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Mark Halle, Senior Adviser to the United Nations Development Programme, Financial Centres for Sustainability and Director to the International Institute for Sustainable Development, discusses the growing biodiversity finance movement being driven by financial centres. He covers the key findings of the UN FC4S Biodiversity Finance report, and explores themes such as transparency, disclosure, fintech, data and the development of new financial instruments relating to biodiversity and nature.
Welcome to the Sustainable Finance Guernsey podcast page.
Guernsey Finance is a joint government and industry initiative tasked with promoting and connecting Guernsey as a leading international finance centre.
Named as one of the Green Finance Guide's top 10 must-listen sustainable finance podcasts, our broadcasts feature news, insights and discussion about green and sustainable finance, and the contribution which Guernsey, as a global leader in green finance, is making in this space.
Rosie 0:03
Hello and welcome to the latest Guernsey Green Finance podcast rated one of the top 10 most useful sustainable finance podcast by Green Finance Guide. Guernsey is one of the jurisdictions leading the way in Green and Sustainable Finance. And as part of this podcast series we'll be speaking to and learning from some of the leading global figures in the field. My name is Rosie Allsopp and Communications Director at We Are Guernsey, the promotional agency for Guernsey's finance industry. Today, I'm delighted to be speaking to Mark Halle. He's a Senior Adviser to United Nations Development Program Financial Centres for Sustainability, and former Executive Director to the International Institute for Sustainable Development. Among other topics in the climate finance space. We'll be focusing on biodiversity and the work Mark's conducted with the UN Financial Centres for Sustainability, of which Guernsey is a member. Mark, welcome to the podcast.
Mark 1:04
Thank you very much.
Rosie 1:05
So to introduce you, to our listeners, can you tell us a little bit about yourself, your background, your career to date, and how you became involved with sustainability?
Mark 1:16
Yes, to make it very simple, I spent the first half of my career in nature conservation, working for the United Nations for WWF, IUCN, and then spent the second half of my career on sustainable development policy. And in the past few years, I've tried to put those two together in the form of focus on nature or biodiversity finance. You might say, however, that I have, I was present at the creation on sustainable development, because the notion came out of the World Conservation Strategy in 1980 and I was part of the writing team. I was also an Adviser to the Brundtland Commission Secretariat to coined the phrase sustainable development and promoted it. And I have been dedicating my professional life to advancing sustainable development ever since then.
Rosie 2:10
Wow, that's quite some pedigree. Now, Guernsey has been a proud member of the UNFC4S for us for several years. But my listeners might not be as aware of the initiatives and the background to UNFC4S for us. So to to get the ball rolling, why don't you give us a bit of an introduction to your work? And tell us why you're supporting this network?
Mark 2:34
Thank you, yes, we began to look at the importance of speeding up the transition to sustainable forms of Finance, too much finance actually undermine sustainable development. But there's a very large growing interest in sustainable forms of finance, and real determination to transition to forms of finance that actually support nature and climate rather than undermine them. And we felt that it was important to work with all of the actors in that transition. And we quickly noticed that financial centres are places of concentration, you have all of the financial actors present in the financial centre, and all of the surrounding rating standard setting data providing service industries that work with those financial actors. And so what you have in the financial centre is what Michael Porter would have called the cluster effect, you have the congregation of all of the elements that are necessary to reform the financial system and to speed the transition to more sustainable forms of investment and management of the economy. Financial centres are also areas where there is a very rapid uptake of new ideas and new technology. And I think Guernsey is a very good example of that. And of course, the financial centres are competitive among themselves. And therefore those who see an advantage in offering sustainable financial services could have a very positive effect on their their position and their profile, and sort of win out in the competition for attracting more finance to the Financial Centre.
Rosie 4:25
Thank you. So not everyone who listens to this podcast is going to be as familiar with all of the terminology that clearly is second nature to you. And for those who may not be familiar with the term biodiversity and the risks and the opportunities. Can you tell us a bit about what Biodiversity means and why we should be protecting and investing in nature?
