Pre-Covid, the year 2020 was anticipated as a “super year” for international policy action for nature and climate. However, the pandemic meant that all key international events were pushed back to 2021. In its place, the year turned out to be a “super year” for finance and biodiversity, characterised by a flurry of new initiatives and reports with a demand for new products.
A major milestone was the launch of the Task Force for Nature-Related Financial Disclosures (TNFD)1 – an initiative inspired by the climate equivalent (Task Force on Climate-Related Financial Disclosures, TCFD)2. Also, 26 financial institutions signed up to a new Finance for Biodiversity Pledge3 and insurance supervisors announced that they would look into the financial risk associated with biodiversity loss4.
COP15: a breakthrough for biodiversity
It is said that this momentum will continue in 2021, ahead of the major global summit on biodiversity (COP15). The meeting was originally planned to be held in China this May but has been pushed back to October due to the pandemic. The expected outcome of COP15 is a new post-2020 global biodiversity framework, that will put forward a new set of targets. As such, the summit is touted as a ‘Paris Agreement moment’ for biodiversity. The Finance for Biodiversity (F4B) initiative5 aims to increase the recognition of biodiversity in financial decision-making, meaning it will help to better align global finance with nature conservation and restoration.
“It was an extraordinary year,” says Simon Zadek, chair of F4B and co-chair of the Technical Expert Group of the TNFD says. “In the early days of F4B back in October 2019, when we asked people what they meant by finance for biodiversity, they thought about conservation finance. That understanding has evolved significantly and very progressively. Now it is more about how we can shape finance so as to protect nature, rather than merely raise money to spend on nature.”
Biodiversity figures look bleak
This surge of activity to quantify financial risks of biodiversity loss may be encouraging, but figures show that it cannot keep pace with accelerating biodiversity loss and habitat degradation. In response to a commission on the economics of biodiversity from the UK government, the latest mega-report to sound the alarm was released in February by Cambridge University economist Partha Dasgupta6.
The report seeks to create a new economic framework, grounded in ecology, that enables humanity to live on Earth in a sustainable way. In economic terms, Dasgupta notes that produced capital — assets like factories and roads — doubled between 1992 and 2014, and human capital has increased by about 13%. However, the stock of natural capital (the value nature provides) per person has declined by nearly 40%. The report states that current extinction rates are 100–1,000 times higher than the planet’s baseline rate and that 20% of species could become extinct within the next several decades.
Simon Zadek argues that the report could have gone further. “I would, with great respect, argue that it chooses to ignore the political economy of why we are where we are today. That no one counts negative impacts on nature is something that we have chosen to allow in supporting many of today’s business and national economic models. The report does not spell this out, leaving readers with a mistaken view that there are purely technocratic solutions to the problem.”
Will COP15 make a difference?
COP15 – originally scheduled for May 2021, but now pushed back to October – will be a major milestone in international negotiations on biodiversity. According to the Global Biodiversity Outlook 5 (2020)7, countries have failed collectively to meet the 20 targets set out by the Convention on Biological Diversity in Aichi, Japan in 2010. Those targets aimed to tackle the drivers of biodiversity loss, including deforestation, unsustainable agriculture, pollution, habitat loss and invasive species, and presumably will be replaced by a new set of “Kunming” targets, named after the Chinese host city.
Political momentum is strong — leaders from over 65 countries came together in September 2020 to sign the Leaders’ Pledge for Nature8 to unite their efforts to reverse biodiversity loss by 2030 for sustainable development. But what will the new framework mean for business and finance?
Zadek cautions that business and finance need to approach the negotiations as players and not as spectators. “Part of what made the Paris Agreement a success was the extraordinary ability of the French conveners to curate multiple voices around the negotiations, and the voices of the financial community were hugely important in that respect,” he states.
“What will come out of both climate and nature negotiations will be a higher focus on nature. The financial community has to be on board. For them, the long tail transition risks are as profound as they are for climate and are therefore part of how they need to understand their balance sheets.”
“But for us all. the financial community has to be part of creating success in international action on nature, and not just receive the results of that success. We have to work during the course of this year to bring the financial industry’s voice to the table, not to get money or give money, but to indicate the feasibility and desirability of ambitious action,” he urges.
Financialisation of Nature: for and against
Many critics of financialisation of nature argue that this approach is the problem, not the solution. In a 2019 paper from the Stockholm Environment Institute9, the authors argue that valuation can demonstrate the importance of ecosystems in contexts where monetary values carry substantial weight, but that the appropriation creates an incentive to maximise income-generating services over broader ecosystem function.
Furthermore, some argue that financialisation can never capture the inherent value of nature for so much of what humans consider to be a good life and wellbeing. In a 2017 essay called “Life Beyond Capital”10, Professor John O’Neill of the University of Manchester wrote:
“The appeal to natural capital is premised on a misunderstanding of prosperity that fails to properly grasp the place that relationships to people, places and living have within a good life. It is in life beyond capital that we are able to fully prosper.”
Zadek takes more of a third-way view. “There are many problems with financialising anything that we consider to have inherent value. And nature — fragile, non-circular, in all sorts of states of decay — is the case in point. We do have to figure out how to convert nature into economic processes, even though we need to be guarded on the dangers of financialisation.”
