How Global Exchanges Can Accelerate Company and Investor Action on Nature Risks and Opportunities

Transitioning to a nature-positive global economy could generate annual business opportunities worth $10 trillion and create 395 million jobs by 2030, and protecting nature could avert $2.7 trillion in annual economic losses.

These now familiar headline figures from the World Economic Forum and the World Bank, respectively, underscore a fundamental truth: we live in a nature-based global economy.

PwC estimates that more than half the world’s GDP, or $58 trillion, is moderately or highly dependent on nature. According to the European Central Bank, 75% of all bank loans in Europe, for example, are to companies highly dependent on at least one ecosystem service such as pollination, flood protection, or clean water. And analyses by central banks in Brazil, China, Malaysia and Mexico confirm similar dependencies.

Yet even as financial regulators, insurers, bankers and investors wake up to nature-related risks and opportunities, they are failing to finance climate and nature action at the necessary scale and speed, and climate and ecosystem breakdown continue to worsen.

Helpfully, the Kunming-Montreal Global Biodiversity Framework (GBF) agreed in 2022 offers a global blueprint for living in harmony with nature by 2030. Supported by a campaign, The Biodiversity Plan: For Life on Earth, it includes three targets that rely on private sector engagement for their delivery.

Target 14 calls for the integration of biodiversity in decision-making at every level; target 15 for companies and financial institutions to assess, disclose and reduce biodiversity risks and negative impacts; and target 19 for $200 billion annually for biodiversity from all sources, including $30 billion through international finance, by 2030.

Even if met, the last of these would leave a massive shortfall in investment in the natural capital on which we all depend. Analysis by BloombergNEF, for example, suggests that current financing for the planet’s more fragile natural resources amounts to just $166 billion per year, and that this will need to reach almost $1 trillion by 2030 to maintain the integrity of ecosystems that sustain our economies.

One solution to closing this gap, as proposed in GBF target 18, lies in redirecting some of the $7 trillion invested every year in activities such as intensive agriculture and fossil fuels toward activities that work with nature rather than against it, that heal rather than harm.

For the private sector, the good news is that a number of emerging frameworks and approaches offer a foundation for delivering on the GBF and shaping a net zero, nature-positive global economy.

Sustainable finance taxonomies have enormous potential to transform economies by providing market players with clarity on sustainable activities and their impacts, leveling the playing field, limiting greenwashing and opening investment opportunities. And today, over 40 countries and the European Union already have, or are in the process of developing, sustainable finance taxonomies. But what makes a good taxonomy?

The WWF’s When Finance Talks Nature report sets out the core requirements. Firstly, they should state clear environmental objectives, including on climate and nature - the EU taxonomy, for example, includes sustainable use and protection of water and marine resources as well as protection and restoration of biodiversity and ecosystem services. Secondly, they should offer a well-defined scope of economic activities supported by environmental criteria - the Colombian taxonomy, for example, focuses on cattle ranching, agriculture and forestry in serving objectives on ecosystem and biodiversity conservation. And thirdly, they should include robust performance criteria, metrics and thresholds with which to evaluate claims made by companies and investors. Adhering to core principles, namely being science-based, forward-looking and technology neutral, will also strengthen global coherence between taxonomies.

Alongside taxonomies, disclosure and reporting frameworks that enable companies and investors to identify and act on nature-related risks and opportunities are another critical building block. Here, the Taskforce for Nature related Financial Disclosures (TNFD) is becoming the gold standard.

Born from an idea presented by the WWF and Axa to G7 Environment Ministers in 2019 - that climate change and nature loss are two sides of the same coin and warrant integrated decision-making – the TNFD’s recommendations launched at the New York Stock Exchange last September put nature firmly on the financial markets’ radar. Aligning with existing financial disclosure frameworks, and mirroring already widely used recommendations from the Task Force on Climate-related Financial Disclosure (TCFD), they reinforce the need to address climate and nature risks together.

TNFD’s four-step LEAP Approach (Locate-Evaluate-Assess-Prepare) enables companies and investors to understand and act and report on nature-related risks and opportunities derived from businesses’ impacts and dependencies on nature.

Because growing soy near the Amazon, for example, is not the same as logging timber in Canada, the TNFD also recognises that nature-related risks are highly localised and that disclosures must be context specific. And crucially that local communities, and in particular Indigenous Peoples, are often best-placed to safeguard nature and should be fully engaged in shaping and delivering mitigation, protection and restoration efforts.

While the TNFD framework remains voluntary, stock exchanges have the power to accelerate its adoption by all listed companies, not least by making climate and nature disclosures a criterion within green equity principles.

Lastly, in addition to the clear goals, common definitions and understanding of where risks and opportunities lie that the GBF, taxonomies and disclosures, respectively, provide, shaping a net zero, nature-positive global economy also requires clear, ambitious planning. For companies and investors, this makes climate and nature transition plans a must-have. High-level principles for credible transition plans already exist, and the WWF, the TNFD, the Glasgow Financial Alliance for Net Zero (GFANZ) and others are working to define detailed guidance. Among other things, a credible plan should align ambitious objectives with global climate and nature goals, and set clear interim targets, as well as prioritise action and implementation.

We live in a global economy that relies on nature. Whether or not we prosper in one depends on tackling the climate crisis and financing a global economy that works with nature rather than against it. Global exchanges have a critical role to play - by securing robust taxonomies, nature-related disclosures and transition plans that drive sustainable finance and the integration of nature in investor decision-making.