In July the UK recorded historical temperatures, exceeding 40°C in Coningsby, Lincolnshire. The impact of heatwaves was felt on the built and natural environment around us: bone-dry green spaces caught light, and the London Fire Brigade reported its busiest day since the Blitz. In France, nuclear power stations on the Rhône and Garonne reduced output as the river waters that were supposed to cool them got too warm.
While policymakers sometimes talk optimistically about “keeping 1.5°C alive”, the reality is that a temperature rise of this nature above pre-industrial levels will still mean more record temperatures, more fires, more drought. The experience in France and the UK was only a taste of the conditions that other nations have had to endure.
This is of concern not just because of the danger and discomfort such conditions will cause but because these natural assets were supposed to be a part of the solution, variously helping us to mitigate and adapt to the effects of climate change. Every burning tree will represent a store of sequestered carbon being released back into the atmosphere, alongside the loss of the natural solution we had hoped would capture and store future emissions. Water not only sustains life in our natural environment but has applications in innovative processes like green hydrogen production.
Linking nature and climate
As a financial services industry, we have become used to focusing our efforts on measuring and reporting greenhouse gas emissions. This is driven, in part, by government and central bank action stemming from the UN Framework Convention on Climate Change, which has been discussed and enhanced at annual UN conferences since it was adopted at the Earth Summit in 1992.
Last month, the Investment Association updated its formal position on climate change to make clear our support for another document adopted at that Earth Summit, the Convention on Biological Diversity. Nature-based metrics and risks have not been overlooked in recent years, but it is fair to say that greater attention has tended towards the emissions and temperature-based metrics promoted by bodies like the Task Force on Climate-Related Financial Disclosures (TCFD).
That focus is an important one, and we have much progress still to make on getting it right, but it is time to think a little more deeply about why those temperature rises matter to our natural environment and how we can integrate nature into financial decision-making. Ultimately, increased water and food insecurity, and harm to the life-sustaining systems that nature provides will jeopardise the viability of the economy as we know it.
In the UK, the Natural Environment Research Council is making available an initial fund of £1.5m – rising to £5m from 2024 – to develop knowledge, tools and skills to incorporate reporting on biodiversity across the economy. As an industry, we should follow the outputs of this programme closely and engage where we can. The 2021 Environment Act requires the UK Government to publish a legally binding policy statement to embed protections and enhancements for the environment in all policymaking.
Internationally, the Taskforce on Nature-related Financial Disclosures (TNFD) is looking to do for nature what the TCFD did for climate. The TNFD framework has been published in beta form for investment managers to work with and take part in developing. And the International Sustainability Standards Board, established at COP26, has outlined a plan for developing global sustainability standards which include nature.
As a result, investment managers will increasingly voice expectations of companies that they make nature-based disclosures of risk and opportunity. Policymakers will be watching, and we should not wait for nature-based disclosure rules to be imposed but increase our participation in the efforts to create global standards, recognise the interdependence of economic and environmental factors, and minimise the worse effects of human activity on the environment.
