Four ways financial institutions can shape a nature-positive global economy
Posted on 26 January 2023
With a new landmark global agreement on nature directing governments to eliminate harmful subsidies, align financial flows with a nature-positive future, and require the private sector to disclose nature-related risks and opportunities, the smart money is on implementation and investment in nature.
OPINION - Elisa Vacherand, Interim Global Finance Practice Leader, WWF International
It may not be perfect but the long-anticipated Kunming-Montreal Global Biodiversity Framework (GBF) agreed last month finally recognises the urgent need to address the neglected side of the dual climate and nature crisis. As António Guterres put it recently in Davos, we must “stop our self-defeating war on nature”.
The GBF’s goal of halting and reversing biodiversity loss by 2030 finally provides the world with a lodestar for action on nature akin to the Paris Agreement’s 1.5°C target for limiting global warming. And its implementation at national and sectoral level will require companies, financial institutions, and investors to act.
For those grappling with what this means in practice, addressing four priorities will help realise the opportunities in shaping a nature-positive global economy.
1 Put nature at the heart of transition plansBecause nature loss and ecosystem degradation radically restrict opportunities to tackle climate change, we cannot limit global heating to 1.5°C without investment in nature and nature-based solutions. Current annual investments in these amount to just $133 billion - most of which comes from public sources - and to meet climate change, nature, and land degradation targets, we need to close a $4.1 trillion nature financing gap.
Immediately developing transition plans that set out clear actionable steps, increase transparency, and combat greenwashing will enable financial institutions to accelerate investment and action on climate and nature. That’s why WWF has defined clear criteria, guiding principles, and recommendations to help financial institutions develop credible transition plans, and drive the adoption of robust international standards.
Credible plans must set science-based targets, including interim 2025 and 2030 targets, that commit organisations to helping limit global warming to 1.5°C and delivering net zero by 2050. Crucially, they must also embed nature in financial decision-making, scale finance for nature restoration, and capitalise on nature as a carbon sink and as the foundation of lasting resilience and a just transition.
In tandem, policymakers should follow the example of the UK , including by making climate and nature transition planning mandatory for companies and financial institutions, and by developing market models that support low carbon technologies. And as Christine Lagarde, President of the European Central Bank, points out, current geopolitical crises that threaten energy security are likely to accelerate the transition to clean energy, making investment in its production a growth opportunity.
2 Unlock private finance for natureAs highlighted in last year’s 10 point plan from Ecuador, Gabon, Maldives and the UK, there is a pressing need for increased public finance for biodiversity, including grant capital and development finance that de-risks and crowds in private investment. This means developing innovative financing mechanisms, building, for example, on the success of the Dutch Fund for Climate and Development, a pioneering consortium that enables private sector investment in climate adaptation and mitigation in developing countries, including through nature-based solutions.
Other significant opportunities include the next generation of debt-for-nature swaps such as that proposed by WWF in Zambia which could unlock significant financing for green projects and communities; the emerging market for biodiversity credits that value ecosystem services, incentivise local resource stewardship, and drive inclusive development; and green debt capital markets and nature-performance bonds that link debt restructuring with climate and nature outcomes.
3 Require disclosure of nature-related risks and opportunitiesCurrently, only 5% of companies have assessed their impacts on nature with fewer than 1% understanding their dependencies. Alongside transition planning, financial institutions must require nature-related risk disclosure across portfolios.
Complementing the now well-established Task Force on Climate-Related Financial Disclosures, the Taskforce on Nature-related Financial Disclosure framework, and tools such as the newly launched WWF Biodiversity Risk Filter, will enable companies and financial institutions to report and act on evolving nature-related risks and opportunities across operations, value chains, and investments.
Eliminating deforestation and conversion from supply chains for major commodities such as soy, beef, and palm oil warrants urgent attention from companies and investors who should follow Accountability Framework guidance and incentivise producers, traders, and smallholders to switch to nature-positive supply chains. Nowhere is this more urgent than in the Amazon, an ecosystem critical for global stability but one in grave peril.
4 Drive nature action through financial regulation and governanceAccelerating investment and action for nature also requires the proper incorporation of nature-related risk in financial regulation. WWF and nearly 100 other organisations are calling on financial regulators, central banks and supervisors to use every available avenue to tackle the dual climate and nature crisis. This includes recognising delivery on the goals of the Kunming-Montreal GBF as part of their mandate, setting biodiversity targets that provide clarity and stability for financial markets, and replacing investment in environmentally harmful activities with cornerstone investment in nature-positive activities.
Investors and other financial institutions should support this call for improved financial governance, and also advocate wider financial system reform, including changing the ‘rules of the game’ so that we acknowledge our economies are embedded in nature. And the IMF and World Bank’s governance and missions must be renewed to recognise both the economic power of emerging markets, giving a greater voice to underrepresented countries, and the need to attract private investment in public goods such as improved public health infrastructure, climate adaptation, and nature-based solutions.
Tackling climate breakdown, delivering a just transition, and building lasting resilience rely on forging a global economy that is not just net zero but also nature-positive. The good news is that opportunities for scaling such investment continue to grow. And with the World Economic Forum highlighting ‘biodiversity loss and ecosystem collapse’ as a critical risk over the next decade, there is no time to lose.
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To find out more about WWF’s pioneering work on sustainable finance and opportunities for collaboration, please contact us on firstname.lastname@example.org or visit panda.org/finance.