6th Policy Forum on Natural Capital focuses on good data and
better communications
The 6th Policy Forum on Natural Capital Data for Better Decision-making brought
together more than 600 data providers, statisticians, policymakers and investors to
discuss how best to incorporate data on natural capital into investment and policy
decisions. The purpose of the Forum was to share, explore, and synthesize the
experiences of producing and using data on natural capital to inform economic and
environmental decision-making.
The two-day online forum took place on November 2 and 3, 2022. It had the theme
'Financing for Nature' and focused on linking data users, such as policymakers and
investors, with data producers. It was co-organized with the United Nations Statistics
Division [Link: https://unstats.un.org/UNSDWebsite/].
The opening session saw Jean Pesme, Global Director, Finance, in Finance,
Competitiveness & Innovation (FCI) Global Practice at the World Bank, set out the
critical importance of natural capital to the world economy. Pesme said half the
world's GDP was generated in industries that depend on nature. At the same time,
the world was seeing unprecedented biodiversity loss – a loss that affected emerging
markets disproportionately.
Pesme said more needed to be done to raise the profile of nature-related activities
within the financial sector. He said that biodiversity loss represented a risk to
investors and asset owners, impacting their financial performance. It also had fiscal
and financial stability implications for governments, and central banks and finance
ministers needed to pay more attention to this issue. Pesme warned incorporating
nature into risk assessments was not a trivial task, particularly because nature is a
complex, multidimensional issue and often location-related.
Pesme also highlighted opportunities for channeling money to sectors that are
supportive of nature, known as "financing green." He said the World Bank was
supporting this approach with its work on data and standards. He noted that while
biodiversity targets were not perfect, they were a useful way to send clear policy
signals and commitments.
Maria-Francesca Spatolisano, Assistant Secretary-General of the United Nations
Department of Economic and Social Affairs, described the System of Environmental
Economic Accounting (SEEA) [link https://seea.un.org/], a global framework that was
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adopted by the United Nations Statistical Commission in 2021. The framework offers
a tool to monitor, measure and link natural capital and its economic value. She said
some 90 countries had already pledged to adopt the SEEA, and the UN Statistical
Commission was partnering with the World Bank to advance its implementation.
Securing Gabon’s forests
Lee White, Minister of Water, Forests, the Sea and Environment for Gabon,
described how his country has worked to protect its natural capital, in particular,
halting the destruction of its forests. He said Gabon had banned the export of logs
and now processes 100% of its timber before it leaves the country. Gabon had
cracked down on illegal logging and now operates selective logging, which means
that the forest in Gabon is carbon positive.
White said: "What we believe is that if we can make the forests valuable enough, if
we can create enough jobs and enough livelihoods, then that really is the only way to
buck the trend and to develop whilst maintaining our forests."
He said Gabon is considered one of the world's most carbon-positive countries, and
carbon credits are likely to be the first step that can be taken in valuing ecosystem
services. He said that, in his view, the methods to implement biodiversity credits and
payments still needed to be developed.
White said too many investors coming into Africa were 'hit and run' investors who
wanted 40-50% returns on their investments and had no concerns about
sustainability. He said using climate resilience funds to promote sustainable
investment could help maintain natural capital. He said: "I think if we can start to use
those sorts of public funds to promote climate and biodiversity resilience in
investment and allow companies that will be investing in preserving natural capital to
obtain financing at favorable rates, I think that would go a long way to helping Gabon
succeed in this model that is looking very promising."
Greening finance and financing green
The opening session concluded with a brief presentation prepared by Raffaello
Cervigni, Lead Environmental Economist at the World Bank and Alessandra Alfieri,
Chief of the Environmental-Economic Accounts Section, at the United Nations
Statistics Division (UNSD) which set out the context and the framing for the Forum’s
discussions at the forum.
Cervigni set out two pathways to address the issue of financing for nature. The first
pathway was 'greening finance', making sure that money flowing in the direction of
harmful investments is diverted back to the direction of nature-positive outcomes.
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'Greening finance' could be achieved through policy reforms, disclosure and other
incentive mechanisms.
The second pathway was 'financing green,' which aimed to ensure that nature
emerges as a worthy asset class and attracts investment.
He said Forum speakers would highlight the important role that data and analysis
could play, both by highlighting the dangers of depleting nature and by identifying the
best ways to scale up financing green.
Incorporating nature in financial decisions: latest developments
The first panel discussion looked at the latest developments in incorporating nature
into financial decisions.
