Kickstarting Sustainable Finance Live 2024 at Events@No6 in London, Richard Peers, founder of ResponsibleRisk and a contributing editor at Finextra, delivered an introduction that outlined this year’s themes and objectives focused on understanding natural capital risk, pricing, and trade.
The conference centered on critical topics such as natural capital, agriculture, supply chains, and the regulatory landscape. It also showcased innovative technologies employed to gather nature-related data, including Earth observation and satellite reporting.
Peers highlighted the Hackathon, which began on September 27 and runs until October 10, as a practical demonstration of the event’s “Learn by Doing” approach. He provided context for the role of nature in financial services within the EU, referencing the newly adopted EU Nature Restoration Law that mandates the restoration of 30% of natural habitats by 2030, and 90% by 2050.
“Our aim was to create an event that illuminates what a natural transaction could look like, collaborating with data providers all the way through to an asset management trading platform. This initiative seeks to establish that this asset class can be just as tradable as any other, adhering to the necessary diligence and expectations within the financial industry,” said Peers.
To gauge participants’ understanding of the pricing and trading of natural capital, he posed a simple Slido question: ‘Is it clear to you how natural capital could be priced and traded?’ The majority answered ‘no,’ and it will be interesting to see if this perspective shifts over the course of the event.
Robert Gardner, founder of ReBalance Earth, launched the morning’s first session with a keynote address titled ‘A Day in the Life of a Transaction.’ He addressed this year’s conference problem statement: determining the role of natural value in the supply chain and how financial institutions can evaluate natural capital.
He stressed the disconnect many companies have regarding the impact of climate change and biodiversity loss on their operations: “Every 1°C increase in temperature leads to a 7% rise in moisture in the air, resulting in more intense rainfall as well as periods of drought. Many are feeling the consequences of this as we speak.”
Gardner cited specific cases of substantial damage inflicted on factories owned by Shell and McVities due to natural catastrophes, illustrating how climate change can adversely affect both revenue and assets. “Water is the top nature risk, affecting 7-9% of GDP. Yet, only about two-thirds of financial institutions—including banks, asset managers, and insurers—have evaluated their water risks, while merely 1% have established water security targets. The challenge is that many do not even recognize this risk,” he noted.
He argued that embracing nature is essential for solutions. He described how ReBalance Earth begins by identifying high-value catchments to determine optimal nature restoration initiatives: “We prioritize high-value catchments rather than starting directly with nature. From there, we assess opportunities for habitat restoration, which may include peatland, river restoration, or incentivizing farmers to adopt sustainable practices that improve soil quality.”
Gardner pointed to ReBalance Earth’s ongoing nature-related initiatives in Plymouth, demonstrating that channeling funding into restoration can protect environments and promote profitable business operations, instead of constructing more concrete infrastructure.
He articulated the financial benefits of avoiding asset losses from natural disasters and high insurance costs that typically don’t cover business disruptions. A notable challenge he identified is the “free-rider” problem; large businesses need to invest capital in environmental protection to safeguard their investments and bolster business growth. If more companies remain resistant to addressing nature-related risks, making a meaningful impact will become increasingly challenging.
He also illustrated a significant opportunity, noting that £100 billion is required over the next decade for nature restoration, while £5 trillion in UK pension and wealth assets is available, projected to double to £10 trillion by 2025.
“My message to pension funds is simple: if you allocated just 2p of every pound—making a 2% investment in nature as an asset class, akin to real estate or infrastructure—you can reframe nature as critical business infrastructure. This approach demonstrates the potential for financial returns, especially since those investing in local sustainability efforts will benefit similarly to companies like Shell and McVities,” Gardner concluded.
He summed up the importance of redirecting capital flows to achieve both “financial returns and a world worth living in.”