD) in 2016. He noted that while voluntary approaches have enhanced sustainability reporting, there is a growing consensus for mandatory disclosures, particularly regarding companies’ transition plans in light of climate risks. This will not only benefit investors but also improve transparency and accountability in the industry.
The Climate-Nature Nexus
The dialogue also explored the interconnection between climate and biodiversity.
David Sheasby highlighted an increasing awareness among clients regarding this relationship, stressing the necessity for companies to recognise their biodiversity dependencies, even at distant tiers of their supply chains. He mentioned that sophisticated asset owners are now asking more questions about biodiversity and climate, reflecting a shift towards integrating these concerns into long-term strategies.
Arianna and Richard both acknowledged the increasing discourse around the link between the COP meetings on climate change (COP29) and biodiversity (COP16). They noted that while both COPs are essential, the dialogue is becoming more sophisticated, and discussions are incorporating the necessity for cooperation across environmental challenges.
Nature-based solutions were mentioned as a promising approach to address both crises, provided they are grounded in scientific principles and do not harm biodiversity.
The conversation then addressed the upcoming COP on desertification, with Sagarika emphasising its significance and the need for the finance sector to engage, despite potential logistical challenges.
Arianna provided insights into the burgeoning market for biodiversity credits, suggesting they could offer new funding avenues for biodiversity restoration. However, she cautioned that these credits must uphold integrity and adhere to “do no harm” principles, echoing Richard’s sentiments on the necessity for robust regulatory frameworks.
Conclusion
As the discussion neared its conclusion, David offered practical actions for financial institutions, such as enhancing education on climate and biodiversity, supporting the adoption of decision-useful information frameworks, and focusing on transition plans to ensure accountability. This conversation showcased the growing recognition of interconnected environmental challenges and the finance sector’s role in driving effective solutions. The session ended with a commitment to continue discussions and actions towards integrating climate and nature goals, highlighting the importance of upcoming COP outcomes and their implications for global finance.