2024: Empowering the finance sector’s pivotal leap into nature action
29 January 2024 - As part of our NaturePositive Insights series, Centre for Sustainable Finance Senior Project Manager Sara Taaffe details how the stage has been set for 2024 to emerge as the critical year for action on nature loss with an unprecedented sense of urgency.
Maintaining a systems-change approach that builds transformative alliances across business, finance and policy to develop a sustainable economy, CISL has produced content that supports other key stakeholders to reverse nature loss.
2023 has officially taken the title as the hottest year ever recorded, witnessing the transgression of six out of nine planetary boundaries. The World Economic Forum’s (WEF) 2024 Global Risks Report highlights that environmental themes continue to dominate the risk landscape across multiple time horizons. The financial materiality of this risk is becoming better understood – invasive species, one of five nature loss drivers, is causing upward of $423 billion in economic impact annually. This exacerbation of the dual climate and nature crises poses an escalating threat to society, with the potential of doubling annual extreme weather events damage on a global scale.
Financial institutions are increasingly understanding the critical role nature and biodiversity play in the longevity of our planet and livelihoods.
With the signing of the Kunming-Montreal Global Biodiversity Framework (GBF) in December 2022, key economic and government actors have a path forward to halt and reverse the loss of nature. This landmark framework aims to protect 30 per cent of Earth’s lands, oceans, coastal areas and inland waters by 2030. Recognising nature as the bedrock of global economies, the imperative to protect it becomes paramount for sustained economic health worldwide. See our publication Finance materiality of biodiversity loss and land degradation for detail on why biodiversity loss and land degradation matter and its consequential financial impact.
As nature declines, businesses, households, and financial institutions are put at risk. To translate our trillions of dollars of dependence on nature into identification of specific risks posed by nature loss to financial institutions, CISL’s Centre for Sustainable Finance (CSF) created the Handbook for Nature-related Financial Risks in 2021. In collaboration with various financial institutions, we leverage the handbook methodology through five use cases to galvanise action on nature-related financial risks.
For instance, a partnership with Robeco enabled us to quantify the financial risk of land degradation to the agricultural value chain. The results revealed a 13% decline in market value for farmers operating predominantly on degrading land, contrasted with a 6% increase for those on healthy soil. Smaller packaged food companies sourcing from degrading areas experienced a valuation impact as high as 45%. Notably, the smaller and less diversified a company, and the more connected to degrading land, the more severe the valuation impact.
2023 has seen the launch of key initiatives to help delineate the financial industry’s path toward the GBF’s guiding star, firmly setting the groundwork for impactful action in 2024.
Firstly, the Taskforce for Nature-related Financial Disclosures (TNFD), where CISL served as a knowledge partner and an inaugural adopter, launched in September 2023. Through a set of disclosure recommendations and guidance for organisations, TNFD enables business and finance to integrate nature into decision making, and ultimately support a shift in global financial flows away from nature-negative outcomes and toward nature-positive outcomes.
Secondly, the Network for Greening the Financial System put out its first conceptual framework for incorporating nature-related financial risks in financial supervision, which marks a key change in how financial regulators look at nature.
Thirdly, the Science Based Targets Network (SBTN) released initial guidance for nature-positive target setting in May 2023 with plans for a full release in early 2024. The SBTN will complement and build upon science-based targets for climate published by Science Based Targets initiative (SBTi).
Having grasped the urgency, rationale, and essential frameworks driving the imperative to reverse nature loss for the sake of economic stability and enhanced livelihoods, the groundwork for impactful action in 2024 is firmly established.
This is no small endeavour indeed. Through CSF’s three membership platforms at CISL – ClimateWise, Investment Leaders Group and Banking Environment Initiative – we have undertaken applied research integrating horizon scanning and practitioner insights. This comprehensive approach has culminated in the development of practical tools and resources aimed at providing robust support for the financial sector throughout their nature-positive journey:
- To support (re)insurers in their incorporation of nature, ClimateWise has written a roadmap on the identification and integration of nature-related risks and impacts in underwriting and insurance brokerage
- To help investment managers, asset owners and bank engage with clients on nature, the Banking Environment Initiative and the Investment Leaders Group have compiled an engagement guide, which includes a five-phase approach for front-line staff to integrate nature into existing climate related engagements
- To better understand the climate-nature nexus, we have written a report focused on the importance of an integrated approach to addressing environmental challenges, encompassing climate and other nature-related issues
- To support insurers understanding of the financial material of nature-based solutions (NbS), we have created a primer as part of an EU Horizon-funded project, Naturance.
Embark on or accelerate your nature-positive journey now, leveraging unprecedented support for financial institutions, as the urgency of addressing nature loss frames 2024 as the pivotal year for meaningful action.
Visit our Nature Positive hub to read more.