In Zurich, crowds filled the halls of Swiss Bank UBS on 16 January for the release of a new product called ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure). Developed by the Finance Alliance for Natural Capital, which brings together some 40 major global financial institutions, this online platform is the result of a three-year long project. It allows banks and investors to understand, sector by sector and profession by profession, biodiversity’s impact on a given activity, and therefore the threats that may weigh on it.
On one hand, the platform distinguishes direct physical impacts from those that will compromise the production processes. On the other hand, it highlights solutions that can mitigate negative impacts and serve as a defence against the most significant disturbances. "ENCORE produces information that investors can use to analyse the risks associated with the loss of natural capital weighing on their portfolios and then integrate this information into their existing risk management processes", explained the organiser of the Swiss Sustainable Forum.
For the moment, the platform is undergoing pilot studies in conjunction with banks in Colombia, Peru and South Africa. As Madeleine Ronquest, Head of Environmental and Social Risk Management at the South African FirstRand bank explains, "This is very important for us because banks do not collect data to assess the impact of biodiversity loss on the creditworthiness of their customers. Let’s take the example of the progressive disappearance of certain species of fish, which means considerable losses for fisheries which must also invest to have their activities relocated to places more abundant in fish".
Quantifying the consequences of biodiversity loss
"Our global economy depends on 40% of biodiversity, 60% of which is directly threatened," Antoine Cadi, Director of CDC Biodiversité, explained in two shocking figures. "We are very late in our awareness of a very serious phenomenon whose effects will be felt faster than those of global warming," he added.
This is why CDC Biodiversité, a subsidiary of Caisse des Dépôts group, is working on the development of a Global Biodiversity Score (GBS). "The goal is to build a simple indicator that is, in a way, the biodiversity destruction score given to a particular company or activity". The ambition is important since CDC Biodiversité hopes that its GBS will be to biodiversity what the CO2 equivalent tonne is to climate. Meaning, this would be an indicator that assesses, quantifies and redirects economic and financial models.
Given the multiplicity of interconnections within a given ecosystem, calculating the GBS is inherently complex. The chosen approach is on scopes, which is the same for climate. The first scope covers direct impacts, the second covers impacts related to energy consumption, and the third focuses on the most indirect impacts (but they are currently out of the development scope).
$150 billion to preserve biodiversity
"To develop our GBS with the most accurate economic and financial data possible, we have created a club called the B4B + which brings together companies and financial partners," explains Cadi. "We want to be ready by 2020. It should be the year when the COP 15 on biodiversity in Beijing will lead to an international agreement for biodiversity protection in the image of the COP 21, which ended in 2015 with the Paris Climate Agreement".
The CDC Biodiversité Club has about thirty companies including half a dozen financial organisations (BNP Paribas, Banque Postale, BPCE, BPI, AFD, Caisse des Dépôts group). The mobilisation of capital for biodiversity protection is still very far from covering the essentials. The estimated amount is $50 billion per year for three quarters of the public, when it would actually be necessary to spend at least $150 billion to preserve biodiversity!
The issue is starting to take shape. Finance for Tomorrow, the French initiative on sustainable finance, for which Novethic is a member, has even been able to map the financial players involved in this new asset class: natural capital and biodiversity!
Anne-Catherine Husson-Traore, @AC_HT, CEO of Novethic