Emily McKenzie, Technical Director of the Taskforce on Nature-related Financial
Disclosures (TNFD) [link https://tnfd.global/], reported on how the TNFD is working to
develop a risk management and disclosure framework that corporate entities and
financial institutions can use to report and act on to minimize risks and opportunities
from nature loss.
Another panelist, Lucia Lopez, Vice President of Moody's Investors Service, noted
that a principal challenge was that measurements of economic activity have
historically overlooked the value of natural capital.
Markus Müller, Chief Investment Officer ESG and Global Head Chief Investment
Office, Private Bank at Deutsche Bank, said the asset management industry wants
to know whether companies understand their dependence on nature. He said: "In the
end, the output of nature, so the ecosystem service nature provides, is the input for
the creation of economic output. So, this is something which we need to understand
as an investor: if a company has understood this. Otherwise, the company will face
transformation, liability, reputation and physical risk.
Many participants spoke about the need to adopt a standardized approach to
metrics, frameworks and disclosure requirements. Müller said: "we can't manage
tons of metrics; we need to have a simple applicable, globally applicable approach
which appreciates the polycentric character of nature.
"But my dream would be really that we have a harmonized framework in place,
which really makes it a requirement to disclose the negative externalities of my
corporate action."
Patricio Sepulveda, Head of the Debt Office at the Ministry of Finance of Chile, told
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participants that Chile held 31% of its debt with some form of ESG denomination and
aimed to increase this to 50% over the next year. He said focusing on ESG
instruments was demanding. He said: "It's not easy because, you know, that to issue
many ESG instruments implies additional operational burden: the reports, the
selection of the projects, the calculation of the impact – but I would consider that it
adds very value for Chile. We expect to continue this over time."
Salima Lamdouar, Senior Research Analyst, 2050 Strategy, AB Arya Partners,
highlighted the need to invest in biodiversity structures at scale – and quickly. She
argued that nature-based solutions in the form of carbon solutions could be a bridge
toward bringing in biodiversity metrics in the future.
The session discussant was Charlotte Gardes-Landolfini, Climate Change, Energy &
Financial Stability Expert in the Monetary and Capital Markets Department at the
International Monetary Fund. Summing up the discussion, she said: "I think the panel
shows that mitigating biodiversity-related risks mean that we need data, as well as
consistent, transparent and rigorous science-based metrics."
Scaling up nature-based investments
The second panel discussion looked at ways to scale up nature-based impact
investments. One theme which emerged is the importance of gathering and making
available good quality natural capital data, particularly on risk.
Charlotte Kaiser, Head of Impact Finance at the BTG Pactual Timberland Investment
Group, said better data could play an important role in changing private investment
behavior. She said: "…where I think data can really play a role is in helping to deliver
a quantifiable measurement, not only of the value created by biodiversity and climate
resilience but also the risk of failing to quantify those potential impacts.
"And I think that's where we're really going to see private investor behaviors change
is as risk gets more and more accurately priced."
Thierry Watrin, Green Economy and Climate Change Advisor in the Ministry of
Finance and Economic Planning of Rwanda, reported that his country was
developing the idea of measuring a green GDP. He said: " We've been developing
the green GDP in Rwanda, starting by the recording of natural capital accounting. It's
a process that started 10 years ago, almost, in 2014. It was a tedious and very
precise work that needed to be done. Why? Because at the end, we want to be able
to monitor and to disclose our natural capital accounting, meaning that currently,
there's a price on nature."
He added: "The UK have developed a biodiversity index. In Rwanda, we want to
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follow a similar path, and at the end, we want to be able to disclose our green GDP,
which will be the normal GDP minus the externalities linked to loss on biodiversity.
Madeleine Ronquest, Head of Environmental and Social Risk, Climate Change, at
FirstRand, highlighted the importance for commercial institutions of reducing risk.
She said: "Something that a commercial bank is always focused on is de-risking of
the project return on investment. And often it seems that the initial phase is that it's
difficult to understand the return on investment in terms of biodiversity or natural
capital investment. And so, for us, blended finance and de-risking of projects - and
even concessional funding - could potentially be just the solution that we need. "
Stephen Liberatore, CFA Head of ESG/Impact Investing at Nuveen, said his
organization was hoping that initiatives such as conservation bonds could serve as a
template for future investments. The quality of data was vital. He said: "The nature of
that data is absolutely critical because it not only allows us to inform our investors
about how their capital is being deployed, the outcomes associated with it, but it
gives us a sense on a relative total return basis, what our expectations and
performance can be in that particular transaction."