Mark 4:49
Yes, well, biodiversity is a sort of term of art in the International Negotiation world and I don't personally like it myself very much. I prefer the much more simple notion of Nature. But biodiversity is of course, the accumulation of species of natural resources of ecosystems and ecosystem services that make up nature. But I think it's simple enough to just talk about nature and the importance of nature, to finance. And I think that there's a growing realisation, not only that, nature is not being treated very well and needs greater attention, needs greater investment, but also that in fact, the success of our investments increasingly will depend on the state of nature. And therefore, it is in the clear interest of Investors and Financial actors to ensure that nature is not undermined because it could affect their business model. When one talks about the need for nature, finance, one tends to talk about the funding gap, which is estimated at about $824 billion a year. And the sad fact that four times the expenditure on conserving nature is actually having the effect of degrading nature. So there's a serious problem with the way funds are allocated. But that's only half of the story. The other half is that we are very, very dependent on healthy nature for the success of our investments. The World Economic Forum estimates that $44 trillion of output are at risk if nature continues to degrade. And in the World Economic Forum's annual risk report, risk of nature loss and biodiversity loss is consistently up at the top of the concerns. And these are concerns of corporations, concerns of financial actors, not the concerns of the general public. But on the other hand, there's also an opportunity that World Economic Forum estimates there's $10 trillion worth of economic opportunities and financial opportunities, investing in the nature space, and that to do so could create up to 385 million jobs. So it's a case both of the glass being half empty, and half full at the same time.
Rosie 7:13
So it's literally good business to invest in nature. Now, we learned so much from sitting on the biodiversity working group with you and other financial centres. What do you think the level of knowledge and understanding of natural capital, biodiversity and nature positive investments are within the world of sustainable finance and finance more broadly?
Mark 7:38
Well, we have to recognise that it's a new topic. Just like 10 years ago, climate and climate finance were a new and unfamiliar topic. And the difference between climate finance and nature finance is that the curve of learning on nature finances much steeper and much quicker than it was in the case of climate. So there's a natural evolution of people understanding that this is a topic they have to think about, that incorporate into their business operations, and we are at what I would call a sort of Gold Rush moment. All of a sudden, everybody understands, yes, this is not only a fashionable topic, but a mainstream topic that is here to stay. That it is a we're in a very competitive space. When it comes to nature, finance and financial centres that embrace it could have a very significant first mover advantage. But we are still low on that learning curve by and large, and this is true of corporations and financial actors. In a recent survey by CDP, of 211 companies showed that there is an $80 billion risk among those companies as a result of existing and potential deforestation. But that 64% had no company wide plan to address deforestation. 74% had no monitoring system to look at their impact on deforestation, and a whopping 97% had no forest related deforestation related policy within the company. So we are we are clearly at the very beginning of this curve. But as I said, things are moving very, very quickly.
Rosie 9:26
Absolutely, that is a lot to do. I really liked that phrase, you use gold rush moment, and I can absolutely get on board with that. And your work with the UNFC4S biodiversity Working Group culminated in a report which outlines an action plan that addresses the needs of financial centres in support of biodiversity. So I'll ask you to kind of do a summary for me. But what are the takeaways from the initial scoping and framing of the debate exercise?
Mark 9:57
Well, it's very interesting because when we in introduced the idea of a new focus on nature, financial biodiversity finance, to the financial centres members that the reaction was was met. Some said, Yes, we understand this is an important subject, and we need to learn more about it. But others said, Well, we're just trying to get our heads around climate finance, maybe we can leave this for a bit. And over the course of the working groups in existence, one could visibly see that changing and there is a very, very rapidly growing interest in the topic as it was sort of unpacked and laid out discussed. But also, I think that there is a very rapidly changing set of expectations from the consumer public from from those who use financial services, that they're those organisations and companies that they interact with, they would like them to be responsible when it comes to nature. And of course, it is, as any new topic is a highly competitive space. So there are people moving into it, they're offering services, trying to get that first mover advantage. But I think there's a general awareness that all of us, and this includes the most advanced financial centres, and of course, the fresher ones, that we all need to move fairly rapidly up the learning curve. And we need to put in place the sorts of basic foundational tools, methodologies, approaches, and capacity that will allow us to address this this extremely important topic in a very professional way.
Rosie 11:39
I think that's right. And it's interesting what you say about that acknowledgement that you know, there's a need to, to get on with the job. Now, we just briefly mentioned the report, I wonder if you be kind enough to summarise the five key areas: transparency, disclosure, data technology, norms, and standards and new financial instruments.
