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December 15, 2022

COP15: Financial sector told being ‘nature positive’ makes economic sense

On “finance day” at COP15, the message to financial institutions was clear: they must measure what matters and stop investing in companies involved in the destruction of nature.

On the first ever “finance day” held at the COP15 biodiversity conference in Montreal, Canada, the message from speakers were unequivocal. Financial institutions must see climate action and nature restoration as a single issue and stop financial flows to the activities that are causing global warming and the fourth mass extinction, they said.

Furthermore, the failure to act and understand the intrinsic, economic and social value of nature is an economic threat and will jeopardise the existence of many businesses, they said.

Negotiators are into a second week of trying to reach agreement on a post-2020 biodiversity framework to stop the global destruction of biodiversity and begin the long process of restoring nature. During the opening session of Finance Day, speakers made it clear that such goals can only be achieved if financial institutions and the private sector play their part, both in terms of financing nature restoration projects, and also in halting their investment in activities that harm biodiversity in the name of economic gain.

Harmful subsidies

Inger Andersen, executive director of the UN Environment Programme (pictured), listed actions that would help this change. First, she underlined the need “to deal with harmful subsidies” that cause behaviours that have a negative impact on nature. Such subsidies may “enable some business, but they are not sustainable [in the] long term and not the way we want to go,” Andersen said. “We can move assets onto a more sustainable pathway.”

Policies and regulations should also be clear about “what nature-positive looks like, and encourage investors and regulators to shift gear”, she said, highlighting the importance of clear disclosure frameworks for businesses to help them align activities and financial flows with climate action and nature restoration. In this sense, the Taskforce on Nature Markets, led by non-profit Nature Finance, will be important, she added, inviting financial institutions to “beta test some of this work now”.

Finally, it was necessary to measure what matters, Andersen said. “We can cut down the proverbial forest and GDP goes up, we can build 10 coal-powered plants and GDP goes up” – yet were these really the kind of gains we should be measuring, when natural capital was “tanking”, she asked.

No time for ‘business as usual’

Mark Carney, the UN special envoy on climate action and finance, and co-chair of the Glasgow Financial Alliance for Net Zero, outlined the huge risks that ‘business as usual’ poses for nature, people and the economy.

He highlighted the failure of the financial world and private companies to understand the value of nature for their very existence. “Amazon is listed as one of the most important companies, yet the Amazon forest appears on no ledger until it is stripped,” he said.

For Carney, the priorities to halt the destruction of nature include a concrete commitment from governments and an ambitious global biodiversity framework, “including clear guardrails for the financial sector” and a “mandate to align all financial flows with nature goals”.

Standards, such as those from the International Sustainability Standards Board, were vital for progress, he said, suggesting a “common sustainability framework” that would bring together nature and climate disclosure standards. Support for “high integrity carbon markets” was also important to incentivise companies to invest in nature projects in the emerging and developing world.

ISSB chair Emmanuel Faber summed up the scale of the challenge by describing the task ahead as “rewriting economics”. Engaging with climate action and nature restoration was “not about ESG metrics you can pick and choose”, he said, but about defining the nature of value and the value of nature.

Companies and financial institutions need to be able to “make informed choices to create resilience”. For the private sector, change was not so much about saving the planet, but about saving their business, he said.

Photo credit: Getty Images

A service from the Financial Times