Putting Nature at the Heart of the Global Financial System

Half of the world’s GDP – around $44 trillion – is highly or moderately dependent on nature. And nature is also inextricably linked with climate. Carbon is sequestered by healthy ecosystems and when those ecosystems are degraded, so are our planetary carbon stores. As changes to nature and climate will have economic consequences, a key element of success in the transition towards a nature positive future will be how well governments and companies navigate and adapt to long-term dynamics like natural capital dependency and depletion.

So, what can we do to urgently protect, restore, and preserve nature - the very asset on which human life and, actually, all life on the earth depends? And what role can private and public capital play in reversing the accelerating trajectory of nature loss?

Natural capital, biodiversity, and nature, in general, are often used interchangeably. In “The Economics of Biodiversity” commissioned by the UK Government, Professor Sir Dasgupta described nature as our “natural capital”, arguing it is an asset, just as produced capital and human capital are assets.

According to the International Integrated Reporting Council (IIRC), natural capital refers to “all renewable and non-renewable environmental stocks that provide goods and services that support the current and future prosperity of an organization.” Natural capital includes air, water, minerals, biodiversity, and ecosystem health.

In recognition of this dependency on nature, G7 leaders announced in 2021 that “our world must not only become net-zero but also nature positive, for the benefit of both people and the planet”.

A net-zero and nature positive future must see a shift away from the flow of private and public capital into activities that harm nature, towards those that enhance nature, to achieve nature positive by 2030, and full recovery by 2050. We must therefore think and act holistically.

Research by the Paulson Institute and others suggests that, while we urgently need to protect and restore nature, there is an enormous financing gap.

An additional USD$ 598 to 824 billion per annum is required to be spent to be nature positive by 2030, which cannot be achieved by government and philanthropic investment alone. This means, every level of government working in partnership with the private sector is required to ensure a just transition that protects people’s livelihoods, vulnerable communities, and developing nations, as Larry Fink wrote in his letter to shareholders in 2021.

Although climate change and nature are intertwined, action on climate change has raced ahead of action to stem nature loss. Nonetheless, some of the initiatives adopted to address climate change are well placed to be adapted to drive action on the need to value and conserve nature.

The pathway laid out by the Taskforce on Climate Financial Disclosure (TCFD), is being mirrored by the Taskforce on Nature Financial Disclosure (TNFD). Investments in projects that both deliver carbon offsets and preserve nature (i.e., nature-based solutions) are also increasingly being financed through long-term purchasing agreements for nature-based carbon credits. In this way, natural capital project developers provide investors with positive market returns. However, despite these direct investments in nature, projects without carbon revenue streams offer little, if any returns, and cannot compete with the more destructive uses of nature. There must be a more direct and concerted global effort to value nature and to require the financial system to price in the risk of the loss of nature.

To achieve real and urgent change and solve the twin challenges of climate change and nature loss, we must put nature at the heart of the global financial system. A well thought out and comprehensive approach is required and could begin with:

To solve the twin challenges of climate change and nature loss which threaten our economic prosperity and all life on the planet, we must shift the flow of private and public capital away from activities that harm nature towards those that enhance nature and stabilises the climate. We must do this by putting nature at the heart of the financial system, coupling economic prosperity with climate and nature, and we have the means to do so today.