Time to invest in a new deal for nature and people.
Margaret Kulhow, WWF International, Finance Practice Leader.
With the World Economic Forum underway in Davos, Margaret Kuhlow, WWF Finance Practice Lead, reflects on its latest Global Risks Report and calls on the financial sector to redouble investment in sustainability and support a New Deal for Nature and People.
Asking a better question
The World Economic Forum (WEF) has identified six key questions it says we must address to make Globalization 4.0 work for all. The first of these asks how we might save the planet without killing the economic growth that lifts billions out of poverty.
The question we should be asking is how we deliver economic growth and prosperity by saving the planet. Nature is the foundation that sustains us and our economies.
Nature and business at risk
Environmental risks facing the global economy continue to dominate WEF’s latest Global Risks Report accounting for three of the top five risks by likelihood and four by impact. Extreme weather is the risk of greatest concern and one we already understand well. Natural disasters, increasing with a warming climate and exacerbated by human disruption of the natural systems that could provide protection, already cost more than $300 billion per year.
This year, the WEF has identified a new risk: the accelerating pace of biodiversity loss. WWF’s 2018 Living Planet Report showed us that wildlife populations have plummeted by 60 per cent on average since 1970, with implications for our well-being, food production, and even security.
Every year, natural services such as pollination, freshwater, and soil fertility are worth an estimated $125 trillion to the global economy. And yet we’re using up our natural capital faster than the Earth can replenish it — sustaining current global levels of consumption would require 1.7 planets.
How we feed, fuel and finance ourselves is pushing nature to the brink, driving habitat loss, water shortages and climate change — and presenting significant business risk.
Stepping up
We need to invest in rather than use our natural resources. The financial sector is starting to step up to the challenge — especially in relation to climate change — with growth in disclosure efforts and sustainable finance initiatives continuing apace in 2018.
To date, over 500 organizations have expressed support for the Task Force on Climate-related Financial Disclosures (TCFD); and more than 100 companies representing $5.4 trillion in assets under management, have signed the Cerrado Manifesto calling on soy and meat producers to prevent further deforestation.
In September 2018, the Climate Bond Initiative reported that there were $389 billion in labelled green bonds, a 76% year-on-year growth. In November, the UNEP Finance Initiative announced the development of Principles for Sustainable Banking — helping to align the finance industry with the Paris Agreement and the Sustainable Development Goals (SDGs).
And at the UNFCCC COP in December, over 400 investors with roughly $32 trillion in assets under management signed on to the Global Investor Statement on Climate Change — an initiative of the Investor Agenda calling on world leaders to address the climate change ‘ambition gap’.
Must do better
Tackling climate change and deforestation, and to some extent protecting ecosystems, are becoming material concerns for mainstream finance. But converting those commitments into action is a step that many investors have yet to take.
Recent analysis from the Asset Owners Disclosure Project examining how the world’s 100 largest public pension funds are implementing TCFD recommendations reveals 30 ‘show no evidence of responding to climate change,’ just 10% have a coal exclusion policy, and less than 1% of all assets are invested in low-carbon solutions.
In France, while disclosures by the top 17 French insurers in accordance with requirements of Article 173 of the country’s Energy Transition for Green Growth Act have improved, retail investors still don’t have access to clear information about the link between their savings and climate change.
And a recent WWF report examining the alignment of the largest European asset owners with aims of the Paris Agreement shows that while some investments are partly aligned, much greater effort is needed to ensure transparency and that public equity and corporate bonds align with the well-below 2°C transition target.
Most tellingly perhaps, the New Climate Economy report reveals we are significantly underestimating the advantages of climate-smart growth. Bold climate action could deliver at least $26 trillion in economic benefits through to 2030, compared with business-as-usual.
In short, while trends in sustainable investment are positive, many opportunities remain unrealized and there is much to do if we are to constrain global warming to 1.5°C and reverse nature loss.
A new deal for nature and people
WEF’s Global Risks Report asks whether the world is sleepwalking into crisis, observing that while global risks are intensifying, collective will to tackle them appears to be lacking in the face of strongly nationalist and divergent politics.
At the same time, the global risks we face require a global response. Fundamental changes to food, energy and financial systems are a priority.
The good news is that we have a unique opportunity ahead. In 2020, world leaders will take key decisions on the environment, climate, and sustainable development that will set the agenda for the next decade.
Beyond redoubling our efforts to implement the Paris Agreement and deliver the SDGs, we need a New Deal for Nature and People that recognizes the intrinsic link between the health of our planet and our own health and well-being.
Asking how we save the planet without killing economic growth is a false dichotomy. Global leaders in Davos must recognize that Globalization 4.0 is an opportunity to save the planet and drive economic growth.
