auctusESG | Insights | July H2 2024
Data dashboard
McKinsey Sustainability and FSD Africa assessed nature-related risks on banking systems in Ghana, Mauritius, Morocco, Rwanda, and Zambia, using three scenarios: current policies, disorderly transition, and orderly transition aligned with the Global Biodiversity Framework (GBF).
Key Findings:
The study found nature-related risks could increase expected credit losses by up to 9% by 2030 and 21% by 2050 under the disorderly scenario. An orderly transition could substantially reduce these risks, avoiding cost increases in agricultural commodities, inflation, and socio-economic impacts, while offering benefits like enhanced employment and stronger exports.
Read more here.
News roundup
India’s green leap
India’s Union Budget 2024-25 embraced green initiatives, making multiple announcements aimed at driving the country’s energy transition. The budget speaks about a policy document documenting appropriate energy transition pathways balancing sustainable and economic growth. A parallel announcement on formulating a roadmap for transitioning hard-to-abate sectors has been outlined. A significant emphasis has also been placed on thermal and nuclear energy sectors, with an aim to diversify the energy mix and enhance energy security, further encouraging private sector participation. Notably, the agriculture and allied sectors, which are highly vulnerable to climate change, received the third-largest sectoral allocation of Rs 1.52 lakh crores. This includes initiatives for developing climate-resilient crop varieties. All this coupled with the announcement of a climate taxonomy for the driving financial flows towards climate mitigation and adaptation activities provides a stable long-term green vision for the country’s future.
Read more here. Observer Research Foundation Promit Mookherjee
Wayanad hit by landslides following torrential rains
Heavy rains in Wayanad, Kerala, India caused multiple landslides in the region destroying houses, transportation and claiming the lives of over 185 people and 250 still missing. Rescue operations are underway, however, continuous rains hinder the efforts of relief teams, putting locals at risk. A red alert has been issued in multiple districts across the state.
Read more here. The Times Of India
4,642 vertebrate species threatened because of clean energy
Research from the University of Cambridge reveals that 4,642 vertebrate species are threatened by mineral extraction necessary for clean energy technologies. Mining for materials like lithium and cobalt, crucial for solar panels, wind turbines, and electric cars, poses significant risks, especially in biodiversity hotspots. The study emphasizes the need to mitigate mining pollution to reduce biodiversity loss without halting the clean energy transition. Species living in freshwater habitats and those with small ranges are particularly vulnerable. The research suggests governments and the mining industry focus on reducing pollution to balance the need for clean energy and biodiversity conservation.
Read more here. Ieuan P. Lamb, Mike Massam , Simon C. Mills, Dr Robert Bryant David Edwards
Marine biodiversity at stake due to Peruvian bills
Two legislative proposals in Peru could threaten marine biodiversity and artisanal fishing by amending a 2023 law that protects marine species within 5 nautical miles of the coast. These proposals, put forward by Congress members Lady Camones and Darwin Espinoza, would allow fishing boats with mechanized and nonselective gear to fish within 3 miles of the shore. Critics, including artisanal fishers and conservation groups, argue that this would harm marine ecosystems and the livelihood of artisanal fishers. The current law restricts fishing within 3 miles to artisanal methods, which are manual and selective, to preserve the marine substrate and biodiversity.
The proposals would reclassify mechanized fishing as artisanal, erasing the distinction between manual and mechanized fishing. This could lead to overfishing and habitat destruction, impacting species' reproductive areas and disrupting marine ecosystems.
Read more here. Mongabay Latam Yvette Sierra Praeli
Companies, investors are overlooking major financial risks from unmeasured scope 3 emissions
A new report by CDP and BCG reveals that most companies and investors are overlooking major financial risks from unmeasured Scope 3 emissions, which are significantly higher than their direct operational emissions. Despite Scope 3 emissions often being 26 times greater than Scope 1 and 2 combined, only half of the companies evaluate the financial risks from these emissions, and a mere third of investors have policies requiring their disclosure. Companies are twice as likely to measure Scope 1 and 2 emissions and 2.4 times more likely to set reduction targets for these emissions than for Scope 3.
Key drivers for effective Scope 3 management include having a climate-responsible board, supplier engagement, and internal carbon pricing. The report highlights an implied $335 billion carbon liability for top-emitting sectors, stressing the urgent need for increased corporate and investor accountability.
