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Building a nature-positive economy

Posted on May 5, 2021 by dishanth

The planet’s ecosystems are nearing critical tipping points, with extinction rates 100-1,000 times higher than they were a century ago. Our current economic system has put natural resources under ever-increasing pressure.

As the recent UK Treasury-commissioned Dasgupta Review of the Economics of Biodiversity puts it, our economies “are embedded within Nature … not external to it.” The task now is to embed this recognition in our “contemporary conceptions of economic possibilities.”

Many businesses, recognising the perils facing the planet, are changing the way they operate. But they can’t do it all alone, and the current rules of our financial and economic system must change if we are to build an equitable, nature-positive, net-zero future.

Such changes make economic sense. Firms that take a long-term view and meet the needs of all stakeholders by prioritising environmental and social risks and opportunities over short-term gains and profitability outperform their peers in terms of revenue, earnings, investment, and job growth. Similarly, companies with strong environmental, social, and governance (ESG) policies perform better and have higher credit ratings.

According to the World Economic Forum’s 2021 Global Risks Report, four of the top five risks to our economies are environmental – including climate change and biodiversity loss. Human-driven nature loss, its links to the spread of diseases such as COVID-19, and the estimated $300 billion annual cost of natural disasters caused by ecosystem disruption and climate change highlight the risks of unbridled economic growth. Thinking beyond GDP and short-term profit is therefore essential in order to restore our relationship with the planet and transform our system into a viable one.

The true risks arising from nature loss and climate change often are not accounted for or understood, including by investors. The economic cost of land degradation amounts to more than 10% of annual gross world product, and human-caused declines in ocean health are projected to cost the global economy $428 billion per year by 2050. The flip side is that shifting toward a nature-positive economy could generate $10 trillion of business opportunities and create nearly 400 million jobs.

…governments must implement ambitious policies that reflect a vision of the sustainable economy to which we aspire. Such measures could not only unlock new business opportunities but also create a level playing field and stable operating environment.

Thriving companies supporting this transition are in a true leadership position. But if a sustainably-oriented firm’s profits dip, reality hits. Investors often chase short-term profits instead of using ESG indicators as a credible proxy – alongside financial performance – to measure a company’s value. This definition of business success must change.

Consider the case of consumer goods multinational Danone. In 2020, Danone became the first listed French company to adopt the model of an entreprise à mission, or purpose-driven company, when 99% of shareholders agreed to embed sustainability into the firm’s governance structure. This year, the company came under increasing pressure from activist shareholders – including from those in the 1% who opposed the new model – owing to what they regard as the firm’s “prolonged period of underperformance.” While Danone’s share price has underperformed those of its rivals, the company is not in the red. Nonetheless, in March it announced the departure of Chairman and CEO Emmanuel Faber, who had championed the firm’s sustainable business model.

It is fair to say that not all shareholders value the same things, and the fact that investors are questioning companies’ ESG efforts can only be positive. But that should not stop advocates of a purpose-driven strategy that considers a wider range of stakeholders and their interests from seeking ways to strengthen the rules and bolster non-financial performance further. As the Dasgupta Review argued, we must “change our measures of economic success to help guide us on a more sustainable path.”

First, we need meaningful and credible ESG data alongside traditional financial reporting in order to counter accusations of greenwashing. Corporate performance indicators must embed the true value of natural, social, and human capital to reveal the full state of health of the planet, people, and profits. To that end, efforts are underway to develop a globally accepted system for corporate disclosure of both financial and sustainability information.

Second, all investors should stop investing in activities that have a highly negative impact on the climate and biodiversity, and they should call for companies in their portfolios to issue reports aligned with the Task Force on Climate-Related Financial Disclosures and the more recently established Task Force on Nature-Related Financial Disclosures. BlackRock, the world’s largest asset manager, has asked all firms in its portfolio to do this by the end of 2020, and a group of major investors worth $4.7 trillion has committed to making their portfolios zero-carbon by 2050. In addition, the US Securities and Exchange Commission recently established a Climate and ESG Task Force charged with monitoring listed companies’ conduct in these areas.

Lastly, and perhaps most important, governments must implement ambitious policies that reflect a vision of the sustainable economy to which we aspire. Such measures could not only unlock new business opportunities but also create a level playing field and stable operating environment. In the run-up to the United Nations Biodiversity Conference (COP15) scheduled to take place in China in October, more than 700 companies are urging governments to adopt policies now to reverse nature loss by 2030. And just recently, the UN adopted a landmark framework to integrate natural capital into economic reporting.

