The Ideas

Natural Capital is valued at $100 Trillion, larger than what our global economy is worth. Yet is its comparative value even justified? After all, without nature, our economy would cease to exist.

Why is finance allocation failing? The key issue with financial capital allocated towards nature is that we are unable to efficaciously ensure flowing financial frameworks to ensure nature positivity, where this issue solely accounts for approximately 23% of global greenhouse gas emissions. This issue stems from the following factors: a lack of specificity regarding to whom, how, and when capital will be allocated; short-term conservation initiatives; dispersed interventions and lack of coordination; and a lack of action-oriented progress.

Why can’t we progress? However, significant barriers to changes in our investment in natural capital hinder behavioral shifts. These include, but are not limited to;

1) Nature’s price is often lower than its value, where the ecosystem services nature provides are often not accounted for.

2) Exceedingly high cost of capital (ie. early stage funding gaps) that hinder progress from smaller-stage undertakings.

3) Capacity and skills are lacking in effective implementation where while demand continues to grow, the supply of qualified organizations lags behind.

Of course, there does remain the challenge of systemically changing the mental models of investors to spark further environmental investment. Transforming conventional investors into environmentally-conscious ones is a foundational challenge that could hinder the issue of ineffective natural capital, however efforts to make nature more attractive for investment have been made. For example, natural investments have been sorted into asset classes, such as a natural capital fund for impact at scale, a nature-based carbon fund to gain access to nature-carbon investments to contribute for carbon credits, possibly incentivized for financial return.

Case Study: Colombia A notable example of a succeeding policy is the Colombian Biodiversity Compensation Policy. Since many of the areas where biodiversity is affected and where Colombian people rely on are intraconnected, capital may not be able to be efficiently allocated. Therefore, this law fines those breaking biodiversity laws in specific regions up to two or even five times the estimated cost of the biodiversity loss. This aims to specifically tackle the issue of “price < value”, however further legislation does involve reducing the cost of capital and capacity building.

The Perspectives

By breaking this complex problem down, participants were able to split this into four agents of the system; Innovative Finance, Innovative Technology, Policy and Regulation; Valuation and Methodology. Some shared concerns included a lack of documentation and data that ensures the constant assessment and (re)evaluation of our initiatives to minimize the risk of lost capital, minimal global standards to reduce the risk of lack of coordinated efforts, and neglection of the engagement of indigenous and local communities to ensure the functional development of conservation initiatives by taking into account their interests and values.

Innovative Finance: The central theme of this stakeholder was to develop a coalition of actors with the Global Climate Fund and the organization’s associated investors and corporates. An innovative solution suggested was to build bridges between public and private partnerships (bridge the gap between philanthropic investment and that from the public sector), especially in risk management and insurance sectors, with the creation of a First Loss Global Fund encompassing a decentralized authority to reduce bias.

Innovative Technology: Inclusivity was a core idea for this stakeholder, and ideas surrounding including local populations with cunning low-tech were discussed. An example of the “Bhungroo,” a water collection system for farmers with low-access to water in India was cited and highlighted as inspiration for further development by making local communities and technology more interconnected than ever before. Inclusivity via accessibility and transparency was explored through Blockchain technology, of which was cited as “extremely important” for the future, perhaps in the field of cryptocurrency.

Policy and Regulation: Ideas around means by which finance and legislation can connect were inquired upon in detail. A tropical carbon tax was proposed, where it could be established at the next COP conference with involvement from the ministers of the environment and finance for nature-based offset. Additionally, providing sovereign wealth funds with a fraction of these nature credits to reallocate preferentially would prove effective in reducing heuristic biases.

Valuation and Methodology: Key ideas among this stakeholder group were transparency, institutionalization, and diversification. It was suggested, that to make nature value-reporting more transparent, factors of two-five (deemed appropriate by respective judiciaries) should be accounted for. Further proposals including making (via pressure), a comprehensive lack of natural assets in a balance sheet a liability for financial institutions, hence suggesting a new dimension of diversification were also shared.