Read more here. ESG Today Mark (Moshe) Segal
Tropical forest biodiversity at risk due to temperature change under canopies
A new study reveals that tropical forest biodiversity is at high risk due to climate change-induced temperature changes beneath forest canopies. These shifts are affecting species composition and causing declines in animal, insect, and plant populations, particularly noted in the Brazilian Amazon. The study challenges the belief that forest canopies mitigate climate impacts, showing that many species live within or below the canopy, benefiting from cooler microclimates. However, recent temperature increases are creating novel climate conditions that many tropical species are not adapted to. The study emphasizes the need for forest restoration, focusing on enhancing interior areas, total size, and connectivity of fragmented refugia. It also stresses the importance of reducing carbon emissions and protecting intact candidate refugia through legal means, carbon payments, or empowering indigenous communities to preserve these vital ecosystems.
Read more here. CarbonCopy
Final nature risk framework released by NGFS for regulators
The Network for Greening the Financial System (NGFS) released final guidance on assessing nature-related financial risks for central banks and regulators. This framework builds on a previous beta version by including case studies and emphasizes the need to identify and assess physical and transition risks related to nature. It highlights the importance of understanding how these risks can impact the financial system and the broader economy through feedback loops. While some central banks, like the Dutch central bank, have begun applying nature risk assessments, the NGFS's framework is seen as a useful starting point but may need more specific operational guidance for advanced regulators. The NGFS also noted rising trends in nature-related litigation, suggesting that regulators should monitor these developments closely as they could influence the financial system.
Spotlight
Nature at risk
The Global Risks Report 2024 by the World Economic Forum underscored the severity of nature-related risks, terming them as one of the most critical challenges transcending geographic and sectoral boundaries. This is of utmost importance given that over half of the world’s GDP is largely dependent on nature. The cumulative impact of multiple environmental crises is threatening the foundations of planetary ecosystems, with 6 out of the 9 boundaries, which include climate change, land-system change, freshwater use, and change in biosphere integrity, being transgressed. Stockholm Resilience Centre
As a result, the path to a net-zero future cannot be achieved without nature. Nature based solutions that involve using natural ecosystem functions to address social, economic and environmental challenges can be leveraged that benefit both human well-being and biodiversity. These can help mitigate carbon emissions by at least 30% by 2030 of the required target and can generate up to US $10.1 trillion in annual business value.
Read more here.
Global developments in the space
Given the growing interlinkages and the interdependence, significant developments having a nature-positive approach have emerged in the regulatory and institutional space.
Nature Positive Initiative
This global initiative, formally launched in 2023, is aimed at halting and reversing nature loss by 2030, promoting biodiversity, and ensuring that natural systems are preserved and restored. This includes a core group of 27 organisations, including some of the biggest global environmental organisations, businesses and financial institutions. This initiative includes retaining and restoring species, ecosystems and natural processes at all scales and recently, the initiative teamed up with EY and the Biodiversity Consultancy to build consensus on the metrics of these nature positive targets.
Read more here.
Global Biodiversity Framework
The Kunming-Montreal Global Biodiversity Framework was adopted in December 2022, setting targets for 2030, including the protection of 30% of land and sea areas and the restoration of 3 billion hectares of degraded ecosystems, with an aim to guide international efforts to conserve biodiversity and ensure its sustainable use. Target 15 of the Framework requires businesses to assess, disclose and reduce biodiversity-related risks and negative impacts, progressively reducing the negative impacts and increase the positive externalities of business on biodiversity, encouraging more sustainable patterns of production.
Read more here.
Taskforce on Nature-related Financial Disclosures (TNFD)
TNFD provides a set of disclosure recommendations and guidance that encourages and enables businesses and financial institutions in assessing, reporting and acting on their nature-related dependencies, impacts, risks and opportunities. It is structured around the 4 pillars – governance, strategy, risk management, and metrics and targets, consistent with the TCFD and ISSB standards. These disclosures are also aligned with the Kunming-Montreal Global Biodiversity Framework.
Read more here.
领英推荐
Taskforce on Nature-related Financial Disclosures (TNFD) FSB Task Force on Climate-related Financial Disclosures (TCFD) International Sustainability Standards Board (ISSB)
NGFS’s Nature-related Guidance Reports
The NGFS’s final guidance framework focused on assessing nature-related financial risks for central banks and regulators encourages a deepened understanding of nature-related financial risks. Alongside the report, NGFS has also outlined the key emerging trends in nature-related litigation, including biodiversity losses, deforestation, ocean degradation, carbon sinks and plastic pollution cases, aiming to raise awareness of nature-related litigation risk.
Read more here. ?
EU’s Deforestation Regulation
In June 2023, the EU Deforestation Regulation was formally adopted, requiring companies to ensure their products do not contribute to deforestation and mandating due diligence measures, contributing to a reduction of GHG emissions and overall biodiversity loss. The agricultural land expansion linked to the production of commodities and their derived products such as cattle, wood, cocoa, leather, furniture etc and their subsequent deforestation and forest degradation was a main driver behind this regulation. ??