The coming post-pandemic recovery gives the world a chance to embrace such reforms. We must rewire our economic system and reward sustainable, long-term performance that goes beyond financial returns.

Paul Polman, co-founder and chair of IMAGINE & Food and Land Use Coalition. Eva Zabey is executive director of Business for Nature.

Source Eco Business

Fossil fuel funding by world’s biggest banks has grown every year since the Paris Agreement, report finds

Posted on March 26, 2020August 12, 2020 by dishanth

America’s JP Morgan Chase has pumped more than the GDP of Finland into fossil fuels expansion since the Paris climate accord of 2015, while Japan’s and China’s mega banks have also been ‘failing miserably’ in their response to climate change over the last four years, a report from a coalition of NGOs has shown.

It’s as if the penny hasn’t dropped for the financial services industry that climate change is not only an increasingly disruptive environmental phenomenon, but a grave risk to the stability of the global economy.

Financial support for the fossil fuel industry has increased every year since the Paris Agreement came into being in 2015, according to a new report, Banking on Climate Change 2020, from a collective of environmental groups including Rainforest Action Network, BankTrack and Indigenous Environmental Network.

The Paris Agreement recommended that global warming be capped at 2°C above pre-industrial levels to avoid the most devastating effects of climate change. To do so, scientists say greenhouse gas emissions, the bulk of which come from the burning of fossil fuels, must be slashed.

However, the report found that 35 global banks have not only been maintaining but expanding the fossil fuels sector, with more than US$2.7 trillion in investments made since 2015.

It is unconscionable for banks to be approving new loans and raising capital for the companies that are pushing hardest to increase carbon emissions.

Alison Kirsch, climate and energy leader researcher, Rainforest Action Network

United States-headquartered banks JPMorgan Chase, Wells Fargo, Citi and Bank of America have accounted for 30 per cent of all fossil fuel financing from the major global banks since the Paris accord.

JPMorgan Chase, which recently announced it will close one-fifth of its branches in the US in response to the Covid-19 coronavirus pandemic, pumped US$269 billion—more than the gross domestic product of Finland—into the fossil fuels sector over the last four years, notably in fossil fuel expansion, Arctic oil and gas, offshore oil and gas, and fracking.

In Asia, Tokyo-headquartered Mitsubishi UFJ Financial Group (MUFG) was the region’s biggest fossil fuel financer and the world’s sixth-biggest financier, investing US$119 billion since 2015.

The investments in fossil fuels made by the world’s biggest 35 banking institutions between 2016 and 2019. Source: Banking on climate change report.

Counting out coal

China’s mega banks were found to be world’s biggest financiers of coal—the single biggest driver of greenhouse gas emissions—since the Paris Agreement. China Construction Bank and Bank of China are the biggest bankers of coal mining, pumping US$25 billion into the sector between them. The Industrial and Commercial Bank of China and Bank of China were the heaviest funders of coal power globally, investing US$42 billion combined, according to the report.

However, financial support for the carbon-intensive fuel is dwindling globally, the report noted. Finance to the top 30 coal mining companies fell by 6 per cent between 2016 and 2019, while finance to the top 30 coal power companies shrank by 13 per cent.

Though China’s banks are a noteable exception, the report found that 26 of the 35 banks in the report now have policies restricting coal finance, which has helped to push the finance sector away from coal. China’s big four banks do not have any climate policies in place.

A growing minority of the world’s biggest banks—now 16—now also restrict finance to some oil and gas sectors. The report said European banks have the toughest fossil fuel lending restrictions. France’s Crédit Agricole, the Royal Bank of Scotland and Italy’s Unicredit are said to have the most progressive climate policies.

Banking on Paris

The majority of the world’s top banks are signatories of frameworks such as the United Nations’ Principles for Responsible Banking and the Equator Principles, which commit banks to align their business strategies with the Paris Agreement.

But because potential emissions from the coal, oil and natural gas already in production exhaust the carbon budget for the 2°C warming limit of the Paris Agreement, any bank that supports the further expansion of the fossil fuel sector is Paris-incompatible, the report noted.

Alison Kirsch, climate and energy leader researcher, Rainforest Action Network, said that it is “crystal clear” that banks are “failing miserably” in their response to climate change and the decarbonisation of the global economy.

“As the toll of death and destruction from unprecedented floods, droughts, fires and storms grows, it is unconscionable and outrageous for banks to be approving new loans and raising capital for the companies that are pushing hardest to increase carbon emissions,” she said.

The report emerges at a time when the ongoing Covid-19 coronavirus is threatening to derail investment in renewable energy, according to the International Energy Agency.

Source: https://www.eco-business.com/