In a conversation with Richard Peers from Finextra, Simon Zadek, co-chair of the technical hub for the Task Force on Nature-related Financial Disclosures (TNFD) and chair of the Finance for Biodiversity (F4B) initiative, offers insights into the interplay of sovereign debt, natural capital, and behavioral nudges, alongside the critical roles of F4B and TNFD in these areas.
Over the last 15 to 20 years, Zadek has dedicated his efforts to aligning the operations and decision-making processes of global financial and capital markets with sustainable development outcomes. He notes a significant shift in the past three to four years, where the integration of nature and finance has gained traction and moved towards a phase of innovation.
Zadek acknowledges that while many models for nature are built on existing carbon frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD), the complexities of nature extend beyond carbon measurements. He emphasizes that nature models must incorporate material financial risks akin to those linked to carbon, as well as metrics related to nature dependency and risks. He argues that the TNFD advocates for a broader understanding of these dependencies and impacts, effectively extending the timeline for recognizing material financial risks.
Similarly, F4B focuses on establishing the material significance of nature in financial decision-making. One of its primary objectives is to enhance how nature is valued in private financial markets.
In light of the current pandemic-induced sovereign debt crisis, Zadek notes that the TNFD has proposed that considerations of nature and climate should be integral to debt relief agreements. He draws a parallel between incorporating natural capital in sovereign debt and lending to a company without a balance sheet.
On a micro level, Zadek highlights the Every Action Counts initiative, a collaboration between F4B and the Digital Green Finance Alliance (DGFA). This coalition utilises mobile payment platforms to encourage behavioral change through algorithm-driven information dissemination. He describes these nudges as a way to “gamify information,” strengthening social identities connected to eco-friendly consumption choices.
Zadek addresses the importance of transparency and trust, cautioning that while fintech can enhance these aspects, it cannot be taken for granted. He stresses that without a thorough commitment to initiatives like blockchain integration for the carbon market, achieving traceability and transparency will be challenging. Consequently, he warns that the inherent public benefits offered by these fintech innovations may be compromised.
Concluding his remarks on the future role of financial institutions in fostering nature-centric changes, Zadek refers to the Global Climate 100, a coalition of institutional investors leveraging their collective investments to impact the most carbon-intensive companies. He suggests that a similar initiative focused on nature is necessary, underscoring the need for institutional investors and the broader financial sector to collaborate not just in investment, but also in influencing corporate behavior towards sustainability.