News from the front desk, Issue 530While the Feds inch their way to a better net zero target – through crab walks, ransom notes, and the clubby effect of other global leaders at Cornwall –  the smart (big) money has moved on from disclosure on carbon, net zero, modern slavery, supply chains and wellness to bio diversity.

Heard on ABC radio Thursday AM: The PM Scott Morrison saying the world has moved on with energy, Australia needs to be as good at producing clean energy as it was at producing fossil fuel energy.

It’s another small step out of the rabbit hole dug and boobytrapped by his political  forebears. And it was just a few days after Barnaby Joyce, the Angry Ant of the bush was re-elected to the top job of the National Party with expectations of much anti-climate, anti-net zero brouhaha, so this gives a bit of hope.

Perhaps the PM noted the media reports that Joyce might consider net zero by 2050 if farmers are paid for their trouble, (and ignored how this might be channelling Jair Bolsonaro’s ransom demand to not destroy the Amazon.)

Morrison of course is late to the party. We barely need the Feds these days. Yes, yes, policy and all that. But as we heard from James Tayler head of ESG at Ellerston Capital ahead of the Printed City event at BVN offices last week the appetite for impact investments is like an avalanche half way down the mountain. Standing in the way will only get you flattened.

Some of us might feel a bit like Rhett Butler at the end of the movie telling Scarlett he’s done: “Quite frankly my dear, I don’t give a damn”. We waited, we urged, we implored, we used logic until it was clear logic was the last thing that might work to persuade these Feds we keep electing. Now they shimmy and slide over to our way. But we’re over you. Out of love. Done. 

We have discovered self-empowerment. And the capital markets.

So, our new best friends:

A metaphorical two weeks ago the capital markets “get” net zero. A week ago it’s ESG. Today it’s bio -diversity and protecting and restoring nature.

A few years ago we managed to get an invite to a forum at University of Technology Sydney, on a Saturday, that discussed the possibility of allocating legal status and rights to nature, or legal “personhood”. Today there are rivers in the New Zealand and India that have legal status. You can read about the origins of the movement here.

This might seem radical weirdo stuff but think about it. Take yourself out of your cosy little paradigm if you’re luck enough to have one, where the water always comes out clean and you can breathe the air. If we disrespect these treasures, rape and pillage them, then it won’t seem like such a crazy idea to give these essential elements of life legal status that in the end protects us all. Country, People. That’s what the First Nations people tell us over and over. 

According to the man who runs the Global Real Estate Sustainability Benchmark in Australia Ruben Langbroek, concern for biodiversity and restoration of nature is now an emerging trend that is attracting serious attention from the capital markets.

In a recent conversation Langbroek confirmed the huge and rising interest in ESG.

“Australia has been doing so well and it’s interesting, without any help from the federal government,” he said.

If you look at institutional investors, it’s “all about climate change, resilience and decarbonisation and that remains a number one issue. But globally the institutions and investors and regulators – everyone knows that climate change is a financial risk.”

Langbroek points out that finance ministers in the G7 agreed earlier this month to make TFCD reporting mandatory and this will likely spread out to the G20.

He reckons climate change will be “front and centre to everything”. It will impact financials – not just in terms of what companies are doing to decarbonise but what the by-products of their products are.

In words so typical and perfect for our global challenge he says, “the really cool thing is this provides a massive investment opportunity.” 

In the way of capitalism one new opportunity is never enough. Investors will want more and more, and it’s no surprise to hear Langbroek say, they will “flock towards not just net zero” but to “other climate solutions and innovations from technology and so on”.

To be able to build capacity to stresses and shocks will be key. Can you insure your building? asks Langbroek. 

Real estate is right at the top of impact on the environment and nature: buildings, roads, cities, urban sprawl. And it’s also at the front end of the receiving end of climate change.

After those immediate considerations the next logical step is awareness of biodiversity.

“It makes sense”, Langbroek says, because “the physical nature and location of buildings is so tangible. When you think about climate change the long term impacts are not very tangible, but it’s very tangible and physical to know that one in eight species will become extinct in our lifetime.”

In the same way that TFCDs (Task Force on Financial Disclosure) have been developed, expect nature related financial disclosure, he says. And expect policies around protection and restoration of habitats. For example, the koala habitat.

“And because our whole thinking on financial impact has been established, the thinking is that around biodiversity it will happen faster.” 

The weight of money is powerful and if the asset managers say this is a risk and an opportunity and that we need to protect and restore our environments then it’s quite likely action will follow, Langbroek says. 

“The whole pandemic has shown how interconnected everything is – social, economic, governance” 

Already the interest from the capital markets in ESG is strong especially in Asia.

“Every capital markets deal has an ESG component,” Langbroek says, “it’s an exciting space to be in.”

In a follow up email to our conversation Langbroek said: “Like our climate, biodiversity is in a state of crisis and like our climate, biodiversity is essential to the health and maintenance of our ecosystems. In turn, these are critical to human health, as well as our economies and real assets. As a consequence, there has been a strong increase in attention on biodiversity and nature from the financial sector and industry stakeholders.”

He pointed to the UN Biodiversity Conference (COP 15) in October “during which governments from around the world aim to agree a new set of goals for nature over the next decade, similar to the seminal COP 21 on Climate Change. 

“As such, I believe we can expect increased regulations on nature & biodiversity (disclosures) as well.”

He included some useful resources on the  topic:

  • The Taskforce on Nature-related Financial Disclosures (TNFD) recently launched aiming to deliver a framework for organisations to report and act on evolving nature-related risks – similar to the TCFD approach. 
  • Article from EcoWatch on why biodiversity is critical, and what scientists and governments are doing to protect it, such as the 30×30 pledge aimed to conserve 30 percent of the earth in its natural state by 2030: link
  • Article from Bloomberg on real asset managers having joined the Finance for Biodiversity Pledge, a coalition of investors committing to protect and restore biodiversity through their financing and investments: link
  • Report from Responsible Investor on investor action and scaling up biodiversity investing: link
  • The Dasgupta Review, a seminal global review on the economics of biodiversity: link
  • Article from Responsible Investor on the World Benchmarking Alliance having developed a “Nature Benchmark” which will help companies understand what is expected of them in terms of managing their impact and in turn adapt their strategies. It will also allow stakeholders to have an accountability mechanism on nature: link
  • Handbook from University of Cambridge on nature-related financial risks: key concepts and a framework for identification: link
  • Report from The Economist on measuring global awareness, engagement and action for nature: link

If this doesn’t convince you, then remember what happened to coal.

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