When businesses review their balance books, the contributions of nature to profits and losses are usually egregiously absent.
No company operates in a vacuum. Whether it’s wind, waves or coal providing power; soil microbes boosting crop fertility; or ocean systems helping maintain a stable climate in which to operate, every financial transaction on Earth is in some way connected to the natural resources and systems in which it’s embedded.
“If we treat biodiversity as if it’s for free, people falsely believe that biodiversity has no cost – and therefore, if it depreciates, it also attracts no cost,” said Tony Simons, Executive Director of the Center for International Forestry Research – World Agroforestry (CIFOR-ICRAF) and its newest initiative Resilient Landscapes, in a session at the Global Landscapes Forum’s Biodiversity Digital Conference on 29 October titled, “The Nature of Business”. Resilient Landscapes is an innovative platform that aims to tackle deforestation, degraded landscapes and broken food systems that are contributing to climate change and biodiversity loss by providing attractive investment solutions to companies, financial investors, donors and governments.
The notion of biodiversity as cost-free and inexhaustible is problematic, because the evidence firmly states that the opposite is true. “The costs of doing nothing [to protect biodiversity] are extremely high, and they will rise higher the longer we continue to do nothing,” said Christopher Knowles, Senior Advisor on Environment and Climate Finance for Resilient Landscapes, who moderated a panel on natural capital at the event, which featured speakers from Finance in Motion, DEG, Export Trading Group and Posaidon Capital. These costs are currently estimated at up to USD 20 trillion a year; meanwhile, the amount of capital required to protect global biodiversity is reckoned to be less than USD 1 trillion.
Put in these terms, the choice seems obvious. Yet so far, we have failed to inject the necessary capital required: the biodiversity funding gap is estimated to be between USD 598-824 billion per year. Meanwhile, the world’s banks lent USD 2.6 trillion of financing linked to the destruction of ecosystems and wildlife in 2019, according to a new report. The majority of the money required to turn this ship around will need to come from the private sector, and on paper, that looks manageable – it’s less than 1 percent of the global capital pool. “Fixed-income markets alone are capable in the immediate term of mobilizing hundreds of billions of dollars for conservation,” said panelist Fabian Huwlyer, founding partner of the green finance advisory and investment firm Posaidon Capital.
So what’s getting in the way?
One issue is establishing the right regulatory conditions to encourage investors and companies to properly take nature into account. “The issue of financial disclosure will be absolutely pivotal to ensuring that investment is aligned with the SDGs [Sustainable Development Goals] and NDCs [Nationally Determined Contributions to the Paris Agreement on climate change], and that the hidden costs, often externalized to the public, are internalized and borne by investors, thus sending the right market signals toward businesses that what is good for nature and good for society is also good for the economy,” said the session’s Keynote Speaker Gonzalo Muñoz, who was nominated as the COP25 High-Level Champion by the Chilean Government and the UN Framework Convention on Climate Change (UNFCCC).
Another key issue is building up the supply of “bankable” projects. “I really think there is a growing divergence between some of the bold capital commitments that we see by institutional investors, and an increasing but still smallish global pipeline of market-ready opportunities that are often scattered and not included in the general landscape context,” said Huwlyer. “We need to bring the two things together.”
“There is not always a strong match between where the most green opportunities lie and the investment environments that are attractive for private capital flows,” said panelist Jaspreet Stamm, Director at Finance in Motion. A leading impact asset manager, Finance in Motion focuses exclusively on sustainable development finance. It develops and advises funds whose purpose is to generate positive social and environmental impact alongside a financial return and has mobilized over EUR 5 billion in low and middle-income countries on topics from microfinance to energy and resource efficiency, conservation of biodiversity and climate action. Her organization works to help boost the investment attractiveness of sustainability-driven companies, as well as to boost and reinforce the green aspects of mainstream companies. “In many cases, we find companies or financial institutions where there is a strategic interest from management to become more environmentally friendly in their operations, and where there is also a business opportunity in doing so,” she said.
