Rewiring the Finance System for Nature

On the 31st January, the government published its Environmental Improvement Plan 2023 (EIP) setting out how it intends to deliver the Environment Act’s legally binding targets. This has some positive new commitments and a clear sense that urgent delivery must be the focus for measurable progress by 2030. This was also the message from the Office of Environmental Protection (OEP) in its January 2023 monitoring report, which issued the shocking warning that the government is on track to miss every one of its key environmental targets.

The problem is that, to date, policies haven’t been strong enough to tackle the root causes of the nature crisis. In the UK and globally, the economy is the driver of nature’s ongoing destruction, and no amount of environmental policy will succeed while the economy works against it. While it is still cheaper and more profitable for businesses to damage the environment than preserve it, environmental targets will never be reached. The underlying economic incentives governing the use of land and other natural resources must be addressed.

Two government speeches have sent positive signals

So it was great to see a speech by John Glen, Chief Secretary to the Treasury, on the 21st February, set out “an environmental, economic vision” for the UK, trailing new efforts to rewire the global financial system to align with our environmental ambitions in the forthcoming Green Finance Strategy update. That came hot on the heels of a speech by the Environment Secretary, Therese Coffey, on the 17th February, stating the importance of using private finance to meet the UK’s nature goals.

What we really need is a transformation to a nature positive economy - i.e. one which improves natural assets over time. To achieve it, the activities, decisions and incentives of businesses, farmers and financial institutions need to shift significantly.

The private sector was tasked with delivering a net zero carbon economy when the chancellor announced at the Glasgow Climate Conference in 2021 that the UK would be the first net zero-aligned financial centre in the world, and that financial institutions and publicly-listed companies would have to publish transition plans. Now we urgently need to incorporate nature positive goals into the net zero policy and regulatory framework that is developing fast.

That is crucial, in part because, as the science shows, we’ll never deliver net zero without tackling nature loss. But increasing the level of nature and biodiversity over time is important in its own right: The economic costs of losing nature are significant and increasing, but so are the benefits from investing in and protecting nature. Ultimately, our whole economy and way of life depends on healthy ecosystems.

The UK Government, along with many others, has just signed up to the new Global Biodiversity Framework, agreed at the Convention on Biological Diversity (CBD) in December 2022. This not only sets a series of nature-related goals and targets, including some more ambitious than the UK’s current Environment Act targets, but it also commits signatories to progressively align all relevant public and private activities, fiscal and financial flows with the framework. This suggests the chancellor should now update the UK’s previous commitment, and make it the first net zero and nature positive financial centre.
 

Businesses don’t want two separate sets of goals

This is clearly a challenging task, and there is much to be done to create the supportive architecture necessary. But businesses don’t want to work to two separate sets of environmental goals, especially as they are so interlinked. There is plenty of guidance and many tools available to show financial institutions and companies how to get started, which we discuss in our recent report on incorporating nature in transition plans. And a growing number of companies are actively engaging, voluntarily setting nature-related goals and targets, because they see it reduces their costs and risks. For them, it is a source of new economic opportunities and makes business sense to get ahead of the game. But they want clarity from the government on the direction of travel and a clear route to delivery.

At December’s CBD conference, WWF and Aviva published a joint paper, Unlocking Nature Finance, outlining the building blocks necessary to include nature positive goals in the emerging net zero policy and regulatory framework. While most of these are well underway for net zero, there’s a long way to go on nature.

These are the steps we believe the government should take to catch up:

• Incorporate nature into new transition plan requirements, to meet net zero and nature positive goals.
• Require the private sector to implement the Taskforce for Nature Related Financial Disclosures framework and support science based targets for nature as well as climate.
• Map out what a UK nature positive transition should look like - i.e. show how different sectors of the economy must change to meet targets in the Environment Act and the Global Biodiversity Framework, as the Climate Change Committee already does for net zero.
• Analyse the business risks and commercial opportunities this might generate, so UK companies and financial institutions are well positioned for the transition. The World Economic Forum has already produced an initial analysis of this for the global level, highlighting that sectors like food, infrastructure, energy and extractives should be the priorities.
• Finally – and crucially – policies and regulations must support and drive the private sector, as it will not be able to do this alone.

A nature positive economic strategy is needed to deliver the Environment Act, akin to the net zero strategy, mapping out how the UK will make the transition and enabling firms to align with it. Embracing it will secure future prosperity and resilience in the face of growing environmental challenges. What’s more, it will be an enormous economic opportunity that the UK is well placed to grasp.