By Stephanie Glover, Head of Strategy and Sustainable Finance, Guernsey Finance LBG
One of the leaders in biodiversity and sustainable finance, Guernsey Finance is a partner of World Biodiversity Summit 2022. William Mason, Director General of Guernsey Financial Services Commission will share its expertise and experience in nature funding at Opening Session “Businesses and Finance for Biodiversity: Closing the Nature Finance Gap” on 11 December in Montreal.
“Guernsey Green Finance is delighted to partner with the World Biodiversity Summit as part of COP15.”
- Stephanie Glover, Head of Strategy and Sustainable Finance, Guernsey Finance LBG
In this article, Stephanie Glover, Head of Strategy and Sustainable Finance of Guernsey Finance LBG discusses the importance of nature investments and shares the Guernsey Green Fund initiatives.
It is clear that the decisions we make today are critical to the survival and recovery of our natural world. The statistics are hard to comprehend, but the data is indisputable. According to the United Nations, the risk of species extinction is increasing at a rate unprecedented in human history. The Red List Index, which measures the overall extinction risk of species in selected taxonomic groups, reveals a deterioration of 9.2 per cent between 2000 and 2022.
It is not just nature that is suffering, changes to the ecosystem impact our climate and humanity in numerous ways as well. The link between climate and biodiversity action is becoming clearer. The United Nations Financial Centres for Sustainability Biodiversity Report explains how climate change is a primary driver of the natural world’s decline, but also that mitigation and adaptation efforts are made considerably more challenging by the continued plundering of natural resources, which in turn causes further destruction of the natural world and exacerbates the climate emergency.
According to the World Health Organisation, our livelihoods and our income will be severely affected by biodiversity decline, with $44 trillion of economic value dependent on nature. Social factors like migration and political conflict could be exacerbated, too.
The cruel irony here is that – as with climate change – humankind is the biggest culprit. Whether through habitat loss, excessive exploitation, pollution, or the effects of climate change, we are all responsible and have a responsibility to change.
Through the deluge of reports identifying negative environmental impacts, the positive news is that more and more opportunities are now emerging to allow us to reduce or even reverse some of the ecological damage we have done.
In fact, there is the potential to create $10 trillion-worth of economic and financial opportunities and up to 385 million jobs if we invest in nature.
A funding problem
Awareness of nature loss is increasing in the Western world, and today’s potential solutions to the challenges are innumerable. They encapsulate everything from regenerative agriculture and sustainable forestry to water management and the circular economy. Meanwhile, researchers and scientists are constantly working on even newer and more innovative technologies and approaches.
The problem here is not a lack of knowledge, currently, there is a funding gap. According to the independent think-tank The Paulson Institute, the world needs to be spending between US$722-967 billion a year to start reversing the decline in biodiversity by 2030. Based on current spending, that puts the nature funding gap as high as US$824 billion annually.
This is where the financial sector can really help.
Today, leaders in sustainable finance, such as Guernsey, are working hard to ensure methods of supporting global biodiversity get the financing they need to make a difference. Before it’s too late.
Addressing the funding gap
The funding gap is being grappled at by institutional investors, stock exchanges, bond markets, standard setters, ratings setters and data providers alike.
Unfortunately, governments, the public sector and the philanthropic rich alone do not possess the resources to overcome the challenge of biodiversity loss on an ongoing and global scale.
Achieving the massive amount of funding needed to make a tangible difference will instead require much greater assistance from the private sector. After all, global assets under management are currently set to reach US$145.4 trillion by 2025. That’s a massive source of potential funds to address the biodiversity crisis.
There are a growing number of biodiversity funds emerging to address the challenges of nature loss and to help transition to a more sustainable future. Robeco has recently launched a Biodiversity Equities strategy which looks to promote biodiversity investment thematic such as agriculture, forestry, fishing and ocean-based aquaculture. Fidelity International has also launched a Sustainable Biodiversity Fund which aims to achieve long term capital growth by investing in companies that aim to enable the stabilisation or mitigation of biodiversity loss through their technologies and solutions.
As the Former Chair of the Environment Agency, Emma Howard Boyd said at Guernsey’s 2022 Sustainable Finance Week: “We have to employ our best investment strategies as soon as possible. We need to green the financial system, but we also need to finance green.”
Investing in nature
To unlock that potential, investors need assurance that their capital is being deployed in efforts to promote the protection and recovery of the earth's natural environment.
While the Taskforce on Nature-Related Financial Disclosures (TNFD), is due to publish its final recommendations in September 2023, Guernsey has already developed natural capital solutions.
