Climate and Nature Must be Tackled in Tandem 

Maria Nazarova-Doyle, Head of Responsible Investments and Stewardship at Scottish Widows, outlines why pensions and governments must act fast on nature loss, communicate on carbon offsets and ponder planetary boundaries.

It’s fast becoming clear that addressing the impacts of climate change must happen alongside responding to the crisis of nature depletion, as ESG Investor highlighted this week. 

Scottish Widows’ Head of Responsible Investments and Stewardship Maria Nazarova-Doyle is also quick to stress this point in an interview with ESG Investor on the eve of the launch of its report,Nature And Biodiversity: The pensions imperative‘.

 “The pensions industry has done a fantastic job in the last few years of getting their heads around the climate challenge: changing stewardship approaches, Task Force on Climate-related Financial Disclosures (TCFD) reporting, measuring carbon,” says Nazarova-Doyle. “That’s been great to see because it mobilised quite quickly –  but nature is such a huge crisis. It’s potentially even bigger than climate change because it’s all encompassing and it’s not been a focus for the industry at all.” 

The report is a call-to-arms for the UK pensions industry and government to focus serious attention on nature and biodiversity. The UK is one of the most nature depleted countries in the world – more than one in seven native species face extinction and more than 40% are in decline, says the WWF. This is of grave concern considering more than half the world’s total GDP – US$44 trillion – is moderately or highly dependent on nature and its services. 

Loss of nature and climate change are inextricably interlinked and mutually reinforcing, illustrates Scottish Widows’ report. Climate change impacts environmental processes such as soil moisture and water cycles, while biodiversity loss exacerbates climate change.  

For the financial sector, interactions between climate and nature can amplify risks to portfolios and any focus on climate-related financial risks without due consideration of other environmental-related risks could lead to under-pricing of risk.  

Offsets now, not later 

“Nature can actually solve for climate,” says Nazarova-Doyle. “Thirty-seven per cent of mitigation in greenhouse gases that we need to achieve the 1.5°C  global warming target can come from nature. But climate change is destroying nature as well as species loss so it’s very much interconnected.” 

Nature-based carbon offsets are often promoted as a twin-approach to the dilemma Nazarova-Doyle explains above. Carbon offset projects that protect trees or mangroves also conserve their important roles as carbon sinks. 

But the carbon offset space has long been plagued by criticism, controversy and aversion. This year it was hit by a series of high-profile scandals and the US$11 trillion Net-Zero Asset Owner Alliance’s (NZAOA) new target protocol launched in February disallowed the use of carbon offsets to account for short-term reduction targets.  

The NZAOA did also say, in the new target protocol, that carbon credits to offset emissions had meaningful real-world impact and were important for the transition. It also said alliance members should seek to scale the voluntary carbon markets. But Nazarova-Doyle says the point should have been made clearer.  

“The presentation of the point was unhelpful. I don’t disagree that people shouldn’t be offsetting ‘one’ against ‘another’ right now, so saying ‘I’ve got some offsets therefore my carbon footprint is lower’. But they should be really honest about publishing both – ‘these are my carbon emissions in terms of what I am actually reducing and my trajectory for this and these are the benefits I’m getting from these offset projects.’” 

Nazarova-Doyle says at some point the two will converge when an organisation has reduced its carbon emissions all the way to residual emissions. 

“Your offsetting efforts will meet you where you can support projects with real additionality and permanence,” she says.   

“That’s the balance to strike… the point could have been made clearer.  Companies should be offsetting emissions sooner rather than later.”  

The nature and biodiversity report urges the UK government to incentivise carbon offsets and create a UK regulator for the market to improve standards and quality. It also acknowledges that offsets have been harmful to nature, through planting non-native trees, for example, in an interview with prominent environmentalist and Chair of Natural England, Tony Juniper.  

“We were pursuing carbon offsets at any cost, without consideration of ecosystem damage,” says Juniper. “What we must do instead is find ways of combining the pursuit of carbon benefits with other nature-related benefits that can be layered on top.”  

Juniper, like Scottish Widows, calls for the creation of clear, regulated standards for nature-related offsets, establishing what good looks like and what minimum performance should be expected.  

“If such standards were owned by the government and accredited by a relevant agency this would act as an important accelerator, giving investors’ confidence in these nature-based solutions,” he adds.  

The Scottish Widows report also calls on the UK government to integrate nature-related risks and targets into all policy and regulatory matters, as well as incentivising policy to catalyse financial flows into nature. Further, it urges the UK government to make the Taskforce on Nature-Related Disclosures (TNFD) mandatory. Nazarova-Doyle stresses this must apply across private and public companies.  

It also calls for the pension fund sector to assess portfolios’ exposure to nature-related risks and engage with policymakers on the issue, such as making TNFD mandatory.  

Voting for nature and planetary boundaries 

Nazarova-Doyle says its biodiversity footprint is “reasonably small” and points to tools outlined in the report to start organisations on the same journey. To play its part, she says Scottish Widows is involved in rewilding projects near its offices in Edinburgh.  

The pension provider has also added biodiversity and deforestation as its main stewardship priorities. “We’ve been engaged with some of the largest companies in our portfolio on this since mid-last year,” she says.  

It is also on the waiting list to join collective engagement effort Nature Action 100 and won’t be shy about using its voting power this AGM season.  

“We’ve updated our voting guidelines so it’s very clear on things we will support or want to see when it comes to voting season on the biodiversity side of things, especially deforestation,” she says.  

The Scottish Widow report also highlights the planetary boundary concept, a set of nine boundaries, devised by the Stockholm University research body  Stockholm Resilience Centre, within which humanity can continue to develop and thrive – five boundaries have been assessed as being transgressed since January 2022.  

Last August, Stockholm University scientists warned another planetary boundary, freshwater use, had been crossed, after assessing that all rainwater is unsafe to drink because of cancer-creating ‘forever chemicals’ known as PFAS from shampoo or make-up that have spread into the environment.  

Investors are starting to devise frameworks to invest within, or in solutions that align with the planetary boundary concept.  

“We’re going to be starting to think about it,” says Nazarova-Doyle. “It’s very important we live within our means. All these resources are not infinite, so we can only destroy nature for so long and have these negative impacts. There absolutely needs to be a shift in societal attitude to it.”  


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