Alain Vidal, Independent Scientific Advisor to the One Planet Business for
Biodiversity coalition, emphasized the importance of having precise, reliable and
transparent metrics. He added: "I think that we will soon, on nature, thanks to the
Science Based Targets Network [link? https://sciencebasedtargetsnetwork.org/] have
a series of simple indicators that will be really useful to assess how natural impact
can be revalued and improved."
Session discussant Jingdong Hua, Vice Chair of the International Sustainability
Standards Board (ISSB), said both risk mitigation and outcome-based payments
could help to scale up finance for natural capital. He said: "We are scratching the
surface right now, but I think we are on the cusp of being able to use those two
instruments: the first, risk mitigation through parametric bonds; the second, through
outcome-based positive social outcome, or environmental outcome or nature
outcome.�?
Day Two: The role of the public sector
Day Two shifted the focus to the public sector and featured speakers from different
international organizations, ministries of finance and public sector financial reporting
bodies.
Shaping an enabling environment
The first session of the day looked at opportunities for policymakers and institutions
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to shape an enabling environment for natural capital investment.
Rutger Hoekstra provided an overview of his background paper for the Forum
entitled ‘How Natural Capital Accounting can help accelerate finance for nature’ [Link
(goes to pdf)
https://thedocs.worldbank.org/en/doc/d9ffa3ebba3d16e5809ae02888f24f09-
0320052022/original/how-nca-can-help-accelerate-finance-for-nature.pdf]. The paper
argues that the SEEA framework could play a central role in accelerating finance for
nature. The report outlines five main challenges to progress and suggests an action
plan to address them.
Hoekstra said SEEA accounts were already being implemented in some countries,
and numerous global databases were also being developed. But, low- and medium-
income countries, which experience the greatest biodiversity losses, had poor
access to high-quality data. He suggested that global databases such as ARIES and
INVEST could offer a good starting point for these countries - but the data would
need to be made accessible to finance companies and corporations.
Hoekstra said: "It's not just a matter of data availability, but also accessibility -
because biodiversity measurement is probably one of the most complex ESG topics
that there is. So actually, making that accessible to the financing corporations is
actually a major task."
Onno van den Heuvel, Global Manager of the UNDP Biodiversity Finance Initiative
(BIOFIN), welcomed the paper's suggestion of forming national coalitions on finance
and stressed the need for advocacy work to get natural capital data to policymakers
and the general public. He said: "Moving forward, I think programs like BIOFIN and
others will have to play a big role to bring the statistical community in connection with
the finance community and support this outreach of data."
Zachary Mwangi Chege, Senior Advisor at the Ministry of Finance of Kenya, argued
for more capacity-building to improve technical skills. Like many speakers, he
focused on the need for better coordination and communication. He said: "Finally,
the whole issue is enhanced communication. Let statisticians - or the statistical
community - not communicate with themselves but with the users. So, we need a
very strong use case so that we can get the buy-in from stakeholders and also
policymakers about the SEEA."
Elizabeth Lien, Senior Adviser at the U.S. Treasury Climate Hub, highlighted the
Biden Administration's work on adopting natural capital accounting both for the U.S.
and internationally. She said the Treasury was working through multilateral
environment and climate funds to support economic development models and policy
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frameworks that provide positive economic incentives to support conservation and
nature-based solutions.
She said: "We know it's vital to mobilize public and private sources of funds to
address nature-based investment challenges and opportunities. And we know that
public policy must help facilitate these flows by creating a supportive and predictable
enabling environment, including by incorporating natural capital into our economic
analysis."
Ian Carruthers, Chair of the International Public Sector Accounting Standards Board
(IPSASB), said that IPSASB very much supported alignment between financial
reporting and statistical data.
Session discussant Martin Lok, Executive Director of the Capitals Coalition,
emphasized the importance of making data appropriate for business and finance. He
said: "When we are talking about the use of statistical data, it's not only the use by
the policymakers that use it to improve their decision-making, but it's also the use by
private partners, which is not always seen by statistical officers as something that
they need to work on. But I think it is a huge, important element."
The role of ministries of finance
The next session featured speakers from finance ministries and international
institutions. One of the themes of this session was the importance of coordination
between different bodies.
Pekka Moren is the Special Representative of the Finance Minister, Climate Action,
Finland, at the Coalition of Finance Ministers for Climate Action [Link:
https://www.financeministersforclimate.org/], which was set up four years ago. Moren
reported that the Coalition had six months ago released a first paper on nature-
related risks and how they affect ministries of finance [Link to pdf
https://www.financeministersforclimate.org/sites/cape/files/inline-files/Nature-
Related%20Risks%20for%20MoFs%20-
%20Bending%20the%20Curve%20of%20Nature%20Loss.pdf].
