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The era of easy fixes is over

DUBAI, July 21, 2021

The financial sector is slowly waking up to the risk of biodiversity, but risks and opportunities are less understandable than with climate change.
 
The era of easy fixes is over. The challenges of adopting responsible finance and ESG issues – global, local and company-specific – involve managing different complex systems that interact with one another, notes Responsible Finance, a nonprofit organisation working as a catalyst with the aim of bringing responsible and Islamic finance together. 
 
“And we have to be prepared to work to integrate responsible finance without reacting to information overload by narrowing efforts just to meet the check-box requests that are in front of us today from investors, shareholders or regulators.” Leaders have to decide what to focus on and what not to, and in doing so, the realignment within planetary boundaries to get to a sustainable future is critical, while supporting social goals and localised environmental issues is also too important to be overlooked.
 
Financial institutions are trying to grapple with interlinked, challenging and complex risks that need capable and skilled leaders who understand the issues.
 
The slogan “think global, act local” is gaining relevance in new ways as the world gets serious about tackling climate change. Climate change is the ultimate global challenge, and although it requires concrete actions at both local and global levels, its localised impact is realised in catastrophic ways. The benefits of action and progress remain harder to see in terms of daily experience and economic and financial returns.
 
Biodiversity is in many ways the polar opposite of climate change because the impact of its preservation is very apparent in daily life. But the economic and financial impacts are more difficult to see except in terms of the absence of harm – the ecosystems or supply chains that haven’t been disrupted; the viruses that cause pandemics that didn’t happen.
 
And as the financial world starts to wake up and explore the value of natural capital and the importance of biodiversity, it becomes easy to write off its significance or immediacy to financial decision-making. Even with the spread of Covid-19, with all the social, economic and financial losses that have been experienced, this has led to heightened focus on climate change and acceleration of incorporating the ‘S’ of ESG rather than issues relating to biodiversity.
 
In some ways, the success of raising climate change as an important financial issue, and the manifestation of its impacts in droughts, floods, heatwaves and rising sea levels, increases its salience alone, notwithstanding the strong link between climate change, biodiversity loss and the erosion of natural capital. But we can work on multiple complex problems at the same time, and although it’s challenging, the rewards it brings to humanity are well worth it even before considering the financial, economic and social grounds of failing to act.
 
One reason for the focus on climate is that it comes across as the most serious, which is taken to mean that action on other topics can be set aside until climate change is taken care of. Recent scientific research provides some optimism that reaching Net Zero may not only be necessary to prevent rapid, uncontrolled warming, it could also slow the pace of warming into centuries rather than decades.
 
This is useful for understanding the bigger picture when prioritising efforts because if reaching Net Zero can bring some stabilisation, it means that efforts improve outcomes in 2050 on biodiversity, poverty, education and other SDGs won’t be overwhelmed as a result of accelerating climate impacts. If natural systems’ ability to drain away some of the atmospheric concentration of greenhouse gas emissions are underestimated in current models when new emissions are not forcing emissions concentration higher.
 
That doesn’t reduce the pressure to reach Net Zero by 2050 at all – when the Amazon has tipped to become a net emitter of greenhouse gases rather than on net absorbing more emissions than it generates – but it should be seen as alleviating a fatalistic perspective that no matter what is done this year and this decade, that future generations face a bleak future and 2° C, 3° C or more just define how bleak and how fast it is realised. An alternative scenario where Net Zero is reached and the probability of staying under a 2° C temperature rise increases opens up much more room to figure out issues with global implications and a strong localised impact such as biodiversity.
 
To take a few recent examples of what could be done by the financial sector relating to biodiversity, there have been efforts by central banks to raise the issues of biodiversity and financial stability, of the G7 to get on board with efforts to create recommendations for natural capital disclosures similar to the TCFD, and papers by UNEP FI to rally financial institutions to the cause. These are all important steps, and benefit in their development from similar efforts used to mobilise finance on climate change. 
 
Yet, at least so far, they haven’t achieved as much critical mass. The response to Covid was for a sharp increase in social bonds (they tripled to $140 billion), not green biodiversity bonds. That may inform how best to address biodiversity, and the much greater need to address social and natural outcomes in tandem.
 
If the world does achieve Net Zero in 2050 and that is effective at slowing the pace of further warming, then we have to start now imagining what else is important once we get there. At the top of that list is biodiversity because its loss through deforestation is linked  to climate change, but the local impacts of climate change also materialise through a visible impact at the local level through plants and animals displaced, uprooted or killed by more intense or more frequent wildfires and heatwaves.
 
In addition to connecting global changes with the local environment, these local impacts have social and economic impacts that can be more important for financial institutions than slow changes at the global level that increase natural capital risk but not necessarily the visible materialisation of risks. 
 
Local biodiversity initiatives and risk mitigation investments for a broader global public interest can often be overshadowed by the investments in climate mitigation with new renewable energy. The climate mitigation investments remain important but may not work towards protecting society from the impacts of climate change on biodiversity.-- TradeArabia News Service
 



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