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Policymakers under intense pressure to put a price on biodiversity

For natural resources such as air, water and soil to be regulated, there needs to be a way of valuing them. Governments are grappling with this issue as investors focus increasingly on SDG 15: Life on Land.

Biodiversity
Valuing the likes of air, water and soil is no easy task. (Photo by Space-kraft/Shutterstock)
  • Governments and the financial sector are waking up to the risks posed by biodiversity loss and starting to proffer solutions.
  • Most notable is a proposal to price natural resources such as air, water and soil; the value of such things is put by the OECD at as much as $140trn a year.
  • Questions are being raised over how this area should be regulated, and whether the Taskforce for Nature-related Financial Disclosures is sufficient.

Forest covers around nine-tenths of Gabon on Africa’s west coast. In recent years the country, part of the Congo Basin, the earth’s “second lung” – after the Amazon region – has become a hotspot for illegal deforestation and timber smuggling.

Last month it also became the first African country to be paid by a foreign government – in this case Norway – to preserve forests via the UN-backed Central African Forest Initiative. Right now it’s a donation in official terms, though the hope is that the scheme will eventually allow Gabon to sell its emissions reductions as carbon credits.

The project has been hailed as an innovative answer to the complex question that policymakers, environmentalists and financiers are increasingly grappling with: how to put a price on natural resources, such as clean air and soil, that are not already traded as commodities.

Such issues have long been the preserve of environmental charities and conservationists, but biodiversity is one of the less well understood and less well financially supported UN Sustainability Development Goals – SDG 15, or ‘Life on Land’. That said, this is starting to change, with venture capital investors among those showing a greater interest, as Capital Monitor research has shown.

Indeed, several new initiatives indicate growing financial-sector interest in biodiversity risks and opportunities. They include Finance for Biodiversity and more recently the Taskforce for Nature-related Financial Disclosures (TNFD).

And governments are, for the most part, finally waking up to the risks posed by biodiversity loss, say campaigners. Questions are also increasingly being raised about how this area should be regulated and reported on.

Aviva Investors’ Steve Waygood says the market is failing to recognise the true environmental costs of biodiversity risks. (Photo courtesy of Aviva Investors)

But a key issue – as so often in the sustainable investing space – is a lack of data. No company in the world is reporting accurate or practically useful biodiversity information, say various experts on condition of anonymity. Not one major insurance firm or asset manager globally has a dedicated biodiversity policy or target, according to lobby group ShareAction.

“Biodiversity risks don’t appear in corporate reports and balance sheets, so they don’t get factored into financial analysts’ models,” says Steve Waygood, chief responsible investment officer at British fund house Aviva Investors in London.

“They don’t affect the share price; they don’t affect a company’s cost of capital,” he adds. “That means the market is failing to recognise the true environmental costs.”

Hence many commentators are now calling for a pricing system for natural resources. Among the most prominent is Partha Dasgupta, an economist and professor. He was commissioned by the UK government to produce a report on the economics of biodiversity that was published in February this year.

Dasgupta proposes that governments ditch GDP as the de facto measure of prosperity in favour of a concept of “inclusive wealth” that would “include consideration of the UK’s produced, human and natural capital”. In practical terms, that means policymakers introducing a minimum price for resources such as clean air, water and soil.

One OECD study put the value of the services provided by nature at between $125trn and $140trn annually. In 2020, global GDP was $88trn.

Dasgupta’s proposal would be transformative on many levels. Practically every asset on earth would need to be repriced, and the cost of consumer goods would inevitably rise. Capital would theoretically be redirected into genuinely sustainable goods and services. And, with a universally agreed system for calculating the true cost of biodiversity damage, greenwashing opportunities would be much harder to come by.

But such a transition is some way off yet. The trillion-dollar question is: who sets the prices?

It’s much harder to find tools for measuring biodiversity that can be extrapolated globally [than for measuring emissions]. Oliver Cupit, Zoological Society of London 

The Dasgupta report calls for the creation of new supranational institutions to enhance “our stock of natural assets and encourage sustainable consumption and production”. This would be both logistically and politically difficult, though not impossible, says Waygood. In any case, there may be no other option.

“We’ve got a rate of economic growth and activity that is greater than the capacity of the planet itself,” he adds. “The very definition of sustainable development is development that meets the needs of the present without harming the ability of future generations to meet their own needs. And right now we are failing at that.”

