· 8 min read
Since the preservation nature has edged from the margins to the mainstream in the past few years, we have seen many shades of green appear. From the light green of engaging financial institutions on assessing and disclosing their nature-related risks and opportunities to the dark green of green finance, with developments such as voluntary biodiversity-credit markets, bonds, funds, facilities, debt conversion, and blended finance. There are many shades in between, such as the aquamarine green of ocean-focused work, the brown green of soil-related work, and the versatile green of combating plastic pollution.
It has been only 15 months since the historic Kunming-Montreal Global Biodiversity Framework (GBF) was adopted at the end of 2022, but it feels like a different era already. The GBF has provided much-needed direction regarding goals and targets to halt and reverse nature loss. Furthermore, it has driven action toward nature-related assessments, target setting, and disclosures, accelerating the development of nature-related approaches. In 2023, we witnessed new publications being released nearly every week, and although it has been challenging to keep up, each publication sometimes offers additional depth and understanding to this emerging field. In line with the cartographers in the 16th and 17th centuries, each publication allows us to fill a void in the space that was once our understanding of green finance. New expertise is moving to the space, with the mini-trend of appointments of heads of nature within financial institutions.
The field matures at lightning speed, which means we must accept that we are flying the plane while building it. So, if 2022 was all about the why of green finance, and we moved to the what in 2023, among others, with the release of the TNFD recommendations in September 2023. The advent of TNFD as a holistic risk assessment and disclosure framework covering every aspect of nature – ocean, freshwater, land, and atmosphere – underlines the collective movement towards more comprehensive environmental reporting in the corporate and financial sectors. Inevitably, the focus of 2024 is the how.
This article maps the green finance landscape in 2024 and describes five trends in green finance to watch. This year, the roller-coaster is continuing with COP16 later this year in Cali, under the Colombian Presidency. It is expected to focus on the progress of the NBSAP implementation and the role that non-state actors can play in delivering the GBF.
Alignment of disclosure frameworks
How many pandas can you fit into a kilo of nature? The emergence of different approaches, frameworks, and standards to measure, report, and manage nature-related impacts, dependencies, risks, and opportunities requires a common approach. Today, there is a diversity of approaches that are almost as diverse as nature itself. The need for alignment between approaches, for example, on the inclusion of different realms and standpoints on materiality, is much needed to create clarity and guidance for market uptake. Together with UNEP WCMC, UNEP FI published ‘Accountability for Nature’ earlier this year to provide an overview of the critical methodological and conceptual trends among the private sector assessment and disclosure approaches on nature-related issues. It provides comparative research on seven leading standards, frameworks, and systems for assessing and disclosing nature-related issues, including CPD, ESRS, GRI, ISSB standards, the Natural Capital Protocol, the SBTN target-setting guidance, and the TNFD framework. The most impressive finding from the study was to confirm that the reviewed approaches demonstrate a considerable level of alignment in key concepts and methodological approaches – and this is in a short amount of time, but more action is needed in 2024. UNEP FI will continue to scan the horizon by updating our report in January 2025.
Nature in climate transition planning
COP28 brought to the forefront what those working in the nature community already knew: action on climate needs to go together with action on nature. There is no net zero without nature-positive, but for a net-zero and nature-positive future to be realized, we need to be aware of both positive and negative feedback loops between climate, nature, and people. We can bring climate change and nature loss closer together via transition planning. Until now, the transition focused mainly on climate change in silo, while a more holistic approach is needed. WWF’s report ‘Nature in Transition Plans’ is a good starting point, as it provides a stepwise approach integrating nature into existing transition planning frameworks. This consists of two simple steps: firstly, incorporating nature in climate transition planning to support the delivery of the Paris Agreement, followed by aligning transition plans with the nature-positive goals of the GBF. But practice is everything, so UNEP FI endorses the work of, among others, the Glasgow Financial Alliance for Net Zero (GFANZ) workstream on nature in Net-zero Transition Plans to provide the necessary teeth how to substantiate the inclusion of nature in (climate) transition planning in practice. This requires long-term thinking and implementation for many organizations whose strategies might run only up to 2025. Ultimately, this work should deliver a framework to support the provision of finance and related services for real-economy activities that advance the net-zero nature-positive transition.