Mark 12:05
Yes we chose in the working group to limit ourselves to those five topics, each one of the courses is quite vast. But there are many, many different facets to both the challenge and the opportunity of nature, finance. But the first that we looked at is the process of transparency and disclosure, partly because there is an international initiative underway called the taskforce on nature related financial disclosure, I'm sure you all remember the earlier Task Force on climate related financial disclosure, which looked at the risk to companies of climate change, that the TNFD, the nature related financial disclosure Task Force, is actually doing a much more ambitious job because they're looking at risk. But they're also looking at the dependency of business models and value chains on nature, nature services, and the impact of the companies on those natural resources and that natural capital. So they broadened it and made it much more significant. What they're essentially doing is trying to put a bit of order into the field, because it's a new topic, as we've said before, and it's a topic that not everybody is familiar with. So they're they're doing the basic workman like, job of creating agreed definitions of user principles, looking at frameworks for for data, for example, and disclosure reporting, and they're looking at creating a kind of standard that will advance the field, but not lead to an overwhelming burden on companies that are not well prepared to address them. So it's, it's exactly what you would do if you wanted to bring in a new field into existence. And of course, they very quickly put a beta version of the of their of their standard out. And that standard is now being looked at and reacted to by corporations and financial actors around the world. So this is a huge, huge thing, the second topic of data. If you talk to people about why they're not doing more on nature, finance, the answer you'll usually get is well, the data is unreliable, it's patchy. We don't understand how to address it, where to look for it, and so on. And that's in a large part a very honest answer. Of course, the NFT will help because it will lead to far greater transparency and disclosure by corporations and financial actors. But there's a real problem in that the data that is available is largely in the public sector. But it's very raw data and if we want financial behavior to change, it has to be translated into the kind of investor grade data that you get on a Bloomberg or refinitiv terminal. And so there's a real job to be done, looking at how data can be translated into methodologies and approaches how you can build a business model with incomplete data and set in place, set in motion a process to gradually improve and tighten up that data. And what you're seeing out there, of course, is people not only trying to gather data, you're seeing people coming up with methodologies for looking at the impact you have on nature. For example, the Encore tool, which was developed for banks to understand the impact of their portfolios on nature, or the global biodiversity score developed by CDC, biodiversité in France and lots of new companies like nature, alpha that that help corporations develop an approach to nature, finance, even in an environment of insufficient data. So it's a field that's absolutely booming. And whereas data gaps are still very much present, we're getting past that, I think quite quickly. When it comes to technology, of course, the most interesting developments, certainly areas of digital financial technology usually called fintech. And of course, FinTech has the potential to do a great deal of good but it also has a potential to do a great deal of harm. So many financial centres are struggling to put in place a kind of policy framework that would emphasise the good that FinTech can do, and screen out the sort of bad things. But FinTech can speed things up, it can speed the transition up very, very considerably. It permits sort of crowd science, it permits trust protocols, it permits approaches that that use nature, through tokenization, or gaming, and it allows direct consumer action on value chains that you never could have got through the traditional institutions that get that manage our finances. So there's, it's a very exciting area and one that I think we need to understand better. But perhaps the biggest gap has been, what are we aiming for, is there a sort of global standard out there that we should all be aiming for. And in fact, one is emerging very quickly, you know, from climate that we have the net-zero targets that increasingly corporations and financial actors are expected to sign up to and take action on. But there's a similar one emerging now from the field of, nature and biodiversity, which we call nature, nature positive standard. And what it means essentially, is that the action of a corporation or the action of financial investors should leave nature at least no worse off than it was at the beginning of the investment or the corporate activity, and if possible, better than it was. So it's a attempt at looking at a kind of restorative agenda, rather than simply doing no harm. And increasingly, now, there's a kind of convergence between net-zero and nature positive, and I think it could very rapidly become a condition of doing business with the burden of proof actually placed on the corporation. So the financial actors and, and increasingly, for example, there are being companies being excluded from from public procurement competitions, if they are not signed up to that standard or not having access to credit if they're not signed up to the standards. So this is something that is putting in place, I think, a new sort of condition of doing business, a new sort of social norm that will be expected of all financial actors in the future. Finally, there is a lot of movement on the area in the area of new financial instruments, and I will simply illustrate it with one and that is addressing developing country debt, which of course grew a great deal worse during the COVID pandemic, and that is, frankly, unsustainable, that that will never be repaid. And so instead of struggling with restructuring after restructuring, there's an approach that says if these countries invest in climate action or nature restoration, then in exchange for that, that performance, if you like that, that certified performance of improving climate or nature, they can get relief on their debt. So it's a sort of what we call a nature performance bond where the benefit from the bond is actually given once the performance is achieved, or what are milestones towards set apart that performance are passed. So there's a lot of creativity going into into new financial instruments that could work on on our capital markets. And that could both had the effect of improving conditions in developing countries, lowering developing countries cost of capital, and addressing the urgent climate and biodiversity challenges that we've all agreed that we need to need to address.
