Delegates grasp the practicalities of protecting and valuing nature.
Minds were focused at Davos last week by the uncomfortable reality that investing in the destruction of nature is more popular and economical than investing in its protection. A ramping up in attention on the topic – the subject of just three sessions at the same meeting in 2023 – was evident throughout the latest annual meeting of the World Economic Forum.
According to United Nation Environment Programme, the world invests 35 times more into nature-negative activities, where spending is estimated at US$7 trillion annually, than nature-based solutions, where the estimated investment is a mere US$200 billion each year.
But as the existential threat of runaway nature loss looms, efforts to reverse this paradigm are under way. Arguably, the most important step has been the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF) agreed on by countries at COP15, following a four-year negotiation process. World leaders have made several significant commitments, through the GBF, to halt and reverse the loss of biodiversity – an essential component of nature.
This includes commitments to protect 30% of terrestrial and marine environment, reduce the rate of introduced invasive species by 50% and mobilise US$30 billion per year by 2030.
The implementation of global commitments towards GBF targets so far is mixed. On 18 January, a report on the UK government’s progress toward its environmental targets found that there had been “little or no change” in the extent of land protected under the UK’s network of Sites of Special Scientific Interest (SSSI) and their condition in England had deteriorated. The UK is acutely at risk of nature loss, with a report last year warning that nearly one in six of its 10,000 species under review could be lost without appropriate action.
In more positive news, private sector commitment to the Taskforce on Nature-related Financial Disclosures (TNFD), designed as a tool to “operationalise” the achievement of Target 15 of the GBF, set off last week with the naming of 320 ‘Early Adopters’ representing a total of US$4 trillion in market capitalisation.
Target 15 of the GBF calls for corporate disclosures on nature-related issues. Speaking at Davos, David Craig, Co-chair of the TNFD, said financial institutions and corporates were starting to recognise the risks of not paying attention to nature and the need for formalising standards to reverse nature loss. TNFD is seen as an avenue for organisations to understand and communicate their dependencies and impacts on nature.
According to Craig, the TNFD found a lot of companies which piloted its disclosure framework had discovered high dependencies on water and land use that they had been ignorant of. He added that the long-term plan for the TNFD, which is based on the Taskforce on Climate-Related Financial Disclosures (TCFD), is to help bring nature and climate assessment together, becoming an industry norm which could eventually be adopted by regulators.
But Craig was also cognisant of the challenges the TNFD will face as it begins its journey to standardisation. “Nature, biodiversity and degradation is even more emotional, more local, and a more global issue than climate change,” he said. “And there are the complexities of our natural system, the interconnected planetary systems, and the vast array of metrics that will create this challenge for financial investors and corporates who really want to pay attention to nature.”
Another Davos attendee and Early Adopter to the TNFD, Marisa Drew, Chief Sustainability Officer at Standard Chartered Bank, said she had struggled to convince her company to sign up due to institutions feeling “stuck in disclosure purgatory” – the topic of an October ESG Investor feature.
“It’s consuming so much of our time, and we can’t do action because we’re all worrying about the next disclosure regime,” she said. “It’s very complicated. So, when I started to say to my team that we might think about being an early adopter of TNFD, I got a huge amount of pushback.”
But Standard Chartered’s deep global footprint, including clients and economies disproportionally affected by continued nature loss and climate change, gave Drew the ammunition she needed. “The GDP (gross domestic product) of many of our footprint markets are 100% reliant on nature, be it agriculture as a primary source of GDP or fishing for example,” she said. “If we don’t address the nature equation while we’re grappling with carbon emission reductions, it’s ‘game over’ for these countries.”
There has been steadily growing conversation on the link between climate change and nature loss, in light of mitigation expected to come from nature-based solutions, especially in the Global South.
Australia-based IFM Investor’s Global Head of Sustainable Investment Maria Nazarova-Doyle, a long-time vocal advocate for the financial sector and others acting on both issues in tandem, tells ESG Investor that: “The interconnectedness between climate change and nature degradation is not really up for debate, but it’s paramount that we target these issues as part of a holistic approach to sustainability. As we’ve learned from ESG, we always need to be careful about silos.”
Gross Ecosystem Product
The danger of silos was the topic of a Davos session focused on putting a price on nature, where the “disconnection” between ecology and economics was debated. Panel chair Nick Studer, President and Chief Executive Officer at Oliver Wyman, noted that GDP had more than doubled in the last few decades, but natural capital had declined nearly 40% over the same timeframe, with half of the world’s economy and population dependent on nature and its services.
Underscoring this point, Gretchen Daily, Bing Professor in Environmental Science at Stanford University, said in order to address the crisis as quickly as possible, it was necessary to “correct a fatal flaw with capitalism that we don’t account for the immense and essentially infinite values of nature”. She added that nature was “invisible in most decision-making at a perilous price”.