TNFD – as an end to a means
During the WEF Annual Meeting in January, the TNFD announced the inaugural cohort of Early Adopters - over 300 organizations, including corporates, banks, and asset managers which registered their intention to start making public disclosures aligned with the TNFD Recommendations in their corporate reporting in respect of their financial years 2023, 2024 or 2025. Despite this impressive number, there has been much discussion about the role of nature-related disclosure and how to avoid TNFD becoming an end instead of a means to an end. However, skeptics might have been too soon in their judgment. The coffee giant Starbucks avoided a TNFD-related shareholder proposal at its US AGM brought forward by Vancity and others that required TNFD-aligned reporting due to their material biodiversity dependency on arabica beans, which is linked to the high extinction risk for wild coffee species. The Norwegian Sovereign Wealth Fund NBIM, which produced its first TNFD-aligned in February, has decided to sell off its ownership stake in a major Indonesian conglomerate due to unacceptable risks contributing to environmental damage, in particular the Tapanuli orangutan, the world’s newest discovered great ape that faces severe threat due to habitat loss. This trend of nature stewardship action shows that TNFD-aligned reporting is ending even before the disclosure journey starts. UNEP FI will continue supporting the TNFD implementation in 2024 through technical work and focused capacity building, among others, in concert with partners across the real economy and investor landscape.
Sector focus
Where the rubber meets the road is on sectoral pathways and action. In 2023, the WEF, Business for Nature, and the WBCSD launched 12 sectoral roadmaps to nature-positive, providing companies with comprehensive step-by-step "how to” guides for taking credible, impactful nature action. UNEP FI was one of the many partners in this vital project that promoted the ACT-D high-level business actions on nature (Assess, Commit, Transform, and Disclose). However, this work also shows that it is difficult to make specific recommendations across a sector, as, for example, the particular recommendation will differ from chemical-based fertilizers to specialty chemicals used in medication and applications of chemicals such as insulation of houses. In 2024, sector-focused work is expected to continue, among others by the earlier mentioned organizations but also by UNEP FI, for example as part of its PRB Nature Target Setting Working Group, where the group will work on developing specific guidance for high-impact sectors and creating a roadmap for setting impact targets including indicators that can be used for reporting. This is expected to lead to better sectoral guidance on what sectors to exclude, which to engage, and whom to seek out.
Global developments
The nature of finance space is embedded in broader global development. In 2024, nearly half of the worldwide population can cast their votes in national elections; this is more than ever in history, the results of which, for many, will prove consequential for years to come. Next, we are moving from voluntary to mandatory approaches, for example, with CSRD implementation becoming compulsory in the EU on 1 January. Next to a fragile political environment, 2024 policy coherence will become an important theme. The success or failure of the GBF does not hinge on one specific Ministry. Instead, it requires action across the Ministries of Finance, Environment, Agriculture/Mining, and Foreign Affairs to work together. The green finance gap is circa $700 billion annually, dwarfed 140 times by investments in sectors with a negative direct impact on nature. UNEP’s State of Finance for Nature report shows that investment in nature-based solutions grows by only 10% annually. However, this is not enough, and only by policy coherence can we bridge what the UN Secretary-General has called ‘a canyon of broken promises.
In conclusion, the future is green. The described developments show that nature is no longer a trend to watch, but rather, it is time to act, step up, or join the work of others. As we gather later this year in Cali, Colombia as part of COP16 as a global stock-take on where we are on the journey towards implementation, we need to progress all shades of green.
illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
Note
This article complements my earlier article about trends in the nature data landscape.
