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π Planet π Economy
Are biodiversity concerns compatible with business models?

Will biodiversity and finance go mainstream in 2021?

Denise Young, Podcaster and writer
On April 12th, 2021 |
4 mins reading time
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Will biodiversity and finance go mainstream in 2021?

    Simon Zadeck
    Simon Zadek
    Chair of F4B and Director of Migrant Nation
    Key takeaways
    • 2021 will be an important year for taking biodiversity into account in financial activities. The F4B (Finance for Biodiversity) initiative, chaired by Simon Zadek, is part of this approach.
    • Taking biodiversity into account is urgent: if nothing is done, 20% of species could disappear in the coming decades.
    • However, the “financialisation” of nature is not unanimously accepted: some see it as the problem rather than the solution.
    • Converting nature into economic value does not necessarily mean that its importance in the well-being of humans is better understood.

    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.”

    1https://​tnfd​.info/
    2https://​www​.fsb​-tcfd​.org/​?​g​c​l​i​d​=​C​j​0​K​C​Q​i​A​v​b​i​B​B​h​D​-​A​R​I​s​A​G​M​4​8​b​y​y​1​v​5​F​q​m​H​Q​n​z​8​v​T​9​A​V​4​x​h​a​3​K​j​M​j​1​Z​0​P​W​Z​W​I​b​u​P​5​p​s​W​4​N​o​7​a​g​o​p​V​a​4​a​A​o​h​F​E​A​L​w_wcB
    3https://​www​.finance​for​bio​di​ver​si​ty​.org/
    4 https://​www​.sus​tain​ablein​sur​ance​fo​rum​.org/​b​i​o​d​i​v​e​r​s​i​t​y​-​l​o​s​s​-​a​n​d​-​a​s​s​o​c​i​a​t​e​d​-​r​i​s​k​s​-​t​o​-​b​e​-​a​d​d​r​e​s​s​e​d​-​i​n​-​n​e​w​-​s​t​u​d​y​-​b​y​-​u​n​-​c​o​n​v​e​n​e​d​-​s​u​s​t​a​i​n​a​b​l​e​-​i​n​s​u​r​a​n​c​e​-​f​orum/
    5https://​www​.f4b​-ini​tia​tive​.net/
    6https://​www​.gov​.uk/​g​o​v​e​r​n​m​e​n​t​/​p​u​b​l​i​c​a​t​i​o​n​s​/​f​i​n​a​l​-​r​e​p​o​r​t​-​t​h​e​-​e​c​o​n​o​m​i​c​s​-​o​f​-​b​i​o​d​i​v​e​r​s​i​t​y​-​t​h​e​-​d​a​s​g​u​p​t​a​-​r​eview
    7https://​www​.cbd​.int/gbo5
    8https://​www​.lead​er​spledge​for​na​ture​.org/​L​e​a​d​e​r​s​_​P​l​e​d​g​e​_​f​o​r​_​N​a​t​u​r​e​_​2​7​.​0​9​.​2​0.pdf
    9https://​www​.sei​.org/​p​u​b​l​i​c​a​t​i​o​n​s​/​e​n​v​i​r​o​n​m​e​n​t​a​l​-​f​i​n​a​n​c​i​a​l​i​z​a​t​i​o​n​-​w​h​a​t​-​c​o​u​l​d​-​g​o​-​w​rong/
    10https://www.cusp.ac.uk/themes/m/m1‑6/