Daily mooted that emerging metrics incorporating nature, as a parallel to GDP, could be the way forward. She talked of ‘Gross Ecosystem Product’ (GEP), approved by the UN Statistical Commission in 2021, which looks at all the goods and services sourced from nature for use by people. China, she said, started adoption in 2023, and 15 other countries were in an experimental phase with the metrics.
Dr Guo Peiyuan, Chairman of China’s SynTao Green Finance, the founding organisation of China Sustainable Investment Forum (ChinaSIF), tells ESG Investor that GEP has been a concept in the country for a few years, with pilot projects in regions including Zhejiang Province. “China has made some progress on exploring methodology and application of GEP,” he says. “But it still needs more years before China adopts GEP as a parallel metric to GDP throughout the whole country,” he adds.
Nazarova-Doyla expresses caution however, on the value of creating of GDP-alternatives to try and protect nature. “While it raises the profile of the issue, which is a positive,” she says. “We should be striving to incorporate these costs into existing accounting systems rather than running parallel ‘books’”.
The EU is debating whether and how to put a monetary value on its natural ecosystems as the bloc updates existing regulation on environmental economic accounting. This could provide country-by-country ecosystems data on biodiversity protection and climate mitigation and adaptation. The UK and US are also working on national natural capital accounting.
Nature asset class
Panellists also predicted nature would become a major asset class for investors in the coming years. Hubert Keller, Senior Managing Partner at Bank Lombard Odier, that appointed its first Chief Nature Officer, last June, said: “We’ve taken the view that nature is probably going to become a very significant asset class and an asset in which financial investors are going to want to invest, because it’s going to evolve positively over time.”
European private equity firm PAI Partners is already taking this view, according to Esohe Denise Odaro, its Head of ESG & Sustainability. “The global investment industry has begun to acknowledge nature-related risks alongside a growing awareness of the urgent need to preserve and replenish biodiversity for a sustainable future,” she tells ESG Investor.
Last year, PAI Partners added nature and biodiversity as a key pillar underpinning its sustainability strategy. It is also an early adopter of the TNFD, with an intention to start making public disclosures aligned with its recommendations in 2025.
Food and consumer goods is one of the core sectors under the firm’s sustainability strategy. “We recognise the global importance of biodiversity and PAI’s responsibility to address its impacts and dependencies,” says Odaro.
Keller of Lombard Odier Bank, singled out the food systems, which he said was driving 85% of nature loss globally, as ripe for disruption, in the same vein as the car industry was disrupted by electric vehicle manufacturer Tesla.
“We are talking about very complex value chains,” he explained. “And one of the biggest problems is that moving from extracting nature-depleting production systems to regenerative ones requires investment and capital expenditure.”
This shift is particularly difficult because of an imbalance in the allocation of capital across food value chains with the least capital available upstream, where it is most needed. Other challenges, said Keller, included “unlocking the value of the climate and nature premium” – effectively being rewarded for practices that protect climate and nature – and making sure the end-consumer paid for nature-positive food.
Investors staring to work to disrupt in this space include investment organisation Cultivo, which invests in regenerative agriculture with a thesis to back projects across the food system supply chain which conserve and protect natural capital assets – soil, water, biodiversity and carbon – for resilience and to reduce risk.
Cristina Hastings, Head of Sustainability at Nuveen Natural Capital, told ESG Investor last year that it was taking a “holistic mindset around nature, climate and people” with its new sustainability strategies. “We want to be producing more with less externalities. We need the production, but we need to be mindful of the footprint both on a climate perspective and a nature perspective,” she said at the time. “We see ourselves as long-term stewards on behalf of our investors. So, decision-making needs to be around that long-term resilience.”
An inclusive forum
As well as a focus on nature, one key aspect of this year’s Davos was inclusivity, according to attendee Dr Henning Stein, Finance Fellow at Cambridge Judge Business School.
Speaking to ESG Investor, Stein says: “There’s been an evolution at the World Economic Forum from more high-level attendees to something much more inclusive. It’s not any more this purely elitist meeting because you have lots of NGOs. You have changemakers. You have scientists,” he says.
This was reflected with panels focused on nature which included indigenous leaders such as Chief Putany Yawanawá, Chief of the Yawanawá Tribe, and Uyunkar Domingo Peas Nampichkai, President of the Board of Directors, Amazon Sacred Headwaters Alliance (Cuencas Sagradas Amazonicas).
Nampichkai, speaking on the Price of Nature Panel, was initially sceptical of the approach, arguing that a person should view ‘Mother Earth’ like their own mother, “What would be the price of your mother? There’s no price,” he argued.
The sentiment that nature should be valued for its own sake, regardless of commercial considerations, is widely shared, but countered by the view that nature’s invisibility in financial terms has contributed to the current crisis.
Toward the end of the session, Nampichkai appeared to become somewhat open to the idea, surmising: “When I was first invited to this panel and I read the title “Putting a Price on Nature”, I believed this first caused a strange feeling. But when we look deeper into it and if we consider the aspect of value instead of price, then maybe it is the right direction.”