Panelist Andre van de Beld, who heads sustainability for cocoa at large-scale agro-commodity trader Export Trading Group (ETG), provided a case in point. Cocoa production, the majority of which takes place in Ghana and Ivory Coast, has been responsible for immense deforestation in these two countries. However, in recent years, industry players have become increasingly aware of the impacts of deforestation and climate change for the viability of cocoa production in the future. This led in 2017 to the Cocoa and Forests Initiative, under which signatory companies, which represent 85 percent of the market, work with the national governments and a selection of NGOs to end deforestation and restore forest areas.
“This has triggered a lot of developments, and now in 2020, we see a lot of investments [into natural capital] going on,” said van de Beld. “We’ve also seen a shift where in the beginning, a lot of companies were focusing very much on the cocoa farm itself. But more recently they’ve begun expanding this scope to include things like reforestation for ecosystem services, and really focusing on the landscape model, which was definitely not the case 5 to 10 years ago.”
Martin Geiger, director of sustainability and corporate governance at German development finance institution DEG – a longstanding partner of ETG – praised the high level of transparency and disclosure that the company has developed over time. “I’m looking forward to seeing them now taking these learnings to other commodities,” he said, “which need these kinds of approaches just as much as the cocoa sector.”
So, how can these kinds of regional, commodity-specific developments be mainstreamed across global agriculture as a whole? The need is obvious: agriculture accounts for 70 percent of the projected loss of terrestrial biodiversity, contributes to 50 percent of topsoil loss and covers 40 percent of the Earth’s surface. Meanwhile, to feed our growing population, we need to double food production by 2050.
Dr. Howard-Yana Shapiro, Senior Advisor on the Private Sector and Markets for Resilient Landscapes, opened the second panel in the session by describing one of the initiative’s new offerings that aims to help address this challenge: a simple, universal, locally-monitored method for assessing and promoting more resilient agricultural practices, called the Agricultural Performance System (APS). Conceived in 2017 in collaboration with a diverse international cross-section of agricultural actors, the system assesses performance using five key metrics: productivity, profitability, environmental stewardship, social inclusion and good governance. According to Shapiro, the system represents a “change of theory” from existing agricultural certification systems, which have failed to deliver large-scale transformation in practice on the ground and have traditionally been based on the premise of individual certification, rather than community-based certification.
Jason Clay, Senior Vice-President for Markets at the World Wildlife Fund (WWF), praised the new system’s focus on local realities and economies. “I think we have to realize the choice that comes down to feeding a child or cutting a tree that some smallholders have,” he said. “So we’ve got to figure out how to save biodiversity on a planet with more people, with more money, and with more consumption.” Susan Chomba, a scientist at CIFOR-ICRAF and the Project Manager of the Regreening Africa program – which is working to restore ecosystems and improve resilience across 8 countries and 500,000 rural households – agreed. She herself is the daughter of smallholder farmers who grew up on the slopes of Mount Kenya, and she knows firsthand “the constant struggle between the environmental elements, and the need for intensive farming in order for farmers to be able to produce enough for the market, enough to feed us and enough to send us to school.”
Mette Wilkie, Director of the Forestry Division at the Food and Agricultural Organization of the United Nations (FAO), drew attention to the ways in which the COVID-19 pandemic has created both challenges and opportunities for business-smart biodiversity conservation. In many countries, the pandemic prompted an exodus from big cities due to job loss, “and this exodus brought with it an increased risk of unsustainable hunting levels and the conversion of more forests to agricultural crops.” She urged decisionmakers to “use this crisis as an opportunity to rethink our business models and development pathways and focus all public and private efforts on ‘building back better’ through the deployment of a green recovery model.”
Dr. Thomas Lovejoy, an innovative and world-renowned conservation biologist and professor at the Environmental Science and Policy Department at George Mason University, was also a Keynote Speaker at the Resilient Landscapes session. He is known as the “Godfather of Biodiversity,” as he coined the term “biological diversity” (1980). In his remarks, he highlighted the pandemic’s role as a wake-up call to transform agricultural systems and our relationship with nature more generally. “We’ve been struck by a pandemic that stems directly from the ways we have been assaulting nature,” he said. “We have to invert our historic pattern of remnant natural areas, isolated in agricultural landscapes, to one in which agriculture, human wellbeing and aspirations are embedded in natural landscapes.”
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