This is in addition to the other EU commitments on the European Green Deal, Carbon Border Adjustment Mechanism, EU Biodiversity Strategy for 2030 and the Farm to Fork Strategy.
Read more here.
Science-based Target Network (SBTN) ?
The SBTN released its five-step approach guidance on setting science-based targets for nature, providing a comprehensive and structured guide for businesses setting science-based targets. This will enable a better understanding of the company’s impacts and dependencies on nature. The guidance, currently relating to freshwater and land, further includes technical guidance and resources, in addition to best practices for companies, to set and prepare for such targets. The technical guidance for ocean is under development.
Read more here.
Financing for nature
The State of Finance for Nature (SFN) annual report spells out the glaring gap in nature finance flows; only one third of the required flows for meeting climate, biodiversity and land degradation targets are being met. Moreover, nature negative finance flows are also US $7 trillion per year, of which the private finance flows are US $5 trillion, 140 times larger than NbS private investments! Environmentally harmful subsidies have increased 55% since 2022.
NbS offer cost-effective investment opportunities, with sustainable land management potentially increasing fourfold by 2050. Protecting and restoring ecosystems is essential, requiring minimal additional finance while providing significant benefits. Multiple innovative finance instruments exist providing incentives to increase private finance flows -
Debt-for-nature swaps
This is a financial transaction in which a portion of a developing country's foreign debt is forgiven in exchange for local investments in environmental conservation projects. This helps tackle the triple crisis of debt, nature and climate loss, of low-income countries. As per recent data available, cost of debt repayments for 59 such countries amounted to US $33 billion, whereas the climate finance received by them summed up to US $20 billion.
Recently, Ecuador saw a successful debt-for-nature swap worth US $1.6 billion of outstanding bonds. This instrument has saved Ecuador US $1.1 billion of debt service payments over the next 17 years instead directing US $450 million towards marine conservation in the Galapagos Islands. ?
Read more here.
Wildlife conservation/Rhino bonds
These financial instruments raise funds for wildlife conservation, where returns are linked to conservation outcomes, channelling private capital towards conservation activities.
The first such bond worth US $150 million was raised by The World Bank Group to protect critically endangered rhinos in South Africa. This outcome-based 5-year bond is aimed at facilitating access to additional financing to South African parks and passing the project implementation risk to capital market investors. This tests a new model of conservation financing, linking the investment return to the conservation performance.
Read more here. ???
Biodiversity credits
These are tradable credits that represent the conservation or restoration of biodiversity, used to offset impacts on biodiversity from development projects.
Zambia’s Tondwa Game Management Area is the world’s biggest biodiversity credit projects. This area is situated within a key biodiversity area which saw significant wildlife population decline given the lack of government support and funding. Along with the environmental non-profit Conserve Global , the local community gained biodiversity management rights and has entered a 10-year agreement to conserve or restore 1 hectare of land within the area.
Read more here.
Carbon credits ?
Carbon credits are created by projects that prevent or eliminate greenhouse gas emissions. Each credit equates to one tonne less of carbon dioxide or its equivalent (CO2e) in the atmosphere. These projects depend on the revenue from selling carbon credits to function and are independently verified to confirm the amount of emissions reduced or avoided. Carbon credits allow finance to flow to decarbonisation projects, in line with global climate goals.
India has recently announced its intention to roll out a Carbon Credit Trading Scheme by 2026, in addition to its Perform, Achieve and Trade (PAT) scheme and the Renewable Energy Certificates (REC) system.
Read more here.
Featured events
TNFD Forum Webinar: Boards and nature – the evolving landscape for director’s duties?
The webinar, conducted by the Taskforce on Nature-related Financial Disclosures (TNFD) , focused on the increasing importance of nature-related risks for companies and financial institutions, highlighting the evolving duties of boards and directors in this context.
It aimed to establish why addressing nature-related issues is essential for fulfilling fiduciary duties, discuss the growing investor and regulatory focus on these matters, and explore recent legal opinions from New Zealand, Australia, and the UK with potential global implications. The webinar also sought to provide guidance on building board knowledge and capabilities to address nature-related risks, ensuring compliance with new reporting requirements, meeting investor expectations, and integrating these risks into governance frameworks effectively.
Read more here.
Insights digest
Blogs
Read more here. Contributor: Harshali Shinde
Interesting reads
Read more here. By Financial Stability Board (FSB)
Read more here. By CDP and Boston Consulting Group (BCG)
Read more here. By Soutik Biswas , BBC
Read more here. By Aruna Chandrasekhar and Yanine Quiroz Carbon Brief
Read more here. By Indian Ministry of Finance , Government of India
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