Following COP15 how can businesses overcome financial barriers to investing in nature-based solutions?
24 January 2023 – Edmund Dickens and Elizabeth Clark from CISL's Business and Nature team unpick perceived financial barriers to investing in nature, and some methods to overturn these and unlock the opportunities of nature-based solutions.
COP15 closed out 2022 with the adoption of an ambitious Global Biodiversity Framework (GBF). This milestone achievement was underscored by the unprecedented number of businesses and financial institutions in attendance; over 1000 organisations were represented with strong alignment behind calls for an ambitious agreement. Business for Nature’s ‘Make it Mandatory’ campaign, supported by more than 330 businesses and financial institutions, demonstrated the scale of this call to action.
We know organisations are increasingly aware of their impacts on the natural world and the complex challenge of understanding and changing their role in the ecological crisis. Since its launch in March 2022, CISL’s Decision-making in a nature positive world has been downloaded over 600 times, with users representing a wide range of sectors, including professional services, finance, energy, pharma, FMCG, and national and international agencies.
Integrating nature into decision-making is non-negotiable moving forward. Nature-based solutions (NbS) can provide a powerful means of simultaneously addressing dual environmental and socio-economic challenges by adopting an integrated approach that considers nature, society and the economy together. We have discussed previously the role of NbS in managing strategic, nature and climate-based risks, and the importance of internal organisational buy-in to unlock this. With the GBF providing fresh impetus for change, businesses and financial institutions are turning to the age-old question of “what is the business case?”
Fundamentally, we need to re-evaluate how we think about the economic value of nature, considering a broader context of values and dividends that are not purely financial. The reality is, while financial returns are certainly available from investments in nature, easy, immediate wins are unlikely. Developing a business case for nature therefore requires new thinking and approaches. Decision-making in a nature positive world presents some ideas for companies at all stages of their nature positive journey:
- Ask how much it would cost to do nothing. Inaction will create nature-related risks for all organisations. Developing different use-case scenarios can help quantify these. For example, if a supply chain lost a third of its production due to a reduction in pollination or regulation penalising ecologically destructive business practices, how would that affect the bottom line? These scenarios can help create a benchmark that shows losses in the face of inaction – and the benefits accrued from being an early mover.
- Assemble a catalogue of NbS resources. Having a database of NbS benefits and the values and metrics associated with these can reduce the burden of searching for appropriate material and ensure consistent, comparable information is readily available to decision makers, reducing uncertainty and boosting confidence. The Nature-based Solutions Initiative is one platform that provides some excellent case-study examples.
- Determine value of NbS benefits. Valuing natural services is never easy, with some variables easier to calculate (e.g. market value of sequestered carbon credits or cost of chemical treatment for run-off water) than others (e.g. peatland and habitat restoration). Natural capital valuation can be used as a tool to understand an organisation’s impact on ecosystem services.[1] Protocols and approaches should be consistently applied to help feed data into future attempts at valuation. Less tangible benefits associated with NbS investment should also be considered, including alignment with company values, reputational advantage, and the benefits for employee recruitment and retention that could be associated with this.
- Compare life-cycle project costs of NbS with traditional engineering solutions. It is relatively easy to calculate the costs of constructing and maintaining NbS projects against traditional ‘hard infrastructure’ (e.g. mangrove restoration vs. concrete flood defences), although adjusting thinking around project lifespan and assignment of costs might be required.
Illustrative Example: Big Tree plcOmar has recently joined his company’s sustainability taskforce and has been considering whether Big Tree could leverage nature-based solutions to reduce risk and improve yield in their managed forestry operations. His counterpart in finance, Yvonne, is sceptical whether their bottom line would see any benefit from the project. She gives Omar a limited budget to investigate the idea further. Omar sets his team to work building an overview of nature-based solutions that can be applied to forestry; this provides a clear view of possible projects for Big Tree to pursue. Pest damage to trees is a big issue for their organisation, leading to high costs from monitoring and pesticide use in their plantations. Omar reads a study that suggests planting a diverse variety of species in a plantation could contribute to a reduction in pest issues by promoting an abundance of natural predators (so-called “conservation bio-control”). He estimates this intervention could improve yields by 10% and calculates the relative value of using the nature-based solution vs. pesticides. Using historic data, he also estimates the cost to Big Tree in 10 years’ time of not changing practices now. Omar shares these insights with his manager, Yvonne, and the finance team, who agree to allocate funding to a pilot project in one plantation over 3 years. Findings from the pilot project show a greater reduction in pest issues than expected, improving yields by 25% over the previous pesticide-based system. These results are presented to senior management, who agree this is an organisational priority, and to deploy the NbS across the full range of managed forests in their control. |
Organisations should also be aware of forthcoming resources that will make it easier for businesses to understand, assess and act on nature. Significant steps forward in 2023 will include the Taskforce for Nature-Related Financial Disclosures (TNFD) officially launching its framework in September (it is currently available in beta), and the Science-based Targets Network (SBTN) releasing their authoritative guide on target-setting for nature in March (with these 2 initiatives working together and with others as knowledge partners).
With COP15 outcomes, including Target 15 (requiring large companies and financial institutions to regularly monitor, assess and disclose risks, dependencies and impacts on nature), demonstrating the ambition of policymakers around nature, increasingly robust incentive mechanisms and stringent disclosure requirements will surely follow. Indeed, as more than half of global GDP is moderately or highly dependent on nature, it is not surprising that companies taking a strategic, long-term view are moving on nature in ever increasing numbers. Is your organisation among them?
[1] Ecosystem Services are the benefits humans gain from the existence of nature, ranging from clean water and the replenishment of soil nutrients to pollination and the cultural value of unaltered landscapes
Visit our nature-positive hub to learn more.