At this point, the financial industry arguably has a pretty good handle on the effects of climate change.
That’s it nothing to say is moving aggressively to combat it, but only bankers and investors have strong understanding about broadcast sources in their portfolios, what customers have to do decarbonized and what government policies or financial aid can speed up that process.
However, then biodiversity — The climate is wider sister issue — they look like bankers not so sure. In private interviews, financiers from major European and US banks (as well as a major Canadian lender) said Bloomberg Green they don’t know what to do with biodiversity.
It is not that they are unaware of the threat to human life and economic production from mass extinctions or the breakdown of natural systems. It’s just that they don’t understand how to measure the impact on their operations—or how to get money.
No one knows what to do, said a senior banker at a major U.S. lender, who asked not to be identified because of expressing views that may differ from those of his employer. In this way, the bank’s work on nature has stopped, the banker said.
While quantifying climate-related risks and aligning portfolios accordingly has been a multi-year effort for everyone from standard setters to finance executives, biodiversity has come under the purview of sustainability teams at a much faster pace. timeline.
The start up The Nature-Related Financial Disclosures Task Force 2021, which requires companies to report on their biodiversity footprint, was a key moment in raising the nature agenda.
A year later, world leaders agreed protect and restore 30% of land and oceans by 2030. The goals rallied investors around a new phrase called “positive nature,” which refers to the idea of halting and eventually reversing biodiversity loss. “Net zero” is new, just for biodiversity.
After two years, it has become obvious to the bankers Bloomberg Green He said that nature is much more complex than climate. Although climate impacts can be measured, priced and reduced to a single tradable metric (greenhouse gas emissions), there is no simple or comparable way to measure biodiversity changes across geographies and ecosystems.
In other words, it is it is not clear how the market should value a swamp or a newly discovered species of frog. And how are the finances “positive nature”?
And more worrying for bankers is the lack of clarity on how to charge in nature.
Climate change, while a risk to their portfolios and customers, offers a wide range of commercial opportunities through financing offerings ranging from renewable energy to low-carbon cement and innovative buildings. In terms of biodiversity, the range of options appears more limited. Another banker, who requested anonymity to discuss internal thinking at their firm, said nature feels more like a philanthropic issue than a profit center.
However, despite these challenges, finance will be essential to support efforts to combat the decline of nature, he said. Loree GourleyA partner at Deloitte in London wrote a paper On the role of banks in creating a “natural positive economy”.
“Banks will play a major role in bridging the global biodiversity financing gap,” he said. “They will have to move with the pace, looking for innovative ways to raise capital.”
The Boston Consulting Group estimates that nature is a more than $1.2 trillion opportunity, and the largest investments include the chemical, electric utility, food and beverage, and healthcare sectors.
“It’s only a matter of time before nature becomes a commercial opportunity for bankers,” said BCG partner Lucyann Murray. “Companies have started to act. I wouldn’t close my eyes to nature.”
Whatever happens, financiers are unlikely to be able to avoid the issue, with nature increasingly prominent on corporate and government agendas, said John Bromley, managing director of clean energy strategy and investments at Legal & General Group Plc.
next weekworld leaders will gather at the United Nations biodiversity summit, known as COP16, where participants will discuss progress on the 2022 agreed targets. And even with nature’s monetization challenges, JPMorgan Chase & Co. and banks including Standard Chartered Plc. delegates are being sent in the hope that biodiversity can be a source of new agreements.
Sustainable finance in a nutshell
The European Central Bank has stepped up its efforts to prepare lenders for the effects of climate change, warning that they will face even more fines if they do not adequately address the coming risks. A “small minority” face periodic penalty payments after the ECB found they still lacked “basic elements to properly manage climate and nature-related risks”, said Frank Elderson, a member of the ECB’s Executive Board. The ECB has steadily increased pressure on banks to deal with losses caused by extreme weather or companies struggling to repay loans to carbon-intensive companies. While many banks say they are working on the issue, the custodian’s tough approach has been a key source. friction with industry.
- Private markets are emerging as a major investment force for the energy transition, while much larger public markets are more receptive to fossil fuel exploitation. Research by BloombergNEF.
- Investors need to take a new approach to the mining sector if the industry is to thrive growing demand For minerals and metals needed for the green transition.
- Billionaire Tom Steyer recruited former US Secretary of State and top climate diplomat John Kerry to join his permanent investment company.