He said the Coalition was focusing on systemic change. He emphasized the
importance of partnerships between institutions and researchers to build expertise
and tools together. He said: "We need a comprehensive approach. We need to
enhance understanding, plan activity as well, and then act - in that order."
Sam Mugume Koojo, Ag. Assistant Commissioner (Statistics) in the Macroeconomic
Policy Department, Ministry of Finance, Planning and Economic Development of
Uganda, highlighted the importance of accurate, accessible data for decision-
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making, particularly for issues such as climate change adaptation and the issue of
loss and damage. He said: "The other big challenge that we must answer at the end
of the day is that the top leadership of the country and those who are taking policy
decisions should be aware and knowledgeable on what is happening and be able to
appreciate the data and the reports that are put in place. Critically for us technical
people, we must be able to disseminate this information properly so that it can be
used for soliciting for funds. "
Koojo stressed the importance of joint working. He said: "When it comes to natural
capital accounting and having the data in place, we have a technical working group
that has the offices’ technical people at higher level and from Minister of Finance,
Minister of Water and Development, National Planning Authority, National Statistical
office - that's Uganda Bureau of Statistics - and other ministries. And these come
together. We all sit together. We've developed the national environment economic
accounting plan together, and we implement it together."
Irene Alvarado-Quesada, Coordinator within the Environmental Statistics Unit,
Information Management Division at the Central Bank Costa Rica, also highlighted
the importance of collaboration. She said: “In Costa Rica, we have the National
Council of Environmental Accounts, and it is composed of members from the
Ministry of Environment and Energy, Ministry of Finance, Central Bank of Costa
Rica, our national statistical office and the Ministry of National Planning and Political
Economy.�? She further detailed how Costa Rica has used data coming from
environmental accounts to assess its decarbonization pathways.
Serina Ng, Deputy Director, Head of Vaccines, Global Health and Climate, HM
Treasury in the United Kingdom, said that since September 2021, the UK
government’s Green Financing Programme [Link:
https://www.gov.uk/government/publications/uk-government-green-financing] had
raised more than UK pounds £18 billion from the sale of green gilts and green
savings bonds. She said: "We specifically published a UK government green
financing framework which, sort of, sets out our agenda and has a discussion on
biodiversity right alongside reaching Net Zero to indicate the level of importance that
we attribute to it. I think that's just quite important in terms of signaling. And being
really clear on the direction of travel. "
Discussant Diji Chandrasekharan Behr, Lead Environmental Economist at the World
Bank, said the session had highlighted the importance of ensuring that work on
generating, compiling and making data was a comprehensive effort.
He said that taking a natural capital approach should become hardwired into
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policymaking. He said: “This has to be mainstreamed in a way that just becomes the
norm: it's not anymore what we're aiming to do, it's just a norm. And I think that's
really a key takeaway.�?
Finding a way forward
In the closing session of the Forum, Valerie Hickey, Global Director of environment,
natural resources and the blue economy at the World Bank, and Stefan Schweinfest,
Director of the United Nations Statistical Division, United Nations Department of
Economic and Social Affairs, reflected on some of the key messages to emerge from
the two days of discussions and the possible way forward for natural capital
accounting.
Hickey said it was important to better understand and publicize the ecosystem of
data to ensure that everyone was aware of the tools and what was already available,
and what was missing. She said that agreeing on standards would help address
fragmentation and greenwashing and make data easier to use.
She stressed the importance of data for informing decisions. She said: "We have to
be clear on what success is, and success is allowing governments, constituencies,
including Indigenous Peoples, local communities and companies to make better
decisions. That's what success is - not having a better tool. So, we have to fit our
tools to their needs, not come up with tools that don't fit anybody's needs."
Many speakers noted the need for capacity building, particularly among developing
nations. Stefan Schweinfest said he wanted to appeal for valuing and funding
national statistical institutes because they had the experience to distill high-quality
information to inform decision-making processes.
He said countries needed help in using new tools – and case studies could be a way
forward. He said: "We need the national programs, the good cases, and then we
need a global team that broadcasts these good cases into the regions, into the rest
of the world, distills the essence of the various projects and makes the business
case. That would help us, also, with that communication challenge.�?
Schewinfest added that Gabon's success in safeguarding its forests was inspiring.
He said: "I was very inspired by this, and I take away from this that we have to find
the countries that are willing to work with us and then work with them and move this
forward and then use those as good models for others."
[ends]
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