Embedding climate and biodiversity in finance with NERC-funded research

Green plant growing out of jar filled with coins.

Policy initiatives such as the UK government's Green Finance Strategy, HM Treasury's Dasgupta Review, and Kunming-Montreal Global Biodiversity Framework acknowledge the vital role of the finance sector in addressing biodiversity loss amplified by climate change.

To turn these ambitions into tangible actions, the Natural Environment Research Council (NERC) is investing in cutting-edge research projects in ‘greening’ finance. With a Greening Finance portfolio of over £20 million, NERC-funded research aims to integrate considerations of biodiversity and climate at the core of decision-making within the financial system.

Integrating environmental data

NERC’s Strategic Delivery Plan for 2022-2025 sets out our continued ambition to help build the resilience of businesses, infrastructure and supply chains to environmental impacts and changing consumer opinion, by integrating environmental data and modelling into business and finance decision-making and investment choices.

From strengthening the value of biodiversity in the finance and business sector to promoting the adoption of climate and environmental data by financial institutions, NERC investments nurture the development of expertise and data on environmental science for financial markets. While primarily focused on the UK market, NERC’s efforts also aim to catalyse change in the international finance sector.

Driving climate and biodiversity integration in finance at COP28

The Resilient Planet Data Hub, established by the Global Resilience Index Initiative (GRII) and UN High Level Champions, was launched as part of a wider Resilient Planet Initiative at the United Nations climate change conference COP28 with Google and other partners. The hub uses data and models to help countries, financial institutions and investors quantify their current and future climate risks.

GRII was co-funded by the UK Centre for Greening Finance and Investment. The aim of the centre, established with funding from NERC under its Climate and environmental risk analytics for resilient finance (CERAF) programme, is to enable lenders, investors and insurers to make environmentally sustainable decisions.

The CERAF programme, jointly funded by NERC and Innovate UK, is building the climate and environmental risk analytics capability and capacity in the UK that will meet the specific needs of the financial services sector and enhance the resilience of the financial system to the increasing impact of climate change.

The research produced so far has been cited by the White House in the US, and by Baroness Worthington in a House of Lords debate on the Financial Services and Markets Bill.

Integrating finance and biodiversity

COP28 was also attended by representatives of the Integrating Finance and Biodiversity for a Nature Positive Future (IFB) programme’s coordination function. IFB’s aim of finding solutions to embed biodiversity values into financial decision-making and innovative financial services relates closely to COP28’s focus on nature, land use and oceans, three core elements of biodiversity. The 12 projects of its first phase of research running up until March 2024 aim to improve integration between finance and biodiversity.

Some projects within this portfolio explore distinct domains such as seascape restoration along the south coast of England and investment opportunities in solar parks.

Others focus on analytical areas such as ensuring robust environment, social and government (ESG) data, integrating analytics and nature-climate scenarios for financial decisions, and filling data gaps for due diligence.

Another group looks at co-creating and applying a theory of change for biodiversity credits, with one looking at mediating the first transaction of stewardship credits.

The final four IFB projects look at various aspects of biodiversity and finance, including science-based markets and finance for small and medium-sized enterprises (SMEs).

As international climate negotiations continue into 2024 and beyond, NERC’s investment will continue to support research to find financial solutions to biodiversity issues. The second phase of IFB research, starting in January 2024, is running for 27 months.

People in nature

Under NERC’s £40 million Changing the Environment programme, the University of Exeter’s Renewing biodiversity through a people-in-nature approach (RENEW) project is reshaping understanding of biodiversity renewal to enable better decision-making by stakeholders.

The five-year project is structured around four core themes:

  • generating better understanding of individuals’ engagement with nature
  • designing programmes to increase beneficial place-based engagement
  • achieving integrated landscape-scale renewal
  • developing tools to embed biodiversity renewal in finance and business

Identifying natural value

The £6.4 million Economics of Biodiversity programme, led by NERC and the Economic and Social Research Council (ESRC), is exploring how economies are embedded in nature, and how nature and biodiversity are integrated into economic models and decision-making processes.

Recognizing a growing need for tools that assess biodiversity’s value across different sectors, researchers at the University of Greenwich have designed tools which can apply to mainstream biodiversity considerations within territorial or sectoral endeavours. Furthermore, the absence of robust tools for measuring biodiversity poses a challenge in creating biodiversity credits, essential for supporting investments in rewilding and other biodiversity-centric projects.

A team at the University of Nottingham is file-testing methods employing satellite, aerial remote sensing, and on-ground camera technology to quantify biodiversity on both land and sea. These efforts aim to pave the way for the creation of valuable biodiversity credits.

If biodiversity consideration is to be fully integrated into finance, then businesses and financiers will need to be able to identify natural value to ensure that conservation and restoration of nature are embedded in decision-making processes.

As part of the NERC Nature Finance £650K initiative, a team at the University of Birmingham showed how valuing nature through the lens of ‘capital’ risked ignoring the worth of social and natural worlds, which in turn led to the monetisation and marketisation of nature.

An example of research delivering solutions on the ground for valuing nature came from the University of Exeter, where a team designed the Lindsay Mechanism that makes it easier for landholders to sell nature-based projects to the market. It is now used as the trading mechanism for the Somerset, Bristol and Solent environmental credit markets.

Resources for businesses

Ensuring businesses have the best information is also crucial. AmbioTEK and UNEP-WCMC collaborated with King’s College London to develop Co$tingNature for nature-related financial risk disclosure (TNFD), an open-access map-based tool that helps users understand natural capital and ecosystem services, biodiversity and future threats to nature. This initiative aids businesses and finance by integrating natural capital, ecosystem services, biodiversity, and future threats into investment strategies.

Although they make up 99% of the business population in many advanced economies, small- and medium-sized enterprises (SMEs) often get sidelined in global finance discussions. To bridge this gap, researchers at Middlesex University London produced a comprehensive guide on climate and nature-positive investment strategies. This guide serves as a resource for investors, entrepreneurs, and business advisors, aligning their approaches with these vital considerations.

Integrating biodiversity data into business decision-making

Thanks to the Nature of Business report produced by RENEW in collaboration with the CBI (Confederation of British Industry), we know that the majority of business leaders want to take steps to tackle biodiversity loss, but progress has been slow for a number of reasons.

The financial sector and businesses need better information and ‘decision-grade’ data to help them incorporate biodiversity-related risks and opportunities into their strategic planning, risk management and investment decisions.

Making the right investments for a greener future

Informed by the needs of the financial sector, the co-designed, co-developed and co-delivered research funded by NERC will equip governments and businesses to make the investments in climate and biodiversity initiatives that are crucial to achieving the targets set by policy initiatives and goals from COP conferences and future summits.

Top image:  Credit: Towfiqu Barbhuiya, Unsplash

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