Financing a Shared Future for All Life on Earth: the role of TNFD in a Global Biodiversity Framework - Biodiversity Day interview with Elizabeth Mrema, UN CPD & Lorna Slater MSP

Last week would have seen the crucial biodiversity summit COP15 take place, before it was delayed due to the pandemic. To mark both Biodiversity Day and the original date, and build moment before the rescheduled summit this Autumn, we hosted a discussion on Financing a Shared Future for All Life on Earth: the role of TNFD in a Global Biodiversity Framework.

We were joined by UN Convention on Biodiversity Executive Secretary & Taskforce for Nature-Related Financial Disclosures (TNFD) Co-chair Elizabeth Mrema and Scottish Minister for Green Skills, Circular Economy and Biodiversity Lorna Slater MSP, to discuss why we need to finance nature, the Global Biodiversity Framework, how governments can help and what the Scottish Government is doing in this space.

Despite on-going efforts, biodiversity is deteriorating worldwide and this decline is projected to worsen with business-as-usual scenarios. This session, aimed at global finance practitioners, is intended to raise aware and inspire practical action in relation to the critical need to finance. It will provide an update on global and national initiatives to help drive the action required to finance a shared future for all life on earth.

With the forthcoming Global Biodiversity Framework, the Convention on Biological Diversity is setting the stage for a worldwide re-direction of financial flows away from nature-negative and towards nature-positive outcomes. Market players are speeding ahead with testing the Taskforce on Nature-related Financial Disclosures (TNFD) beta framework, to make it ready to inform and respond to these new international norms around nature, nature-based solutions and finance. As part of the Scottish Government’s National Strategy for Economic Transformation, we have committed to establishing a values-led, high-integrity market for responsible investment in natural capital.

GEFI has a long history of supporting finance for nature, from a programme of collaboration between UNDP, GEFI and the Scottish Government, to the COP26 launch of an exclusive, commercial platform showcasing financial products that are directly aligned to the SDGs, and nature-focused sessions at our annual summits and COP26.


Finance for Nature in Nature at COP26

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/.


Islamic Finance & Faith in the SDGs at COP26

For many, a warming climatic system is expected to impact the availability of necessities like freshwater, food security, and energy, while efforts to address climate change, both through adaptation and mitigation, will similarly inform and shape the global development agenda. The links between climate change and sustainable development are strong. Poor and developing countries, particularly least developed countries, will be among those most adversely affected and least able to cope with the anticipated shocks to their social, economic and natural systems.

As national ministers and heads of state convened in Glasgow, Scotland, to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change (UNFCCC), for the 26th UN Climate Change Conference of the Parties (COP26) the Global Ethical Finance Initiative (GEFI) curated a unique programme to focalise this sustainable development challenge through the prism of Islamic finance, a proxy to the global south.

To raise awareness and drive climate action at COP26 GEFI, a non-profit dedicated to enabling finance to deliver positive change and help achieve the UN's Sustainable Development Goals (SDGs), ran a Path to COP26 campaign. The “Faith in the SDGs” workstream, led by the Islamic Finance Council UK (UKIFC), curated a unique one-day hybrid Islamic finance programme to coincide with the COP26’s finance day (Wednesday 3rd November 2021). Islamic finance experts from across the globe gathered both in-person, at the stunning Ross Priory on the banks of Loch Lomond, and remotely to demonstrate the important role Islamic finance can play in supporting climate action in the global south and beyond.

In the SDGs, UN Member States express their commitment to protect the planet from degradation and take urgent action on climate change. One of the most salient factors that challenge the achievement of the SDGs by 2030 is the shortage of financial resources. Several reports and studies have stated that around US$5-7 trillion dollars are required every year to achieve the SDGs, and with governments and donor agencies unable to meet demand, private sector funding is required.

The natural alignment between the SDGs and Islamic principles together with the size of the industry (currently US $2.5 trillion and expected to reach US $3.8 trillion in 2022[1]) mean that Islamic finance is well placed to create instruments that drive significant capital towards the SDGs and climate action.0  The ambitions of the SDGs are consistent with the objectives of Shariah (maqasid al-Shariah) which aim to bring benefits to mankind and prevent harm as well as ensure sustainability of life on earth. SDG alignment presents a unique opportunity for Islamic financial institutions to showcase the inherent social good and ethical basis of Islamic finance.

