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What do a conservationist, a sustainable investor and De Nederlandsche Bank (DNB) have in common? In the recent report, ‘Biodiversity and the financial sector: a cross-pollination’, DNB and the Netherlands Environmental Assessment Agency (PBL) show that loss of biodiversity poses a real risk to all of us and therefore also to business and the financial sector.
In the shadow of the corona crisis, a climate crisis and a biodiversity crisis are developing at an alarming speed. If we don’t adjust, these will lead to a systemic crisis in the coming decades.
The United Nations sustainability goals are a global agenda to prevent these socially disruptive developments. Biodiversity is the important foundation on which our ecosystems are built. Biodiversity not only shapes important natural resources, but also the medium on which our economy and society depend.
The current economic models take the scarcity of capital and labor into account but renewable natural resources (clean air, availability of water) are included as assumedly unlimited. The quality of our living environment is largely disregarded in these models.
Market failure
An example: the value of mangrove forests is many times greater as a storm barrier and as a nursery for fish than firewood. It is one of the examples that not only illustrate the failure of the market but lead to systemic risks. Such major risks will confront us, and especially the generations after us, with dangers and burdens. These risks are flagged in the DNB and PBL report. In doing so, it provides an impetus for better functioning of the market.
From a risk perspective, it makes sense if companies are more aware of their dependence on biodiversity and the influence they have on it. After all, it is only a matter of time before shareholders and debt providers become more critical of the impact of their investments on biodiversity.
The question is therefore how companies and the financial markets will tackle this. A frequently mentioned challenge is the lack of clarity about the criteria. Fortunately, there are already many initiatives for this. An example is the Biodiversity Summit in China in early 2021, where new agreements and concrete goals are on the agenda; also for companies: a “New Deal for Nature and People”. Another example is the Partnership Biodiversity Accounting Financials, which develops a methodology to measure the impact of investments on biodiversity.
There is not just one way to take biodiversity into account. It often concerns local issues and therefore requires local knowledge and involvement. Furthermore, circumstances change. For example, the crucial cross-pollinators cannot keep up with the current rate of climate change. In recent years, in order to find a solution, we worked together with local partners on local banking guidelines for biodiversity in countries at severe risk, such as Tanzania and the Philippines.
Loss and profit
Another challenge is to translate loss and profit of biodiversity into financial terms. Our financial models are insufficiently equipped. DNB and PBL are taking the first step by identifying the risks to the financial sector regarding loss of biodiversity. It is a fundamental first step, but not the whole story.
If we put a stop to the loss of biodiversity and start restoring it, governments and companies will have to use their influence. The financial sector will also have to make demands, including asking the parties in which they invest to identify their dependence on biodiversity and the extent of their impact.
Ultimately, consciously managing your own influence on biodiversity as a lender, shareholder, entrepreneur or government, is the crux for de facto mitigation of financial risks and realizing a viable planet. One cannot do without the other. Source: FD.nl
Webinar series Biodiversity and the Financial sector
In September, the VBDO organized a three-part webinar series on this subject in collaboration with IUCN NL. Click here for webinar highlights, presentations or a recorded version of all three webinars.
