Nature and Finance

The world’s oceans, rivers, forests and land provide the raw materials for the goods and services which underpin the global economy, as highlighted by the Dasgupta Review. The businesses that we invest in, finance, and insure are all critically dependent on nature.

 

 

There is an opportunity to make the financial sector nature’s biggest ally.

The financial sector is in a powerful position to steer the future of lending, investment and insurance into a realm that benefits nature rather than one that destroys it.

“The planet is in the midst of a major mass extinction event – the first of its kind caused by humans, and one which is threatening the biological annihilation of life on our planet. Banking and finance practices are contributing significantly to this”  (Bankrolling Extinction, Portfolio Earth).

Past practices and investments in the financial sector have not always been nature positive. For example, in 2019, “the world’s largest banks invested more than USD 2.6 trillion in sectors which governments and scientists agree are the primary drivers of biodiversity destruction” (Bankrolling Extinction, Portfolio Earth).

But this can be undone. The sector could have an extremely positive effect by changing the way it funds businesses and invests. By funding activities that make positive contributions to nature and helping to close the USD 4.1 trillion biodiversity funding gap, the financial sector can step up and channel large scale capital into biodiversity [i]

And whilst previously the industry has struggled to measure the impact of investments and companies they support on the natural world, things are changing to make this easier. Increased scrutiny of supply chain practices and shifting consumer preferences are making biodiversity more relevant for business, and harmful impacts clearer to investors [ii]. And change for the better is being led by new industry standards, with international guidance and frameworks to support this on the horizon.

illustration of three birds in dark green landscape with big cliffs and waterfall

What’s being done

Prioritising the reduction of our impact on nature is a relatively new development in the financial sector.

Biodiversity has been historically difficult to tackle as it requires the sector to assess the impact, risk and dependencies of the companies they lend to, invest in and insure.

Fortunately, the focus on this issue in 2021 has led to a plethora of new tools and approaches being developed. As we wait for the announcement of global biodiversity targets, there are pioneering resources we can take a steer from right now, across the banking, insurance and asset management sectors.

With plans to create economy wide climate impact reporting, the UK is pioneering new ways to hold companies accountable and aligned with a biodiversity-positive agenda. And Chancellor Rishi Sunak doubled down on the UK’s commitment to being the best place in the world for green finance in July 2021. Read more.

Additionally, in January 2021, HRH Prince of Wales launched Terra Carta. The charter provides an ambitious roadmap for businesses from now to 2030, with a goal of placing sustainability at the forefront. The actions aim to get the global private sector focused on people, the planet, and natural recovery. Discover more about the charter on the Terra Carta website, here

It is also important to note that changes in practice are being supported by legislative and tax changes to encourage the sector to go green, support those who are and identify those who continue to greenwash their business practices. Read more.

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The path forward

The financial sector has a crucial role to play in creating a thriving and resilient economy that moves away from funding the things that destroy our planet to funding a sustainable future for humanity and all life on earth.

Businesses in financial services can take a variety of positive actions, from quick wins to longer-term efforts. Many of these actions require collaboration – with other businesses, across industries, and with governments.

Effective action begins with an understanding of the challenges facing nature. Recommendations of different types of actions are showcased, highlighting the most powerful tools at time of publishing. The information here is applicable to the banking, asset management and insurance industries. Check back on this page for updates as they happen.

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Preserving nature and biodiversity is important for financial institutions because the repercussions of its loss cause risks felt throughout supply chains. In addition, everyone has the responsibility as a world citizen not to spoil the planet.

Arjan Ruijs, Senior Responsible Investment Officer at ACTIAM

One cannot protect the climate without protecting biodiversity and one cannot protect biodiversity without protecting the climate. We need Banks to actively incorporate biodiversity risk into their pricing and lending models.

Gabriel Thoumi CFA, FRM at Planet Tracker

CEO Perspective

Amanda Blanc, CEO, Aviva

The financial sector’s role in protecting biodiversity and helping to restore the natural world cannot be overstated.

Our industry has for too long been part of a wider market failure. The value of the natural world, and the costs that come from its destruction, have not been properly factored into asset prices. This freeriding on the planet’s natural capital has contributed to a catastrophic loss of biodiversity around the world, and it is high time that changed.

As well as making sure the sector no longer contributes to the problem, we have an important role to play in correcting the mistakes of the past and in working towards a healthier, more sustainable ecosystem.

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