Speaking with Finextra’s Richard Peers, Simon Zadek, co-chair for the technical hub of the Task Force on Nature-related Financial Disclosures (TNFD) and chair of the Finance for Biodiversity (F4B) initiative, discusses the different approaches sovereign debt, natural capital, nudging, and the role that F4B and the TNFD play in that.
Over the past 15 to 20 years Zadek has been focused on aligning “how financial and capital markets around the world work, make decisions, and channel resources, with a range of sustainable development outcomes.” From this experience he reports seeing a trend over the last three or four years where nature and finance has emerged on the agenda and up an innovation curve.
Although many nature models are being built on existing carbon models, such as the Task Force on Climate-related Financial Disclosures (TCFD), Zadek points out that nature is more complicated that carbon, in the measurement of data and risk pricing level. Zadek argues that nature models do include material financial risks, like those seen with carbon, but they must also include metrics associated with dependency on nature and nature risks. Therefore, he states that the TNFD are, “arguing that nature dependency and nature impacts are really extending the time horizon on what will all become material financial risks.”
In a similar vein, Zadek notes that F4B’s single aim is advancing the materiality of nature in financial decision making. A foundational way F4B drives this aim is to advance the way nature is priced in private financial markets.
Zadek comments that during the current pandemic-induced sovereign debt crisis, TNFD have tried to introduce the concept that nature and climate should be part of debt relief deals. Zadek further adds that nature capital should be an embedded part of sovereign debts going forward, comparing it to lending money to company that doesn’t have a balance sheet.
While this is macro planning, on the other end of the spectrum, Zadek discussed Every Action Counts, a partnership between F4B and the Digital Green Finance Alliance (DGFA). This is a coalition of mobile payment platforms focused on bringing behavioural change through the use of algorithms, driving information across mobile payment platforms to the user. Zadek describes these nudging actions as, “gamifying information in order to strengthen social identity associated with green consumption decisions.”
With regards to transparency and trust, Zadek noted that while fintech can play an important role in these areas, it is not automatic and we should not assume that mobilising fintech innovations automatically serve the public good. Zadek explains that without totally committing to actions like putting the whole carbon market on blockchain, “traceability will become almost impossible, transparency will become technically infeasible.” As a result, Zadek claims that the public good associated with these fintech mechanisms could be lost.
Summarising his points on the role of financial institutions in the future of nature-led changes, Zadek mentions the Global Climate 100, a current group of institutional investors who used their collective investments to influence the 100 most carbon intensive companies. Zadek claims that there will be an equivalent launched in the nature space stating, “this highlights the need to not only look at climate but also nature, and the role of the institutional investors and other parts of the financial sector working collectively using their investment power not only to invest money, but influence the way in which companies behave.”