This summer, RBC hosted its ESG Speaker Series, during which guest speakers David Craig, Co-Chair of the Taskforce for Nature-related Financial Disclosures, Tongai Kunorubwe, Head of ESG for Fixed Income T. Rowe Price and Kaija Barisa, Senior Economist, Blue Marine Foundation discussed how investors can seize opportunities to support nature protection and restoration as part of their investment strategy and approach to climate change. For David Craig, nature should be at the forefront of companies’ strategies. Referencing the groundbreaking Dasgupta Review from the University of Cambridge, David made the point that nature is our most precious asset that provides the ‘goods and services’ we all rely on for economic prosperity. But as a society we have taken a devasting ecological toll and we need the equivalent of 1.6 Earths to maintain humanity’s unsustainable way of life.
An unprecedent rate of wildlife destruction
There is a growing gap between the demands we make on nature and nature’s ability to supply those services. The figures are staggering: WWF reports a 69% decline in wildlife populations since 1970, and 11 football pitches per minute of tropical forest were destroyed in 2022 according to the World Resources Institute,
Yet nature is also one of the most effective tools we have to address climate change – natural climate solutions can contribute a third of the mitigation needed to achieve global net-zero goals. For context, that would have 11 times the impact of vehicle electrification.
However, a critical issue is that nature, and natural capital, are not priced in the global economy and absent from the accounting ledger. The Taskforce on Nature-related Financial Disclosures (TNFD) represents an important step to address this ‘blind spot’, and we are encouraged by recent progress:
- Almost 200 countries have agreed to the landmark Kumming-Montreal Global Biodiversity Framework that commits nations to protect 30% of lands, oceans, coastal areas and inland waters by 2030 (30x30 pledge).
- There is now a taxonomy to describe ecosystem services, assets and biomes and 1,200 companies are testing the taxonomy, TNFD disclosure framework and associated metrics.
- The myth of insufficient data is being busted. Data is not perfect, but improving in quality and quantity, and increasingly viewed as sufficient to enable action.
“Addressing climate change is linked to addressing nature loss. Nature loss, however, is more localised, more visible and more urgent.”
Tongai Kunorubwe, Head of ESG for Fixed Income T. Rowe Price
Investors need to act now
“The annual investment required to prevent future losses is estimated at $1 trillion investment by 2030, which will prevent a $2.7 trillion annual drop in global GDP,” according to Kaija Barisa*.
“Investors already have the tools – they are familiar with step-up bonds and similar models. There is a need to address an overarching problem: we know how to finance an EV factory, but we do not know how to finance nature.” David said during the panel.
Bondholders are already seeing nature loss as a systemic risk because natural capital in the medium to long term could have a significant impact on debt repayments, mentioned Tongai Kunorubwe.
Tongai highlighted some innovative models that already exist:
- Sovereign issuers: a Uruguay bond linked the cost of capital to the achievement of its climate and nature-based goals under the Paris Agreement – the country is rewarded if they outperform and penalised if they do not meet targets. This approach is arguably beneficial for the issuer: 20% of subscribers to the $1.5bn bond were 1st time investors in Uruguayan sovereign debt.
- Corporate issues: Orsted was the first energy company to launch a blue bond targeting positive outcomes in marine biodiversity and sustainable shipping, areas which are arguably essential to ocean health and serve as catalysts for the sustainable blue economy.
- Debt for nature swaps: the Belize Blue Bond is an example of a model that is seeing a degree of traction, albeit from a low base, and which allows nations to restructure a portion of debt in return for environmental commitments that create long-term financing for ecosystem and marine protection.
Companies and governments are taking learnings from climate that will help accelerate action on nature
David Craig pointed out that we are already seeing leading companies integrate their approaches to climate and nature. For example, issuing TNFD disclosures at the same time as TCFD disclosures. “Now is the time to start,” he recommends.
Furthermore, that there is a role for biodiversity credits, he stressed. More can be done to combine carbon offsets with nature-related credits. Some carbon offsets can be nature positive, however a small number can be nature negative.
There are lessons to be learned from climate – for example thinking about the social transition from the start,” remarked David. Indigenous peoples own, occupy and steward 22% of the global land area, which is home to 80% of the world’s biodiversity, according to United Nations, and have been historically overlooked for their role in safeguarding nature.
Finally, another encouraging development is that disclosure will increase, and regulation is here already – with more on the way. For instance the upcoming European Sustainability Reporting Standards under the CSRD will include nature and biodiversity, and the UK government has signalled that biodiversity will be incorporated into the new Sustainability Disclosures Requirements (SDR).
* Source: Bloomberg Biodiversity Finance Factbook
