UK regulator’s Head of ESG urges finance sector collaboration to tackle nature risks, leveraging climate experience in incorporating nature into decision-making processes.
The finance sector should be using its expertise, resources and influence to address nature-related financial risks, rather than waiting for regulation to arrive, according to the UK’s financial regulator.
In her regulatory keynote speech at ESG Investor’s Nature Data for Institutional Investors event yesterday, Alicia Kedzierski, Head of ESG and D&I at the UK’s Financial Conduct Authority (FCA), stressed that nature is “not a distant concern”.
She said that “regulation is not everything” and that addressing the financial risks from nature “requires action from industry”.
Kedzierski added that tackling this risk requires a collaborative effort from all market participants, policy makers and regulators.
“This is bigger than regulation. We cannot fix this solely by making rules. This is about you, your firm, your incentives, your commitments and your actions. By doing so, we protect our planet for ourselves, our children and the generations to come.”
Kedzierski highlighted the industry’s existing coalescence around climate, flagging the adoption of the Task Force on Climate-related Financial Disclosure (TCFD) and the production of climate strategies, targets setting, and reports published as the result of it.
“I want to see the same now for nature,” she added. “As finance professionals, we all have a duty to recognise the role nature plays in our industry and adapt accordingly.”
Lead from industry
The importance of nature-related risks is increasing for institutional investors and other private sector players, following the signing of the Global Biodiversity Framework last December and the release of the final recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD) in September.
Growing evidence of nature depletion and biodiversity loss are also driving consumer and retail investor behaviour.
A World Bank report previously estimated that a partial collapse of ecosystem services – such as wild pollination – could trigger a decline in global GDP of up to US$2.7 trillion annually by 2030.
The FCA’s 2022 Financial Lives Survey also found that 76% of consumers would like to invest in a way that is protecting the environment.
Kedzierski underscored the need to increase finance sector collaboration on nature risks, despite the fact it may not “feel natural or normal”.
“Firms should be using their expertise, their resources and information, and their positions to support policymakers, regulators and each other.”
Further, Kedzierski said that the industry should seek to learn from and add to existing initiatives, similar to how the TNFD’s recommendations had built on the work of the TCFD.
“Start building up as well as out – build on top of each other’s initiatives. Where there are already great ideas and action plans in place – build on top of those.”
Kedzierski also noted the need to ensure competition law does not block or prevent collaboration that is aimed at tackling nature, climate and wider environmental challenges.
She pointed out that the work of the TNFD and ISSB reflects a “growing awareness” of the need to incorporate nature into the industry’s financial decision-making processes.
“This is bigger than regulation. We cannot fix this solely by making rules,” she said.
“I look to make rules as a last resort,” Kedzierski added. “There is so much that can happen before you need to step in from a regulatory perspective”.
Role of regulators
Kedzierski noted that regulators worldwide are “increasingly recognising the importance of integrating nature into financial decision-making”.
The FCA has been involved with work of the Transition Plan Taskforce (TPT), including participating in the TPT’s nature workstream, which looked closely at the interaction between climate transition planning and nature.
This year, the UK Financial Services and Markets Act 2023 saw new regulatory principles introduced, requiring financial regulators to have regard to and contribute towards the achievement of the UK net zero emissions and environmental targets.
While introducing new challenges for both regulators and regulated firms, Kedzierski said action to address nature risks was a concomitant next step from climate-related action.
“Disclosing and acting on nature is new, and it’s important – but it’s iterative and it’s a natural progression from TCFD,” Kedzierski said. “Working on nature-based solutions to climate change is a natural extension of our current work.”