In December 2022 representatives from 188 countries adopted the Kunming-Montreal Global Biodiversity Framework (GBF) at COP15. This has been hailed as the ‘Paris moment’ for biodiversity and reflects an important milestone in the journey towards the protection of biodiversity.
Although climate change and biodiversity loss are often treated as separate issues, nature is essential for the delivery of net zero goals. The just transition is a critical factor for the implementation of the Paris Agreement and to date, efforts have focused primarily on ensuring that the decarbonisation of the energy sector is done in a way that is equitable and inclusive. However, creating a just transition is equally essential for sectors that depend on or impact nature. While there is a great potential for social benefits through the transition to a nature-positive economy, including decent jobs at a large-scale and upholding of environmental rights, there could also be significant costs, none of which will automatically be distributed in a just manner. A ‘just nature transition’ would deliver decent work and social inclusion in the shift to a net-zero and nature-positive economy.
Financial institutions such as commercial banks and institutional investors have been increasing their efforts to support a just transition in the energy system and this needs to be extended to the social dimensions of nature. Halting and reversing biodiversity loss will require significant investment and innovative financial solutions to help mobilise the USD200 bn/year that will be needed to meet the GBF’s objectives.
This insight will address three key questions that financial institutions must consider as we move to a just nature transition:
- How do we interact with nature?
- What are the priority areas for a just nature transition?
- What are the levers for finance to make a positive impact in the just nature transition?
1. How do we interact with nature?
Nature provides essential services on which society depends, such as shelter, food and water, and other ecosystem services, such as water regulation, air filtration, and pollination. These benefit all of society, not only corporates and financial institutions, as this provides the basis for workers and communities to flourish. The 2020 World Economic Forum risk report found that more than 50% of the world’s GDP ($44 trillion) is moderately or highly dependent on nature and its ecosystems. Species do not exist in isolation; they are interconnected, so changes in an ecosystem will alter its ability to sustain its functions and the benefits it provides.
2. What are the priority areas for a just nature transition?
As we have seen with climate change, tackling nature loss will require the fundamental transformation of a range of sectors if real progress is going to be made and sustained. This will present considerable opportunities but also risks for workers, communities, and consumers. The just transition must be addressed across three domains as we move toward a nature-positive economy:
A just transition in agriculture and food systems
Approximately 86% of species are at risk of extinction as a result of agricultural practices. People who are dependent on agriculture often face intersectional inequalities and vulnerabilities including income, job security, gender bias, climate change and nature loss impacts. Agricultural workers, rural farmers, food processing and hospitality workers must have a voice in shaping change and redesigning the food system.
A just transition away from deforestation
Global forests host around 80% of the planet’s terrestrial biodiversity and are increasingly under threat from deforestation and the physical impacts of climate change such as wildfires and droughts. Expanding global protected areas to meet the GBF targets will require well-connected and equitably governed systems of protected areas and other location-based conservation programmes. Recognising indigenous and traditional territories and practices will be an essential part of this. Achieving progress to end deforestation is thus crucial from both an environmental and a social standpoint.
A just transition toward the restoration of ocean ecosystems
Around 60 million people are estimated to work in fishing and aquaculture globally, with the majority residing in low and middle-income countries. The blue economy – which includes preservation and regeneration of the marine environment as well as the exploitation that exists in associated industries – has the potential to spur sustainable development and provide decent jobs, while supporting healthy marine ecosystems. Through the conscious integration of social dimensions and human impact, the move to environmentally-friendly practices in fishing and aquaculture can simultaneously deliver vital improvements for communities.
3. What are the levers for finance to make a positive impact in the just nature transition?
All sustainability transitions have human consequences. Finance can play a key role by mainstreaming biodiversity objectives in decision-making and directing finance flows to accomplish the targets set out in the GBF. By taking a holistic approach to the climate–biodiversity–society nexus, financial institutions can shape the nature transition and address the social harms resulting from nature degradation and climate change.
Four levers to implement, which can be applied to the priority just nature transition areas, are:
Strategy, leadership and decision-making
It is essential to recognise the importance of biodiversity within policy, strategy, governance, risk management, operations and targets. The just transition should be embedded into the strategies and plans of financial institutions to achieve their climate and biodiversity goals – and take leadership in signalling this commitment internally and externally.
Financial institutions should integrate the just nature transition into their equity and debt engagement with business, encouraging action, setting expectations, requiring disclosure and pressing for performance in line with international standards including the Taskforce for Nature-related Financial Disclosure which is set to be finalised in September 2023.
Financial institutions should explore opportunities to support companies committed to positive social impact for workers, suppliers, communities and consumers in the delivery of climate and biodiversity goals. Such investments often exceed the risk appetite of many financial institutions, especially in low- and middle-income countries. Solutions could include blended finance; impact funds; payments for ecosystem services; green bonds; and biodiversity credits. These innovative financial instruments must be designed efficiently to target underlying obstacles and enable the essential private finance needed for pioneering projects.
Policy dialogue and public sector engagement
Financial institutions should advocate that governments introduce effective policies to support the just transition, and engage on public finance priorities, such as sovereign bonds and blended finance, in order to achieve positive impact for nature and people.
In conclusion, there are increasing expectations for both corporates and financial institutions to understand their dependencies, risks and opportunities related to the nature and biodiversity crisis. In order to build resilience and long-term value financial institutions must place people at the heart of this transition to a nature positive economy.
To find out more about the just nature transition as well as how biodiversity loss and the new Global Biodiversity Framework will affect your business please contact Erika Furbert.