25 February 2021

Comment: Follow the Money in aligning finance with nature's needs

In the first of his monthly columns for Environmental Finance, Simon Zadek outlines his five-point proposal for aligning major financial flows with nature outcomes

In early February, I had the honour of addressing one of the Organisation for Economic Co-operation and Development’s (OECD) Policy Committees in suggesting focus areas for the OECD’s work programme on nature and finance. My core message to them was to follow the money in aligning major financial flows with nature outcomes, rather than the important – but less strategic – goal of mobilising finance to invest in nature.

With this in mind, in my first monthly column for Environmental Finance, I offer up the five-part proposal I outlined to the OECD.

First, I urged them to support the Task Force on Nature-Related Financial Disclosures (TNFD), which has the potential to increase the materiality of nature across tens of trillions of dollars flowing through the world’s financial markets. I emphasised the significance of the TNFD going beyond its climate namesake, the Task Force on Climate-Related Financial Disclosures (TCFD), in embracing ‘double materiality’ (nature dependencies and impacts as well as immediate financial risks). As well as nature conservation being vital, this approach offers the smartest way of identifying and managing longer-term, nature-related, material financial risks.

Second, I highlighted the need for remaining stimulus programmes, recovery plans and public spending to deliver against nature goals. I urged them to build on Finance for Biodiversity’s (F4B) Greenness of Stimulus Index (GSI), run by Vivid Economics, that highlights the negative nature impacts of most of the $14.9 trillion stimulus programmes worldwide, with some noble exceptions such as Canada and some European countries. Next stop for F4B is to bridge our work into a Nature Transition Index that informs and nudges governments in managing the nature impacts of their longer-term spending programmes.

“Today’s global food system is the single most nature-impactful economic sector, accounting for over 80% of global land use and a catastrophic proportion of nature damage”

Third, I encouraged them to get on board with efforts to ensure the world’s first ever inclusive green debt relief round. The pandemic-induced economic crisis has translated into a sovereign debt crisis for more than 70 less developed and emerging economies (and will of course create a fiscal crisis for many developed countries). The opportunity is to embed nature and climate performance agreements in debt relief plans being developed through the Paris Club (of largely OECD sovereign creditors), the G20 and elsewhere, where F4B has inserted proposals for a Nature and Climate Sovereign Debt Facility (launched today).

Fourth, I pointed to the potential for leveraging central bank balance sheets, which have increased over the crisis by another $8 trillion (and rising) to an extraordinary $40 trillion worldwide. Much of the recent growth is directly linked to increased public spending. Beyond this, work by the Council on Economic Policies and others highlights the need for central banks to account for climate and nature risks in their asset purchases, and to ensure alignment of their balance sheets with government’s nature and climate objectives.

Fifth, I urged the OECD to intensify work at the nexus of finance, nature, and food. Today’s global food system, from ‘farm-to-fork’ and beyond, is the single most nature-impactful economic sector, accounting for over 80% of global land use and a catastrophic proportion of nature damage. Finance is far more than a passive supporter of food solutions. How finance works impacts food and related nature outcomes, determining what kind of food production is supported and what is not, and on a bad day driving speculation and price spiking, and being intertwined with nature-destroying illicit financial flows. This approach is exemplified by F4B’s workstream focused on how finance shapes food outcomes, undertaken in collaboration with the Food System Economics Commission

This five-point plan was presented at the OECD, but is for us all to embrace. It is certainly not complete.

Reaching an international deal on nature, for example, through the Convention on Biological Diversity will be crucial, as is placing nature at the heart of climate solutions, including links to the rapidly evolving carbon markets. The five elements combined do, however, offer the core of a strategic roadmap for aligning hundreds of trillions of dollars of private and public financial flows with positive nature outcomes. 

Dr Simon Zadek is the Chair of Finance for Biodiversity (F4B), and co-Chair of the Technical Expert Group of the Task Force on Nature-related Financial Disclosure (TNFD) – more information can be found at https://www.f4b-initiative.net/. Comments welcome to Simon at simon.zadek@f4b-initiative.net.

Zadek will be speaking at Environmental Finance's Natural Capital Investment conference on 4 March 2021.