One of the key challenges in implementing the Paris Agreement and addressing climate change is the funding required to implement projects that contribute positively to Nationally Determined Contributions (NDCs). Whilst three quarters of countries have adaptation plans in place, financing remains an issue. According to UNEP FI “annual adaptation costs in developing countries are estimated at USD 70 billion” with his figure “expected to reach USD 140-300 billion in 2030 and USD 280-500 billion in 2050”.[2]

 Islamic finance is not limited to Muslim countries and has the potential to support the delivery of NDCs. This could be particularly attractive to the 57 Organisation of Islamic Cooperation (OIC) member states which collectively represent over 1.82 billion people (24% of the total world population) and include several low-income countries that are politically or culturally marginalised.

The GEFI / UKIFC Islamic Finance programme at COP26 provided a high profile platform to explore the role Islamic finance can play in attracting the capital needed to achieve the Paris Agreement and deliver the SDGs.

The first session, delivered in partnership with the United Nations (UN) and UN Economic and Social Commission for Western Asia (UNESCWA), discussed how Islamic social financing instruments can collectively promote the principles of social justice, solidarity, brotherhood and mutuality which can serve to help communities respond to and become more resilient to climate change whether related to food and water shortages, displacement as a result of natural disasters, or environmental education amongst other impacts.

Dr. Rola Dashti, Executive Secretary of UNESCWA noted the heavy debt burden in the Arab region, with eight times more debt received than grants for financing climate projects between 2013 and 2019. She highlighted zakat and wakaf assets (which exceed USD$3trillion throughout Muslim countries) as an importance source of grant funding to support innovation in sustainable development. She also provided details of the ESCWA Climate-SDGs Debt Swap / Donor Nexus Initiative which supports the conversion of national debt servicing payments of foreign debt into domestic investment for implementing climate-resilient projects that advance national SDGs. She asked that we all act collectively to utilise Islamic social funds to support the acceleration of the SDGs.

Dr. Al Meraikhi, Humanitarian Envoy to the UN Secretary-General highlighted the launch of International Dialogue on the Role of Islamic Social Financing in Achieving the Sustainable Development Goals between the UN and the Islamic Development Bank (IsDB) and noted that faith-based organisations have a crucial role in addressing the finance gap to achieve the SDGs.

The next session saw the UKIFC, Her Majesty’s Treasury, Ministry of Finance in the Republic of Indonesia Ministry, Islamic Development Bank, London Stock Exchange Group and GEFI jointly announce the launch of a High-Level Working Group on Green Sukuk (HLWG).

The 3-year initiative will direct investment to reduce greenhouse gas emissions in the world’s regions in most need. The announcement followed work of the Global Islamic Finance and UN SDGs Taskforce and a recent report “Innovation in Islamic Finance: Green Sukuk for SDGs” commissioned by UNDP Indonesia in which the UKIFC estimated that an additional US$30+ billion of capital towards the SDGs can be raised by 2025 through green and sustainability sukuk. To unlock this finance the HLWG has been launched to coordinate international efforts. The report showed how green and sustainability sukuk can be a viable financial instrument attracting billions of dollars of capital for green projects that support the delivery of the Paris Agreement.

The HLWG, led by the founding partners, will bring together expert global stakeholders with the UKIFC and GEFI acting as Secretariat. It will focus on the following objectives:

  • Ensuring green and sustainability sukuk is highlighted at annual COP summits up to and including 2023 to increase awareness of the instrument and proactively encourage the issuance of such sukuk by all market stakeholders (corporates, multilaterals and sovereigns) as a key Islamic financing key tool.
  • Assist and enhance existing established global standard setting bodies and regulatory initiatives run by the UN, IsDB and others (e.g. PRI, NGFS, Transform, PRB) to encourage better alignment of the Islamic finance industry with the global green and sustainability financial movement.
  • Identify and address specific existing challenges for green and sustainability sukuk on the supply and demand side.

As part of the introduction to the session UKIFC Managing Director Omar Shaikh outlined the natural alignment between the principles of Islamic finance and the role that green sukuk can play in channelling finance towards the climate emergency and the SDGs.

