As climate change moved higher on the Wall Street agenda, there had been fewer indications that financial giants took similar interest in the biodiversity crisis. Carbon dioxide is something that can be priced and traded. But how does finance value an insect?
That appears to be changing. Among the nearly 17,000 diplomats and environmental activists who registered for the UN Convention on Biological Diversity conference in Montreal this week, there are at least several hundred representatives from private-sector financial institutions and companies, including Bank of America, Citi, Aviva, BNP Paribas, Unilever and L’Occitane.
Similar to the UN summits focused on climate change, the Montreal meeting known as COP15 come with high stakes. Negotiators are seeking to agree a landmark deal that will ensure protection of 30% of the Earth’s land and ocean by 2030 — an achievement that could hold analogous significance to the 2015 Paris Agreement. This year’s talks come as the number of humans on planet hit 8 billion, more than doubling since 1970 while animal populations have declined nearly 70%.
Negotiations hit a significant impasse early Wednesday when Brazil and other developing countries walked out over a disagreement about funding biodiversity protections.
What’s giving some hope for action is the newfound interest from the financial community, especially as the protection of natural systems faces an estimated financing gap of $700 billion a year. The private sector has already proposed or introduced new financial mechanisms for biodiversity such as debt-for-nature swaps, biocredits and natural capital funds. Just this week a group of investors with a combined $3 trillion in assets launched a new campaign to pressure the companies they own to do more to fight the decline in biodiversity.
“Wall Street has realized that it's been pricing a natural asset for the last 150 years at zero,” said David Craig, co-chair of the Taskforce on Nature-related Financial Disclosures, a group that’s developing a framework for companies to report their reliance and impact on nature. “That doesn't work anymore,” he added. “You can price something at zero when it's a commodity and it's plentiful. But when it starts running out, it starts getting expensive.”
Economic risks from biodiversity loss have been hiding in plain sight. The World Economic Forum has estimated that $44 trillion, the equivalent of about half global GDP, is generated in industries dependent on nature, led by construction, agriculture and food. Collapsing ecosystems could take 2.3%, or about $2.7 trillion, off global GDP in 2030, according to the World Bank.
Financial institutions are only now understanding the carnage in nature as an economic failure. This turnabout came almost nearly as fast as the pandemic, a catastrophe that itself raised some awareness about the problem. The year 2020 brought fat reports by the World Economic Forum, World Bank and Paulson Institute that framed the issue. “Nature positive” — meaning activities that not only stop destruction but also aid renewal of nature — became a rallying cry for activists around a UN biodiversity summit in September.
Biodiversity debates have covered ground in 10 to 15 months that climate change needed 10 to 15 years for. The two problems are locked together, overlapping and neither can be addressed comprehensively without the other. “Maybe it’s just gotten a brand,” said Marina Severinovsky, head of sustainability for North America at Schroders. “Natural capital and biodiversity has sort of been branded in the last couple of years as a set of issues.”
Climate change is much simpler to understand. A single number — the level of atmospheric carbon dioxide — explains most of the problem. And its main cause, burning fossil fuels, is as well understood as is its solution: stop doing that. But there’s no way to reduce the destruction of nature to a single number. In a world of highly distributed problems, biodiversity loss may be the most distributed of all.
Nature-minded professionals are trying to identify useful metrics nonetheless. The nonprofit-backed International Sustainability Standards Board wants to systematize metrics for financial reporting and announced Wednesday that it will include biodiversity, consulting with the Taskforce on Nature-related Financial Disclosures (TNFD). A Science Based Targets Network is also developing a framework to ensure company goals are shaped by the latest research.
The Taskforce on Climate-related Financial Disclosures (TCFD) has already helped standardize corporate approaches to thinking about climate change. “Once the central banks started doing climate scenarios, the financial markets kind of had to follow,” Craig said. (Michael Bloomberg, founder of Bloomberg News parent Bloomberg LP, is chairman of TCFD.)
Peter Bakker, president and chief executive of the World Business Council for Sustainable Development, looked to word-processing for an analogy to describe how biodiversity frameworks are relying on climate predecessors: “Copy-paste.” The goal for financial institutions is very similar for climate and nature. They need companies to disclose along common performance indicators and baselines, with adequate monitoring and transparency so that finance can flow efficiently to highest-value companies.
“Right now that information is not consistent. It's not harmonized, it’s not available,” said Eva Zabey, executive director of Business for Nature, a coalition of NGOs, research groups and business organizations. “And that means we are literally flying blind. So governments don’t have the information they need to manage their economies properly.”
Companies are looking to fill the gap in the market. MSCI Inc, a provider of screening tools for environmental, social and governance criteria, announced on Wednesday they're launching similar metrics for biodiversity.
Bakker said sustainability-minded companies should be able to demonstrate that they are better positioned to handle the new world of risk, and consequently earn a lower cost of capital. That’s critical to getting nature-minded investing off the ground: “The only way to get enough scale in the investments to transition the world in the next 10 years,” he said.
It will take more than hard sums to inspire action. For Zabey, at least, non-financial forces have also helped create a moment in which the forces of capital can take biodiversity seriously. She credits Sir David Attenborough’s recent nature documentaries in particular. “It touched people’s hearts, which is something that we are gradually getting OK with as a reason to act,” she said. “Whereas even five years ago, it was only showing the economic case.”
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