At this point, the financial industry can be said to have a fairly good handle on the implications of climate change.
This does not mean that they are moving aggressively against it, but simply that bankers and investors have a strong understanding of the sources of emissions in their portfolios, what their clients need to do to decarbonize and what government policies or funding support can be done. speed up the process.
However, when it comes to biodiversity – which is a broader topic than the issue of climate change – bankers seem less convinced. In private conversations, financiers from some of the largest banks in Europe and America (as well as large Canadian lenders) saidBloomberg Greenthey are confused about what to do about biodiversity.
This does not mean they ignore the threats to human life and the economic impacts posed by mass extinctions or the destruction of natural systems. It’s just that they don’t understand how to measure the impact on their operations—or how to make money from it.
Nobody knows what to do, said a senior banker at a large US lender, who asked not to be named because they expressed opinions that may differ from those of the companies they work for. Therefore, the bank’s work on nature has come to a standstill, the banker said.
While quantifying climate change-related risks and aligning portfolios has been a multi-year effort for everyone from standard setters to financial executives, biodiversity is being incorporated into the work of sustainability teams on a much quicker timeline.
The launch of the Nature-Related Financial Disclosure Task Force in 2021, which calls on companies to report on their biodiversity footprint, is a key moment in elevating the nature agenda.
A year later, world leaders agreed to protect and restore 30% of Earth’s land and oceans by 2030. The goal prompted investors to adopt a new slogan called “nature positive,” which refers to the idea of halting and ultimately reversing the loss of diversity. biological. This is the new “net zero,” just for biodiversity.
Two years later, this became clear to bankersBloomberg Greensays that nature is much more complex than climate. While climate impacts can be boiled down to one metric that can be measured, valued, and traded – greenhouse gas emissions – there is no simple or comparable way to measure changes in biodiversity across geographies and ecosystems.
In other words, it is unclear how the market should value swamp or newly discovered species of frogs. And what does “nature positive” finance look like?
And more concerning for bankers is the lack of clarity about how to harness nature.
Climate change, while a risk to their portfolio and clients, presents huge commercial opportunities through funding deals in everything from renewable energy to low-carbon cement and building retrofits. In terms of biodiversity, opportunities appear to be more limited. Other bankers who requested anonymity to discuss internal thinking at their companies said that nature felt more like a philanthropic topic than a profit center.
But even with these challenges, funding will be critical in supporting efforts to combat nature decline, said Loree Gourley, a Deloitte partner in London who wrote a paper on the function of banks in creating a “nature-positive economy.”
“Banks will have a big role in closing the global biodiversity funding gap,” he said. “They need to move quickly, looking for innovative ways to raise capital.”
Boston Consulting Group estimates nature provides opportunities worth more than $1.2 trillion, with the largest investments made in sectors including chemicals, electric utilities, food and beverage, and health care.
“It is only a matter of time for nature to become a commercial opportunity for bankers,” said Lucyann Murray, partner at BCG. “Companies are starting to act. I will not turn a blind eye to nature.”
Whatever happens, financiers are unlikely to be able to avoid the topic, as nature becomes more important on corporate and government agendas, said John Bromley, managing director of clean energy strategy and investments at Legal & General Group Plc.
Next week, world leaders will gather for the UN Biodiversity Summit, known as COP16, where participants will discuss progress made against targets they agreed to by 2022. Even with the challenges of monetizing nature, banks including JPMorgan Chase & Co. and Standard Chartered Plc sent representatives in the hope that biodiversity could be a source of new deals.
Sustainable finance in a nutshell
The European Central Bank has stepped up its efforts to prepare lenders for the impact of climate change by warning they will face heftier fines if they do not adequately address future risks. A “small group of outliers” face periodic penalty payments after the ECB found they were still missing “basic elements for managing climate and nature-related risks,” said Frank Elderson, a member of the ECB Executive Board. The ECB continues to increase pressure on banks to ensure they can deal with losses from extreme weather or carbon-intensive companies having difficulty repaying loans. Although many banks say they are addressing the issue, the watchdog’s tough approach has become a major source of friction with the banking industry.
- Private markets are now a major force in energy transition investments, while larger public markets are more receptive to fossil fuel holdings, according to research from BloombergNEF.
- Investors need to adopt a new approach to the mining sector if the industry is to meet the growing demand for minerals and metals necessary for an environmentally friendly transition.
- Billionaire Tom Steyer hired former US Secretary of State and top climate diplomat John Kerry to join his sustainable investment firm.