Biodiversity impact awareness

While biodiversity is a natural next step on the allocation path for climate-concerned investors, the coronavirus pandemic has alerted business and finance more widely to the impact that biodiversity can have on society – and on profits.

“The global shutdown has got people thinking about deforestation and the associated biodiversity losses,” says Oliver Cupit, programme manager at the Zoological Society of London. It is a charity that works closely with the finance sector on conservation and biodiversity initiatives.

Such sentiment has in turn focused investors’ minds on whether companies or sectors they hold assets in may be related to such losses, Cupit says (see also graph below). “It brings it much closer to home.”

Be that as it may, he adds, “it’s much harder to find tools for measuring biodiversity that can be extrapolated globally”.


The lack of a single metric such as carbon emissions is an obstacle. Biodiversity demands a more specific focus, Cupit says, as it relates to the impact on a particular species in a particular region.

There are initiatives under way to establish some kind of biodiversity score for projects and portfolios, the most advanced being the Species Threat Abatement and Recovery – or Star – metric.

The risk of such moves, though, is oversimplification. It is incredibly difficult to reflect all impacts on all aspects of nature in a single metric. Getting it wrong could be disastrous, as doing so could lull companies and investors into a false sense of security.

TNFD in focus

The TNFD – which is backed by the Financial Stability Board, an international body that makes recommendations about the global financial system – is at a very early stage.

Informal working groups have been established and co-chairs appointed: David Craig, Refinitiv chief executive, and Elizabeth Maruma Mrema, executive secretary of the UN’s Convention on Biological Diversity. The official taskforce will be appointed later this year, but a comprehensive framework is not due for publication until 2023.

Nonetheless, the TNFD has already been hailed as hugely significant in the journey to better understanding of biodiversity risks.

But some have raised concerns over whether accountants are best suited to setting the parameters for managing businesses’ impact on and obligations to the natural world.

For a company to measure and report its biodiversity risk effectively, it takes more than just an accountancy department, says Laura Clavey, biodiversity technical lead at the Climate Disclosure Standards Board in London.

It starts with research, data analysis and measurement, and ends with accountants collating and publishing the information. But while those initial stages are broadly agreed for climate-related risks, understanding of biodiversity risks is much more nascent, she adds.

That’s where some experts see initiatives like the TNFD – which builds on the concept of the TCFD – adding real value. But they are also seen as having their limitations.

Bethan Livesey of ShareAction says it makes sense to elevate biodiversity to the same status as climate change. (Photo courtesy of ShareAction)

“It’s helpful to piggyback off the work already done, and it’s a necessary step, but I’m a bit nervous about the idea that biodiversity can be dealt with by [simply] replicating what we’ve just done on climate change, and [saying] ‘job done’,” says Bethan Livesey, policy director at ShareAction in London.

“It makes sense to elevate biodiversity to the same status as climate change,” she adds. “But I do wonder if we’re just going to have endless taskforces to address every systemic risk that comes up without addressing the root problem.”

Her point is that “business-as-usual with added disclosure isn’t enough. We need a more robust regulatory framework.”

While TCFD focuses purely on climate-related risks that might affect the reporting company, the TNFD framework is expected to go further, also incorporating risks posed by companies to nature: what the EU calls “double materiality”.

Indeed, some have suggested that the TCFD approach is insufficient and that a focus on double materiality is also necessary for climate regulation.

TNFD just the start?

For any of these initiatives to succeed, the broad consensus is that an all-government, all-industry approach will be necessary. Once the worst-offending industries have been identified, policymakers will have to get tough in other areas, including the process for granting new planning licences.

Waygood sees TNFD as one or perhaps two pieces of a 100-piece puzzle: an important tool for companies to see their own impact on natural resources, but only useful at scale if accompanied by broader system reform. Like Livesey, he feels policymakers will need more than a voluntary disclosure framework that is only used by the most sophisticated corporates.

“Analysts are only going to look at that information if it helps them price the security better,” he adds. “And that will only be the case if it’s clear that the company will have to pay clean-up costs or its plans for a refinery won’t be going ahead anymore.

“There is value in disclosure, but you don’t disclose your way to alignment with the Sustainable Development Goals.”

Elizabeth Meager

Policy editor

Elizabeth Meager is the policy editor of Capital Monitor, a position dedicated to making sense of the slew of investment and corporate regulatory changes surrounding sustainability.