John Glen, Economic Secretary to the Treasury and City Minister then highlighted the UK’s strong credentials in green and Islamic finance and positioned green sukuk as an important route to secure investment for sustainable projects. He noted the vital role that Islamic finance must play in the green agenda. Julia Hoggett, Chief Executive, London Stock Exchange plc later welcomed the HLWG as a significant milestone for the development of Islamic finance and sustainable finance globally and stated that Islamic finance is a key component of sustainable finance. She also stressed the need to scale green sukuk to ensure that access to finance in a manner consistent with faith values.

As a pioneer in the issuance of international green sukuk, Sri Mulyani Indrawati, Minister of Finance, explained the Republic of Indonesia’s commitment to using the HLWG to share experiences and provide valuable precedents at the same time learning and applying best practices approaches. With the world recovering from global pandemic, Sri Mulyani Indrawati said that the HLWG provides the urgent momentum for nations, multilateral institutions and corporates across the world to work together to grow sustainably for future generations.

The Islamic Finance programme concluded with a Global Islamic Finance and SDGs Taskforce meeting. The Taskforce is a unique collaboration between the public and private sectors spearheaded by the UKIFC, HM Treasury, IsDB and assisted by GEFI. It brings together global Islamic finance practitioners to explore the opportunities for OIC member states to develop a collective approach to sustainable finance and funding the SDGs and climate-linked NDCs.

The meeting included:

  • An update from Sima Kamil, Deputy Governor of the State Bank of Pakistan who presented on the pioneering work in sustainable banking being undertaken as part of the Pakistan working group.
  • A presentation by Gatehouse Bank, Chief Executive Officer Charles Haresnape on a Guidance Note prepared in partnership with UKIFC and GEFI to provide a consistent approach to reporting and disclosure for Islamic banks signed up to the UNEP FI Principles for Responsible Banking.
  • An update from UKIFC Advisory Board member Sultan Choudhury on the progress of the largest ever global Islamic finance survey on sustainability.

After two weeks of negotiating, the Glasgow Climate Pact was successful in maintaining the focus on 1.5 degrees Celsius as well as creating a 2-year timetable for agreeing to more ambitious and faster NDCs to provide a lever for more progressive countries to ensure slower countries make the step up. Although the agreement to “phase down” coal power angered some it is notable that this is the first COP agreement that has made a direct reference to phasing down fossil fuels.

The Pact urges developed countries to “fully deliver” the $100bn per year goal through to 2025 as agreed in 2009. It also agrees to double the proportion of climate finance going towards adaptation and, despite a lack of progress, it confirms that a “technical assistance facility” will be introduced to support loss and damage in relation to climate change in developing countries.

Whilst private finance is not a substitute for increased public finance, it will be vital in increasing the scale and reach of climate action and enabling the transition. The programme was a high-profile platform for Islamic finance at COP26 and through the practically focused discussions has demonstrated how Islamic finance can be used effectively by developing countries to support NDC’s by attracting investment, at scale, to projects that, in line with the Paris Agreement, reduce national greenhouse gas emissions.

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

[1] ICD - Refinitiv, ‘Islamic Finance Development Report 2019: Shifting Dynamics’ https://www.zawya.com/mena/en/ifg-publications/231019121250Z/

[2] United Nations Environment Programme (2021). Adaptation Gap Report 2020, Nairobi.


Beyond Climate – Getting Nature on the Finance Agenda to Support a Green Recovery (The Herald)

This article was originally published in The Herald on 8th August 2020.

In November 2021 Glasgow will host the UN climate change summit, known as COP26. This is the most important climate summit since the landmark Paris Agreement 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. COP26 is first opportunity for nations to come together to review commitments and strengthen ambition.

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 Overshoot Day looming later this month 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.

The Scottish-based Global Ethical Finance Initiative (GEFI) is working with the United Nations Development Programme and Scottish Government on a 2 year 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. We will also continue to showcase and position Scotland as a leading global centre for ethical finance.

