The Environmental Change Institute (ECI) is leading a new initiative to embed the science of biodiversity and natural capital into financial decision making to help green the financial system.
Greening Finance for Nature is one of three flagship schemes to share £3m follow on funding from the Natural Environment Research Council (NERC) as part of the Integrating Finance and Biodiversity (IFB) Programme launched in April last year.
The first phase explored the gaps between the financial system and biodiversity and engaged with over 250 organisations. The ECI is building on that work in this second phase and leading a team of research partners, including the UN Environment Programme World Conservation Monitoring Centre (UNEP-WCMC), the UK Centre for Ecology and Hydrology (UKCEH), the University of Exeter, the University of Reading and University of York, as part of the overall IFB programme.
The new initiative takes aim at the decision-making processes of financial institutions such as banks and asset management companies. Financial institutions themselves face significant risks related to biodiversity loss, and at the same time, decisions over how capital is allocated can have a significant adverse or positive impact on nature.
The focus will be on portfolio risk management, business strategy, risk disclosure, and the prevention of greenwashing. The challenges to be addressed include securing reliable data, addressing gaps in scientific knowledge, and bridging the gap between science and finance.
Dr Nicola Ranger, co-Director of the new Integrating Finance and Biodiversity Programme and lead of its Greening Finance for Nature initiative, said:
Finance can be either part of the problem or a big part of the solution to biodiversity loss. Our research with the Network for Greening the Financial System (NGFS) last year demonstrated that financial institutions themselves face losses in the trillions of dollars due to the erosion of natural capital around the world. We’re exciting to be leading the Greening Finance for Nature initiative, which will play a critical role in bridging the gap between science and finance so that decisions made by financial institutions account for nature.
“The central scientific challenge to be addressed is that the benefits provided by nature are not well understood and embedded in our current economic and financial system. The erosion of vital natural capital is becoming increasingly unsustainable and unaffordable at the societal level, and yet tools are missing to adequately incorporate these risks into financial and policy decision-making and also the recognise the opportunities through more sustainable business practices.
“Over half of global GDP is dependent on nature, yet we are seeing unprecedented biodiversity declines due to human activities. Financial institutions can play an important role in securing a nature-positive future. Our goal is to revolutionise financial decision-making by incorporating nature within it. This will be driven by scientific data and guidance, and new regulatory frameworks.”
The team at the ECI involved has quickly established itself and proved its credentials with an impressive record of activity in this area.
Dr Jimena Alvarez is the ECI Lead Researcher for Greening Finance for Nature. She added: “During Phase I of the IFB, the recently established Resilience & Development research programme at the ECI has been instrumental in advancing understanding of the materiality of nature-related financial risks globally. With less than a year in existence, the research team, in a project led by the Green Finance Institute, contributed to the first analysis of UK financial risks posed by nature degradation and the loss of ecosystem services.
“The Resilience & Development team has also become a global leader on the use and development of scenario narratives in assessing nature-related financial risks, collaborating with scientists, financial institutions and Central Banks around the world, with important contributions already made to a recent Network for Greening the Financial System (NGFS) report.”
Activities for Phase II of the IFB programme will launch with a closed-door forum for the flagship initiative, Greening Finance for Nature, hosted by the ECI and led by Dr Ranger. On 21 March 2024, the ECI team, as part of the new Resilient Planet Finance Lab, will bring together leading experts from across finance, economics, and science to develop granular practitioner-relevant scenarios.
The forum will facilitate multi-perspective dialogue to design the frameworks and priorities for future nature-climate-economy modelling and data analysis efforts. Ultimately, these purpose-built scenarios will enable practitioners to integrate biodiversity and nature into risk management, investment decision-making and nature transition plan setting.
It includes representatives from: The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), the Intergovernmental Panel on Climate Change (IPCC), the Taskforce on Nature-Related Financial Disclosures (TNFD), the Network for Greening the Financial System, the European Central Bank, De Nederlandsche Bank (DNB), the World Bank, Deutsche Bundesbank, the Bank of England, Utrecht University School of Economics, the Global Association of Risk Professionals (GARP), Potsdam Institute for Climate Impact Research, International Institute for Applied Systems Analysis (IIASA), UNEP-WCMC, ShareAction, the Institute and Faculty of Actuaries, the UK Centre for Ecology and Hydrology, the University of Reading and the University of Oxford and experts from more than 30 private and financial institutions.
This forum builds on the IFB’s core tenet of embedding collaboration to encourage practitioner-led research outputs. The UK Financial Institutions for Nature Group, established by the Green Finance Institute, acts as the programme’s independent advisory group. This group of 20 financial organisations will provide guidance on emerging research challenges, feedback on outputs and dissemination, and programme delivery.
The other two flagship initiatives being undertaken in Phase II of the IFB Programme:
- Financing Green Sector Transitions - tackles the need to restore nature in the UK's agriculture sector, which accounts for over 70% of landcover and address global biodiversity impacts of the UK consumer focussing on tea and rubber imports.
- Financing Biodiversity - responds to the challenge of financing biodiversity conservation with integrity at a large scale promoting best practices and coordination in biodiversity finance.
The three flagships are underpinned and supported by a Strategic Coordination and Integration Hub which is home to three themes:
- Data, tools and metrics – will analyse how biodiversity is measured and will assess the data requirements and infrastructure-needs of stakeholders.
- Capacity and innovation – will build capacity in finance and biodiversity through secondments, innovation labs, and events to showcase nature-positive finance.
- UK nations and international co-operation – will engage UK Nations, consider international best practices, and synthesize knowledge for biodiversity markets and policy.
Phase I of the IFB Programme involved 12 pilot projects. The emerging outcomes of Phase I have prompted NERC to provide further support until April 2026 to shift from a project portfolio to an integrated Programme.
The vision is to build national capability bridging scientific, finance, policy and third sector communities, harnessing and catalysing world-leading science to enable the greening of finance for nature and mobilisation of capital for nature recovery. This aligns with the goals of the 2023 UK Green Finance Strategy and Environmental Improvement Plan and helps set the global agenda.
The IFB programme creates an active and interdisciplinary network of researchers and finance practitioners across the public, private, and third sectors to catalyse the integration of biodiversity into financial decision-making, planning and reporting.
Read more about the IFB programme.
Read the announcement from UKRI.