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Coalition of finance ministers unveils blueprint for managing nature-related risk

A second paper looks at how to put UK nature and its recovery onto a financially sustainable path.

The Coalition of Finance Ministers for Climate Action has presented a comprehensive plan to manage nature-related risk using a series of policy levers.

Entitled An Overview of Nature-Related Risks and Potential Policy Actions for Ministries of Finance: Bending The Curve of Nature Loss, the document aims to help policymakers better understand nature-related risks and possible fiscal implications, as well as initiate discussions about policy challenges and how to best address them.

Launched in 2019, the coalition is comprised of 72 ministries of finance (MoFs) – including those of the UK, Canada, France, Japan, US, Mexico and Kenya – and aims to lead the global climate response and secure a just transition towards low-carbon resilient development.

Suggestions put forward for managing nature-related risk cover every aspect of private and public sector finance, from national nature investment plans to subnational bond issuance, as well as blended finance and early-stage capital.

The report also advocates integrating nature-related risks and opportunities into the sectors exerting the greatest pressure on nature and supporting economic policy reform to align incentives with sustainable practices.

“While this menu of potential policy actions in this report is extensive, what is most important is that MoFs immediately start improving their understanding of the nature-related risks to which they are exposed, the natural capital assets they are managing, and the potential nature-related opportunities they could pursue in the near and medium term,” the report notes.

It adds that MoFs can take steps to integrate nature-related criteria into their strategies and decision-making, building on climate integration efforts. “They can also co-ordinate nature-related risk management with relevant ministries, as well as with the regulator, supervisor and the central bank.”

In related biodiversity policy news, the Financing Nature Recovery UK initiative has published a report setting out a framework for scaling up high-integrity environmental markets.

Established in November 2020 with the aim of putting nature onto a sustainable financial path, the initiative is led by the Broadway Initiative, Finance Earth and the Green Finance Institute.

The new report highlights key challenges for the private sector in pricing and managing the risk of investing in nature, including mis-aligned and complex environmental regulation, a lack of tested revenue streams and capacity gaps. It warns that “the risks of investment at scale currently outweigh the returns” and set out a framework to modernise regulation, leverage public expenditure and secure large-scale private investment in nature and biodiversity each year by 2030.

Recommendations to address this include: the creation of a voluntary Nature Positive Commitment for UK business in 2023; the quantification of nature-related impacts and dependencies across the UK economy; the development of nature positive goals and sector targets; the reform of economic and environmental regulation to incentivise more efficient delivery of environmental outcomes; the establishment of a system of standards for quantifying the environmental services from nature; and the establishment of accreditation mechanisms for nature-based environmental services.