Rosie 20:34
Wow, that's quite some report. Thank you for for taking me through it. Now with regard to new financial instruments. Guernsey has been developing in this space. So our regulator, the Guernsey Financial Services Commission launched the world's first regulated Green Fund regime back in 2018, which now channels more than 4.9 billion into verified green projects. And we have a another world first, which is pretty recent. There's a very recent proposal for a natural capital fund regime. Its intention is to direct capital to biodiversity and natural capital investments. And we hope it will also provide investors with confidence that their investments into these funds are going to economically viable business models that are aligned to international standards on reporting nature based targets. To ensure transparency, good governance, and to mitigate the risk of greenwashing. We've seen that leaders in biodiversity finance have been calling for greater private investment and regulation to protect and restore the natural world. We're very proud of the work so far, we've gone to Green Finance, that's Guernseys initiative for greening the financial system, and Guernsey's an integral member of the United Nations Financial Centres for Sustainability. And as I mentioned, just now, we've launched the world's first green fundraising. And our regulators recently joined the TNFD forum. But there's always more that we can do. In your opinion, Mark, what could Guernsey do next?
Mark 22:18
Well, I mean, first of all, heartiest congratulations on what you've already done, I think...
Rosie 22:23
Thank you
Mark 22:23
...very exciting news. And a very good example for other financial centres. And clearly guarantee is sort of got the message when it comes to the how expectations are changing in the financial world. So I very much hope that this will be a great success, and it will expand. As I said before, part of it is directing finance at at Green or nature, biodiversity priorities, and that is clearly something we had to do. I mentioned the $824 billion gap and nature financing. And clearly a gap like that can only be met, if private capital is deployed towards it. So this idea that our governments will solve the problem of protecting nature, and we'll get on with business and try and do a bit of a better job, I think is very outdated thinking, what we need to do is ensure that financial activity has as a byproduct, the restoration of nature. So it's not simply getting money into green priorities, it's ensuring that the money that goes into your, if you like non green activities, also has the impact of improving nature. And so that it's not just Well, we've got a Green Fund, and it's investing a lot of money in green projects. The rest of your financial activity should follow a kind of standard where it is at least not undermining nature in the course of its activities, or having the secondary impact of undermining natural capital, but instead improves it. And I think that's a job of looking at the impact of overall portfolios of the financial actors in your centre. It's going forward with disclosure and reporting. It's promoting new standards, it's experimenting with new financial instruments. It's sort of all the things that we set out in the working group report in which we hope all of the financial centres that are members of FC4S will adopt. But you know, it's always easy to say, well, there's more you can do and you could perfect this and perfect that. I think the key thing is that Guernsey could be moving in the right direction and that helped through FC4S, we can make that example far, far better known around the world. So that might be emulated by other other financial centres.
Rosie 24:50
Very kind of you to say thank you very much indeed. Well, that's all we've got time for today. Thank you so much for your time and your insights. It's been absolutely fascinating to hear you explain why biodiversity is so important and work that financial centres can do to support that development. I'd also like to thank you for listening to today's podcast, we have quite a back catalogue of interviews and panel discussions on the Guernsey Green Finance podcast channel, then you can check them out by searching for Guernsey Green Finance wherever you get your podcasts. If you enjoyed today's episode, you can leave us a review or a comment and we always love to receive your feedback. You can learn more about the investable opportunities with biodiversity finance and about Guernsey's sustainable finance offerings. You can also now register to attend a Sustainable Finance Week which has been held in Guernsey between the 19th and 23rd of September, we'll be hosting market leading keynote speakers, informative panel sessions and an opportunity to network with global and Guernsey leading sustainable finance practitioners all in the glorious surroundings of our beautiful island. You can also find us at guernseygreenfinance.org and weareguernsey.com. You can interact with us on Twitter at @gsygreenfinance and at @weareguernsey. You can hear more news relating to developments coming in to Guernsey's finance industry by checking out the We Are Guernsey podcast on your preferred platform. And we've also got links to Mark and UN FC4S social media in our show notes to check them out to hear more from them. And we'll be back soon with another edition of the Guernesy Green Finance podcast.
Transcribed by https://otter.ai