To find out about financing nature, and more, join us on 5-8 October for Ethical Finance 2020. To reserve your free place visit ethicalfinance2020.com


‘Putting the ‘eco’ back in economy’: Finance for Nature Virtual Global Series Kick-off

The kick-off of the Finance for Nature Virtual Global Series on 20 & 21 July brought together industry champions from finance, insurance, consumer goods companies, and standard-setting regulators, to tackle two questions on how to accelerate nature-friendly finance: (1) Why should nature be positioned at the heart of the finance and green recovery agenda? (2) How can private capital and corporations unlock nature’s potential to achieve impact for the planet and prosperity for its people?

Key takeaways from the series include:

  1. The financial sector is increasingly well informed on the impact of climate, but less so about how to account for biodiversity and nature in its portfolio. Industry champions called for the inclusion of nature and biodiversity loss, as climate change cannot be fully addressed without it.
  2. To move beyond the individual asset-based disclosure requirements, a framework for more systemic nature-related risk disclosure is needed, following the trajectory of mandatory climate disclosure.
  3. The finance community needs a greater focus on traceability of corporate supply chains around climate, deforestation and other nature-related issues. It also needs to build in systems of accountability such as standards, or certifications (e.g. RSPO for palm oil).

What’s the point of my pension fund if it contributes to a dead planet? We’ll finance ourselves into extinction. We need to put the ‘eco’ back in ‘economy- Andrew Mitchell, Global Canopy

Why should nature be positioned at the heart of the finance and green recovery agenda?

Susan Gardner, Director of the Ecosystems Division at UNEP and Omar Shaikh, Founder of the Global Ethical Finance Initiative expressed the urgent need to move nature further up on the finance agenda and to play a core role as part of the green recovery. And the audience agreed, with 87% of respondents to the live poll noting that their organizations consider climate and nature as interconnected in the context of investing. Further, when asked if they have a policy in place that integrates nature-based solutions into decision-making, 52% said Yes, 28% plan to have a policy in the future, and 21% do not have a policy.

Inger Adersen, Executive Director of the UN Environment Programme (UNEP), provided the opening keynote address, highlighting that the Covid-19 pandemic provides a stark reminder of human’s reliance on nature, particularly for health. About half of the world’s GDP is directly or indirectly reliant on nature, and the finance sector’s recognition of the physical risks posed by the destruction of nature is a positive step but more urgent action must be taken. Inger urged governments and the private sector to use the UNFCCC COP26 in November 2021 as a target to steer economies towards a green transition that maximizes growth, employment and resilience.

UNDP Administrator, Achim Steiner, stressed the importance of nature for sustainable and equitable development and recovery from Covid-19, noting that 2.5 billion people depend on nature. Failure to seize the opportunity to place nature firmly on the green recovery agenda could lead to delayed progress by up to 10 years and failure to achieve the Sustainable Development Goals (SDGs). Accelerating decision-making and delivering impact at scale will require rebalancing the economic system with incentives and frameworks to ensure nature is not a marginal consideration operating in a parallel economy but a valuable asset that is understood, measured and incorporated into transformational policy strategies.

De Nederlandsche Bank recently published its ‘Indebted to Nature’ report which highlights the Dutch financial sector’s exposure to risks from biodiversity loss. The report estimates that Dutch financial institutions have over €500 billion in exposure to companies with high or very high dependence on ecosystem services, or approximately 36% of the examined portfolio. Executive Director of De Nederlandsche Bank, Olaf Sleijpen, stressed that although the world is in the midst of global health and economic crisis we cannot lose sight of the threat posed by climate change and biodiversity loss. The current situation presents a unique opportunity to take steps towards creating a carbon neutral economy. Olaf called on other central banks to build on the approach taken in the Netherlands to further explore and develop best practice to enable financial services to catalyse change and to promote consistent standards and frameworks for biodiversity risk measuring and reporting.

Biodiversity and nature loss pose major economic, social and environmental threats that we cannot afford to ignore. - Olaf Sleijpen, DNB

The audience also heard from an expert panel, moderated by UNDP’s Head of Climate Promise, Cassie Flynn, with representatives from the banking sector, insurance, asset managers, and leading thinkers on sustainable investing. Speakers included, Philippe Zaouati, CEO of Mirova; Brooke Barton, Vice President of Innovation and Evaluation at Ceres; Stephen Hibbert, Managing Director at ING; Veronica Scotti, Chairperson Public Sector Solutions at Swiss Re; and Diandra Soobiah, Head of Responsible Investment at Nest Pensions. The keynote speakers outlined a vision for a nature-forward future and panelists discussed the key practical solutions needed to position nature in the finance agenda.

