by Margaret Kuhlow, WWF’s Global Finance Practice Leader
In advance of the World Conservation Congress Finance Day on September 6th, Margaret Kuhlow, WWF’s Global Finance Practice Leader, argues that by understanding the evolution of its engagement with the climate crisis, conservationists can help the financial sector respond to both nature- and climate-related financial risk, and accelerate action to reverse nature loss.
If you follow the money, it’s obvious that the financial sector is taking the climate crisis seriously, including through setting net-zero targets and engaging in climate-related risk disclosure. Yet only now is it waking up to nature loss and its relationship to climate.
With the window of opportunity to secure a 1.5°C future and avert climate catastrophe rapidly closing, conservationists also face a narrowing opportunity to help the financial sector shape not only a net-zero global economy but also one that is nature-positive. It is vital to do both.
Although this year has seen positive signs of engagement with nature from the financial sector, a step change is needed, not least because nature loss and climate breakdown are two sides of the same coin. Both are worsening, exacerbating each other, and reinforcing systemic financial risks. Similarly, the solutions to each can help solve the other.
Making nature an ally
Nature-related risk is becoming ever more material for our economies. And as nature loss continues apace, we are putting at risk $44 trillion in economic value generation — more than half of global GDP — and 1.2 billion jobs that rely directly on ecosystem services.
Conversely, investing in nature-based solutions that harness ecosystems to address key societal challenges supports human, animal and planetary health, improves quality of life, and creates jobs. Every million dollars invested in renewable energy, for example, could create 7.5 jobs compared to 2.7 jobs for the same investment in fossil fuels.
A number of high profile initiatives exploring the opportunities are already underway. WWF’s collaboration with HSBC and the World Resources Institute in the Climate Solutions Partnership, for example, aims to build a marketplace that reduces transaction costs and drives higher volumes of nature-based solutions. And, the Dutch Fund for Climate and Development enables private sector investment in areas such as water management, forestry, climate-smart agriculture, and restoration of ecosystems that support climate adaptation and mitigation in developing countries.
Overall, investment in nature-positive transitions of the food, infrastructure, and extractive sectors could create $10 trillion in annual business value by 2030 and generate 395 million jobs. And, compared to business as usual, climate-smart growth could deliver at least $26 trillion in economic benefits by 2030, while more sustainable agriculture, combined with forest protection, could deliver over $2 trillion a year.
Learning from the climate record
Despite these opportunities, lessons drawn from financial sector engagement with the climate crisis over recent years suggests scaling nature-positive investment successfully — and creating a nature-positive world by 2030 — relies on the emergence of three key pillars. As conservationists, we can and must support all of them, and help finance be part of the solution.
- Full recognition and quantification of the risks. We know that natural disasters caused by human ecosystem destruction and climate change already cost $300 billion per year, that the estimated economic cost of land degradation is more than 10% of global GDP, and that human-caused decline in ocean health is projected to cost $428 billion per year by 2050. But we need better and more granular, sector-specific data for decision-making that redirects financial flows away from environmentally destructive activities toward nature-positive ones. By offering tools such as the Water Risk Filter, and science-based targets, conservationists can help investors make better decisions.
- Full disclosure of nature-related risks. To guide investment, financial markets need clear, comprehensive, high-quality information on risks and opportunities presented by climate change, nature loss, related policy, and emerging technologies. In 2014, annual global climate finance from both public and private sources, supporting both mitigation and adaptation, stood at $398 billion. Since the Task Force on Climate-related Financial Disclosures was launched in 2015 to stimulate better reporting of climate-related financial information, climate finance has risen significantly, and for 2019, was between $608-$620 billion a year. 2015 also saw the start of rising private capital investment to address climate change. Now, with the launch of the Taskforce on Nature-related Financial Disclosures, the stage is set for similar growth in investment in nature and nature-based solutions. Again, conservationists should support this effort.
- A clear goal. 2015 was also notable for the Paris Agreement on climate change which set a global target of limiting the increase in global temperature rise to 1.5°C. While increased ambition and climate action is desperately needed, the global target has given state and non-state actors alike, including financial institutions, a guiding light by which to navigate a Race to Zero and a benchmark against which to set science-based targets for greenhouse gas emissions reductions. A similar global goal that puts nature on the path to recovery by 2030 must form the third pillar that underpins concerted action on nature loss. This is the pillar we must push for most urgently, ensuring that a global goal for nature is enshrined in the post-2020 Global Biodiversity Framework to be agreed in Kunming next April.
Using money and mouth
If the world is to meet climate, nature, and land degradation targets, it needs to close a $4.1 trillion financing gap in nature by 2050 — representing $536 billion per year, with overall investment in nature tripling by 2030. Current investment in nature amounts to $133 billion. Most of this comes from public sources, with only 14% coming from private capital, which will need to be scaled up dramatically. Also, investment in nature currently only accounts for 2.5% of projected economic stimulus spending in the wake of COVID-19 even though investing in nature is a cost effective way to prevent pandemics.
Until now, policies at all levels have largely attempted to tackle nature loss and climate change independently. Addressing the synergies between tackling nature loss and climate change while also considering their social impacts, offers the opportunity to maximize benefits and meet global development goals. A recent preliminary ‘approach paper’ from the World Bank sets out a more proactive stance on nature loss and recognizes that central banks, financial sector regulators and supervisors need to integrate biodiversity criteria in financial decision-making. However, the current draft UN biodiversity agreement proposed for Kunming does not yet reflect this level of ambition nor the potential for proposed action across multiple sectors and industries.
The financial sector has many allies offering encouragement, support, and critical insights in the drive toward nature-positive, including WWF, IUCN, the Convention on Biological Diversity, and can also help catalyse nature-based solutions. What progress the sector can make, and how quickly, will depend in large part on outcomes from international climate and nature negotiations culminating respectively in Glasgow later this year and in Kunming next Spring. We must do everything possible to ensure the climate talks incentivize investment in nature-based solutions, and the biodiversity negotiations produce an ambitious global goal for nature.
As conservationists, we must encourage and support policy makers to recognize the interrelationship between climate and nature and sustainable development; and the financial sector to use its money and its mouth, not just to accelerate investment in nature but also to use the opportunities it still has to call for nature-positive outcomes in Glasgow and Kunming, as well as from the G20 next month, which is focused under the Italian Presidency on People, Planet, and Prosperity. Together we can create the conditions in which a nature-positive global economy can help humanity grow and flourish.