This article is an excerpt from GreenBiz Group's 16th annual State of Green Business, which explores sustainable business trends to watch in 2023. Download the report here.
In economic terms, climate change is the result of a massive externality: an unpriced element in the production, consumption and transportation of goods and services. Fossil fuels are a primary ingredient in the eye-popping economic growth of the past two centuries, but the cost of burning them wasn’t originally factored into the equation.
Increasingly, that’s changing.
Institutional investors across the globe are taking stock of natural capital, which national economies and investors have historically neglected.
Investing in natural capital — the value extracted from soil, air, water, climate and all the living things and ecosystem services that make the economy possible — has long made environmental sense. Examples include advancing sustainable hydroponics, beef alternatives, biodegradable consumer products or degraded land restoration.
But investors are increasingly seeing the economic rationale, too. The World Economic Forum estimates that protecting nature and protecting biodiversity could generate $10 trillion annually in business opportunities, from farming to fashion to finance, creating nearly 400 million new jobs.
The question is how, exactly, all this happens. The year ahead could provide some answers.
A key stepping stone is the ongoing development of the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD), due in fall 2023. The TNFD framework is meant to bridge the information gap that exists between financial institutions and companies — in this case, providing the information needed to understand how nature-related risks impact financial performance.
The International Finance Corporation’s (IFC) Biodiversity Finance Reference Guide, launched in 2022, which builds on the International Capital Market Association’s green bond and green loan principles, launched in 2014 and 2018 respectively, also serves as a key stepping stone.
The World Economic Forum estimates that protecting nature and protecting biodiversity could generate $10 trillion annually in business opportunities, from farming to fashion to finance, creating nearly 400 million new jobs.
The IFC’s guide provides investors an overview of the types of investments that support natural capital. It is one of several organizations and collaborations working globally on some aspect of valuing nature for companies, including the Capitals Coalition, the Natural Capital Investment Alliance and the United Nations Environment Programme Finance Initiative.
So where’s the money?
In 2020, the OECD estimated biodiversity finance from al
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