Firstly, as we have now reached a tipping point where the impacts of deforestation and climate change may be irreversible, deforestation must be recognised as a risk that is embedded across commodities, asset classes and industries. Ceres presented the Investor Guide to Deforestation and Climate Change: a tool which provides timely guidance for financial institutions to divest from deforestation and to engage with their portfolio.

Secondly, there is a need to build robust impact measurement indicators that could address the complexities in measuring biodiversity. Mirova is currently joining forces with other partners to develop a tool that includes impact measurement on biodiversity for listed companies, which could help reduce the risk of greenwashing in the industry.

Thirdly, coordinated efforts across asset classes will be essential to improve the existing toolkits and develop new methodologies, metrics and taxonomies to integrate nature into financial decision-making. As noted by Swiss RE, insurers have a key role to play in leading this movement: they understand risk and invest in the long term, so they are well placed to embrace finance for nature. Building from the TCFD experience for climate, ING highlighted that this collective effort for nature also needs to involve actors from the scientific and data communities, who can support the financial sector to address this challenge with greater confidence. Civil society and global investor movements are already calling asset owners to redirect finance flows to nature-friendly investments. Among them, NEST Pensions supports the Make My Money Matter campaign that is calling on pension providers to think of the planet and its people alongside making a profit.

Audience Q&A topics:

    • Best practice in communicating effectively with customers
    • Obstacles to achieving a pipeline of investable projects
    • The role of central banks in the green recovery
    • Ensuring that no one is left behind through the protection and creation of livelihoods.

How can private capital and corporations unlock nature’s potential to achieve impact for planet and prosperity?

The second day of the series focused on the financial risk of biodiversity loss and the role of the private sector to take action. Midori Paxton, Head of Ecosystems and Biodiversity at UNDP and Andrew Mitchell of Natural Capital Finance Alliance and Global Canopy facilitated the discussion. Elizabeth Mrema, Executive Secretary of the Convention on Biological Diversity (CBD), opened the session with an uplifting reminder that 2020 is still the ‘Super Year’ for nature. Now is the time to reassess human’s relationship with nature and to recognize that nature is a public good which has been over-exploited. $44 trillion of economic activity is largely dependent on nature, providing the economic case for increasing nature-friendly finance and since the private financial sector is a critical enabler of markets it can contribute positively to halting biodiversity loss. Ms. Mrema urged the financial sector to ensure that financial disclosure initiatives contribute to the 2030 Biodiversity Framework to protect 30% of earth’s lands and seas.

A new reporting framework called the Task Force for Nature-related Financial Risk Disclosure (TNFD) was announced by Minister Zac Goldsmith, UK Minister of State for the Pacific, International Environment, Climate and Forests, and Animal Welfare. Ten financial institutions, the World Business Council For Sustainable Development and the UK and Swiss governments have backed the initiative, supported by UNDP, UNEP, Global Canopy, and WWF. It aims to increase financial flows at scale towards nature-positive investment and lending opportunities to allow people and the planet to flourish. In an audience poll, 89% of participants voted ‘Yes’ that disclosure of nature-related risk can drive real change and is not just a mere box-ticking exercise.

The pandemic is one symptom of our dysfunctional relationship with the natural world and we need to reset the relationship with nature. - Zac Goldsmith, UK

The expert panel included industry champions from private financial institutions like banks and insurance, and experts in private sector nature-related risk disclosure, including, Adam Kanzer, Head of Stewardship at BNP Paribas; Sonja Gibbs, Sustainable Finance Working Group at the Institute of International Finance (IIF); Mark Kenber, Managing Director at Climate Advisers; Rowan Douglas, Head of Capital Science & Policy Practice at Willis Towers Watson; and Bas Rüter, Director of Sustainability at Rabobank.