Guernsey’s new Natural Capital Fund - a regime that creates a regulatory designation for funds to help channel investment into biodiversity and natural capital projects that make a positive contribution and/or significantly reduce harm to the natural world. The intention is to provide environmentally conscious investors with assurance that their capital is deployed in efforts to promote the protection and recovery of the Earth's natural environment.
The initiative works by endorsing funds that make a positive contribution to, and significantly reduce the harm done to the natural world. Specifically, it aims to recognise funds that appreciate the role of nature. In its own words, this is key to the “sustained functioning of human social and economic activity”. The focus includes everything from clean air and water supply to plant life and animals.
By launching this, Guernsey is positioning itself as a standard to enhance biodiversity –focusing not just on climate change but all schemes supporting the world in which we live. In so doing, it will channel investment into biodiversity and natural capital projects.
This new offering is part of the jurisdiction’s Sustainable Funds Regime which also includes the Guernsey Green Fund. It marks the completion of a pledge made as part of COP26 to extend the Commission’s regulatory regime to include sustainable funds and provides the island – and the world – with a choice of complementary sustainability designations based on international standards.
At Guernsey’s 2022 Sustainable Finance Week, Gillian Browning, Director of the Investment, Fiduciary and Pension Division at the Guernsey Financial Services Commission (GFSC) said that the new Natural Capital fund and the more established Guernsey Green Fund will address each of the “twin crises of degradation of nature and climate change” and address a funding gap in the natural capital space.
It's clear that specialist financial services centres have a role to play. GFSC Director-General William Mason recently said: "Guernsey is good at doing complex things, and doing things flexibly, which some bigger regulators find difficult. “We can make a big difference by doing something slightly different from the mainstream.”
“It is exciting to do something to push the planet in a positive direction. We hope to make a small difference to the planet. It is a good opportunity to help more private sector funds with nature protection at their heart.”
- William Mason, Director-General, GFSC
The island established itself as a leader in the world of sustainable finance with the launch of its Green Finance Fund in 2018. Its objective – for funds under its banner to seek a return for investors while mitigating environmental damage – endorses schemes through which investments into various green initiatives can be made for investors, whether private or public, worldwide.
Many of the Guernsey Green Funds are already benefitting nature, for example, True North Real Estate Partners’ first fund, the Forestry Carbon Sequestration Fund, is designated as a Guernsey Green Fund.
The Forestry Carbon Sequestration Fund is focused on woodland creation, acquiring agricultural land across the UK to develop as Forestry Stewardship Council-compliant commercial forestry. This ecologically beneficial forestry planting is the central element to reaching the fund’s 1.65 million tonne carbon sequestration target.
Protecting and enhancing biodiversity is a critical challenge we face today, just like our urgent need to mitigate and adapt to climate change. The two are intrinsically linked and the financial world is beginning to respond.
Initiatives such as those from Guernsey, can help create a wave of capital inflows from the global investment community to accelerate the rate at which we are handling global biodiversity loss.
“We believe that partnering with the World Biodiversity Summit will help to encourage greater investment and interest into biodiversity finance.“
- Stephanie Glover, Head of Strategy and Sustainable Finance, Guernsey Finance LBG
Guernsey has been at the forefront of green and sustainable finance since the 2018 launch of the Guernsey Green Fund, a world-first regulated green fund product, and is also member of the United Nations' Financial Centre’s for Sustainability network. As a responsible global citizen, Guernsey uses its expertise and experience as a global finance centre to help fulfil the UN’s Sustainable Development Goals through its Guernsey Green Finance initiative. As well as developing trusted structures and frameworks to help channel capital into initiatives that promote the protection and recovery of the earth's natural environment, the island’s financial regulator, the Guernsey Financial Services Commission, is a member of The Network for Greening the Financial System (NGFS), and the TNFD Forum.
Learn more: www.weareguernsey.com
About the author
Stephanie Glover is Head of Sustainable Finance for Guernsey Finance, the promotional body for the island’s financial services industry. Stephanie leads the Guernsey Green Finance Strategy Group where she liaises with key stakeholders, including government, the financial services regulator and industry regarding technical development in sustainable finance that affect the island’s finance industry locally and globally. Stephanie is Guernsey’s representative at the United Nations Financial Centres for Sustainability and sits on their working groups for biodiversity and the FC4S Annual Assessment Programme, as well as the TheCityUK Next Generation Leadership Council. She holds the Sustainable Finance Certificate with the University of Cambridge Institute for Sustainability Leadership and is a youth ambassador for the not-for-profit Sustainability & You.