When it comes to understanding the implications of climate change, the finance industry has a solid grasp. However, the same can’t be said for its understanding of biodiversity—climate’s broader sister topic. Despite the threats to human life and economic output posed by the loss of biodiversity, financiers are expressing confusion about how to measure its impact on their operations and, crucially, how to profit from it.
One anonymous senior banker from a major US lender admitted that the sector’s work on nature has hit a roadblock. The same banker confessed, “No one knows what to do.” This lack of clarity has led to stalling action on nature within the finance sector.
The Taskforce on Nature-Related Financial Disclosures was launched in 2021, requesting companies to report their biodiversity footprint. This was a significant step in bringing the nature agenda to the forefront. A year later, world leaders agreed to protect and restore 30% of the Earth’s land and oceans by 2030, rallying investors around the new catchphrase “nature positive.”
Despite these developments, financiers still struggle to understand nature’s complexity. Unlike climate impacts, which can be measured, priced, and traded via greenhouse gas emissions, quantifying changes in biodiversity across different geographies and ecosystems is not straightforward.
While climate change presents a vast commercial opportunity through funding deals in renewables, low-carbon cement, and retrofitting buildings, the opportunity set for biodiversity seems more limited. One banker described nature as feeling more like a philanthropic topic than a profit center.
However, as Loree Gourley, a partner at Deloitte in London, points out, finance will play a crucial role in supporting efforts to combat nature’s decline. “Banks will have a big role to play in plugging the global biodiversity funding gap,” she said. “They will need to move with pace, looking for innovative ways to raise capital.”
According to Boston Consulting Group, nature could be a more than $1.2 trillion opportunity, with the largest investments to be made in sectors like chemicals, power utilities, food and beverage, and healthcare. Lucyann Murray, a partner at BCG, believes it’s just a matter of time before nature becomes a commercial opportunity for bankers.
As John Bromley, managing director of clean energy strategy and investments at Legal & General Group Plc, notes, nature is becoming more prominent in corporate and government agendas, making it harder for financiers to ignore. This sentiment is echoed by banks like JPMorgan Chase & Co. and Standard Chartered Plc, who are sending representatives to the upcoming United Nations biodiversity summit, COP16, in hopes of finding new deals in biodiversity.
Sustainable finance in brief
The European Central Bank has stepped up efforts to prepare lenders for climate change, warning of potential fines if they fail to address the risks. A “small group of outliers” may face penalties after the ECB found them lacking in managing climate and nature-related risks. The ECB has been steadily increasing pressure on the industry, leading to friction with the sector.
- Private markets are becoming a major player in energy-transition investing, while larger public markets are more receptive to fossil-fuel holdings, according to research from BloombergNEF.
- Investors need to rethink their approach to the mining sector to meet the growing demand for minerals and metals needed for the green transition.
- Billionaire Tom Steyer has hired former US Secretary of State and top climate diplomat John Kerry to join his sustainable-investing firm.
In conclusion, the finance industry’s understanding of biodiversity is still evolving. Yet, with the right incentives and regulatory support, there is significant potential for nature to become a profitable focus for the sector. It’s an issue that won’t be going away anytime soon, and the industry needs to adapt and innovate to keep up with these ever-evolving challenges.