The three leading experts from the financial sector - BNP Paribas, Willis Towers Watson, and Rabobank - shared their insights on a private sector perspective of nature-related risk. They recognize the role of increased accountability to drive action and noted the role of government to provide the necessary enabling conditions but also of banks to fulfill their obligation to deliver valuable, long-term investments to clients and investing in nature is a valuable, long-term investment. They urged that climate risk disclosure should go further to account for nature as a climate change adaptation, not just mitigation. For example, Willis Towers Watson noted the importance of accounting for the physical risk of coral reefs or mangroves degradation which protect coastal communities and ecosystems from storm surges. When this risk is valued, there is much higher incentive to address it and prevent it.

The risk the world faces is not just biodiversity loss but the collapse of nature all together...We cannot preserve shareholder value without preserving nature and biodiversity.- Adam Kanzer, BNP Paribas

Deforestation is a major threat to biodiversity loss, mainly driven by cleared land for industrial agriculture and urgent action is needed to divest from deforestation. Banks have a role to play by providing the right incentives working with companies to create a better market price for sustainably-produced goods. One example is Rabobank’s efforts to offer lower interest rates for sustainable production in Brazil, where deforestation rates are high. Direct engagement with clients to ensure soft commodity supply chains are nature and climate-friendly, through a regional approach that fits the local context, is an impactful way investors can take action. However, there is a gap in knowledge on deforestation in supply chains - few investors are aware of the deforestation risk in their investment portfolio and the financial cost of that risk is high.

According to Orbitas Finance, presented by Climate Advisers, 44 financial institutions each have over $300million invested in palm oil alone and investors in 13 companies have at least $23 billion at risk. Orbitas provides a tool to assess deforestation risk in investor portfolios. Other related resources for assessing supply chain natural capital risk, noted throughout the series include: Encore and Gist Impact. A trend towards increased supply chain transparency, where companies are required to show where their assets are located, is helping to put pressure on companies to take action. Willis Towers Watson noted that the emerging use of spatial data to assess financial risk can help accelerate that pressure. Other examples of financial products and investor actions, as noted by IIF include, social bonds, debt for nature swaps, and biodiversity offsets and all rely on proactive and consistent measurement and reporting of risk. Ultimately, to account for nature loss, a collaborative and common approach to natural capital risk reporting and disclosure is needed and panelists underscored that a nature-related financial disclosure system like TNFD is a promising step. Just as the climate change financial risk task force helped channel private sector behavior through the TCFD overarching framework, this is what is needed for nature, and it must use the TCFD momentum.

Nature to be embedded into classic macroeconomic analysis...[We need] a nature-equivalent of scope 3 emissions for climate, e.g. ‘scope 3 depletions’ - Sonia Gibbs, IIF

Audience Q&A topics included:

    • the methodologies for putting an economic value on nature assets and potential externalities
    • the gaps in understanding nature-related risk and implementing actions to avoid it
    • the role of governments to regulate nature-related risk

Finally, Nigel Topping, UK High-Level Climate Action Champion, expressed hope for a nature-related financial risk disclosure platform as the next big step for finance and invited the audience to join the Race to Zero November Dialogues, where discussions about finance for nature will continue and hopes that these discussions will influence positive outcomes for finance for nature at the UNFCCC COP 26 in November 2021.

The two inaugural sessions of the Finance for Nature Virtual Global Series laid the groundwork for future discussions that aim to advance the integration of nature-related risks and considerations in the international financial policy and regulatory agenda. Covid-19 presents a unique opportunity to build back an economy that repairs our relationship with nature and addresses biodiversity. The evidence is clear - $3.6 trillion in business opportunities from sustainable food, land and ocean use, representing 191 million new jobs over the next 10 years, and more than half the world’s GDP and 2.5 billion people depend on nature - Nature-friendly investments must be scaled up to protect people, planet, and prosperity and to ensure a green economic recovery.

 

More sessions in the Finance for Nature Series will be announced soon. You can view the full event report and recordings from the sessions on the event web page here.

About The Finance for Nature Virtual Global Series: Designed as a series of high-level, quarterly, virtual dialogues leading up to COP26, the Global Series will look to advance the integration of nature-related risks and considerations in the international financial policy and regulatory agenda. It brings together industry champions from finance, insurance, consumer goods companies, and standard-setting regulators, and aims to drive practical commitments on investing in nature. This series is organised by UNDP, UNEP, the Scottish Government backed-Global Ethical Finance Initiative, Climate Advisers and partners of the New York Declaration on Forests.