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Investing in nature: Addressing biodiversity in the finance sector

Published on November 03, 2022
The 15th Conference of the Parties (COP15) is seen as a crucial chance to turn the tide of nature loss, as world leaders adopt a new Post-2020 Global Biodiversity Framework as the nature equivalent of the Paris Climate Agreement. As part of RSK’s #RoutetoCOP15, we have brought together a panel of experts to explore why and how the finance sector is addressing biodiversity.

In a webinar aired on 18 October 2022, Dr Tim Hounsome, Managing Director of both RSK Biocensus and Nature Positive; Dr Christoph Biehl, Senior Active Ownership Specialist at Credit Suisse; Kingstun Nelson, Associate Director Environmental, Social and Governance (ESG) Finance Team at Lloyds Bank; and Romie Goedicke, Project and Technical Manager for Nature at United Nations Environment Programme Finance Initiative (UNEP FI), joined the panel. The topic was the way in which the finance sector can help address the decline in global biodiversity. The world has seen a 68% decline in animal population sizes since 1970 and despite greater awareness of the loss and degradation, the rate is only increasing.

The economy exists because of nature

Tim Hounsome kicked off the panel with a discussion on why preserving biodiversity and halting the unprecedented decline is so important from a financial point of view. The World Economic Forum, an international non-governmental organisation based in Switzerland, estimates that approximately half of global GDP is highly or moderately dependent on nature, to a value of roughly $44 trillion. On top of this, businesses that fail to consider biodiversity and the environment risk their brand image, public opinion and potentially, even their licence to operate.

Despite this, for a long time, biodiversity and environmental considerations have been the domain of scientists, not businesses. The vast majority – 71% – of FTSE 100 companies make no, or little, mention of biodiversity and 95% of these companies show no evidence of auditing for the biodiversity impacts or dependencies of their activities.

As explained by Christoph, ultimately, no business will be able to ignore biodiversity for long, as there is growing awareness of the issue, but there is still a long way to go. Currently, only 45% of companies that Credit Suisse surveyed were at least partially aware of their dependencies on biodiversity. Christoph did highlight that for many small and medium-sized enterprises, the desire to act might be there, but they need guidance as they lack the financial means to hire a dedicated person for the role.

The finance industry can be part of the solution

Kingstun Nelson took the floor next, sharing two of the ways in which financing can be used to address the crisis: use-of-proceeds financing and sustainability-linked financing. Use-of-proceeds financing requires a company to produce a document outlining how the loan would be spent, for example to install solar panels or insulate buildings. This type of financing is used most notably by Thames Water, University College London and the UK government and bonds or loans are issued to support specific environment, social and governance (ESG) goals. Sustainability-linked financing is a loan or bond that incentivises the borrower’s achievement of ESG targets through pricing. Sustainability-linked financing is more flexible, so it is often the preferred option as it requires only monitoring of the company’s activities against agreed key performance indicators (KPI) and can be applied to a whole business rather than a single asset.

While positive, Kingstun did note the lack of structure for biodiversity metrics.

Biodiversity financing still an emerging solution

With nearly a million species at risk of extinction in the near-future, it is critical to act on biodiversity, and the UNEP FI strategy is to seek better alignment of financial flows with ESG goals and better risk and disclosure around biodiversity impacts. Until now, environmental goals have focused on climate, often dominated by carbon emissions; however, with biodiversity one of the top five risks by impact to the global economy, that is starting to change.

With a growing number of businesses taking on sustainability-linked financing, including the RSK group itself, finance certainly has a role to play in addressing the decline of biodiversity. As Tim summarised in the question and answer session at the end, “Money talks”.

For businesses that want to take action now, the Taskforce on Nature-related Financial Disclosures framework is sufficiently developed to help businesses understand and manage the financial risks that affect them. Science-based targets for nature can help with setting meaningful, science-based goals to help halt and reverse the decline of nature. If you missed this webinar, it can be viewed again here; otherwise, RSK’s #RoutetoCOP15 continues on 15 November with a panel discussion of science-based targets for nature. Sign up here.

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