For COP27 to be a success, funding is key

Robin Millington is CEO of Planet Tracker.

Simon Steele, the new head of the United Nations Framework Convention on Climate Change, has a lot of work to do. There really isn’t a magic wand for greening the global economy, but it has the power to tend to bring politicians, investors and financial institutions together in a more coherent way.

Investors and politicians must join forces to protect natural capital—i.e. the sum of the world’s stock of natural assets from which we extract services such as forestry, fishing, materials to build our homes, and minerals to power our phones and electric vehicles.

From introducing mitigation and adaptation measures and alleviating the impact of environmental loss and damage to ensuring that the green transition is fair for developing countries, good policy and good finance must go hand in hand.

Take aquaculture, for example, an industry that supplies 49 percent of global fish demand, according to the UN’s Food and Agriculture Organization. About 3 billion people rely on seafood as their primary protein. Meanwhile, the aquaculture industry is increasingly relying on soybeans, which in turn is driving deforestation. But innovative green bonds issued by leading companies such as Mowi and Grieg Seafood are providing the capital needed to increase the use of more sustainable feed with new ingredients such as black fly larvae and algae.

Such debt financing is clearly feasible and desirable, and connecting the dots between industries and implementing supportive policies can have a positive impact.

In recent months, the world has become acutely aware of the value of nature. Food prices had risen dramatically, in part due to the conflict in Ukraine, but food shortages were already increasing due to the effects of climate change. Russia’s war exponentially exacerbated the problem, however, creating a focal point for an issue that, unfortunately, has been glossed over all too often.

Now, food security and issues related to our food supply chains are rising to the top of national agendas.

This year alone, some 30 countries have imposed restrictions on food exports, fearing that food insecurity could lead to civil unrest. And while bodies such as the UN demand that these protectionist measures be scaled back to keep trade open and free, nature-dependent nations continue to erect trade barriers through bans, export licenses and/or export taxes, disrupting supply chains.

Between 2010 and 2019, such nature-dependent exports accounted for 40 percent of total annual world trade, over a third of which originated from non-democratic regimes. In fact, 25 percent of renewable raw materials—agricultural exports such as grains, meat, dairy, and seafood—are sourced from 90 non-democracies with an average annual export value of $602 billion.

It also raises the specter of the support we give, as a global community, to regimes that continue to drive deforestation, pollution and human rights abuses and that can easily cut off vital supplies at any time – as we have seen with Russia. Supply chain vulnerabilities are now clear to all.

So what are financial institutions and policymakers to do when a quarter or more of renewables are at risk?

First, the move to shorter supply chains and “friendly” jurisdictions or “supporting friends” should be viewed with caution. Although these policies promote secure local supply and can strengthen national food security, supply chains are too complex to be fully mastered. Moreover, in recent years some steps towards deglobalization have been combined with the rise of nationalism, in all its anti-democratic and xenophobic sentiments.

To realign the food system for a more sustainable, healthy and equitable food future, investors and policymakers should instead focus on supporting the transition to a more sustainable global diet while working on ways to help mitigate the impact of shocks in the supply chain from climate, disease or geopolitics.

However, financial markets also play a significant role in supporting industries that have a detrimental impact on our natural capital. For example, Planet Tracker’s “Gran Chaco” study, which focuses on the risk of deforestation in South America’s largest dry forest, as well as the 12 soy traders who control 89 percent of soy exports from the Paraguayan and Argentine Gran Chaco Chaco – revealed that in the policies of the top 20 capital investors financing the “Deforestation Dozen”, only one of them explicitly recognizes the area as a high-risk biome.

Moving forward, the boom in environmental, social and governance data means that investors can now begin to understand the impact of their investments. Collecting structured data on natural capital issues and disclosure laws can help investors identify risks and opportunities, and also lays the groundwork for better regulation to address specific issues.

This kind of improved accountability is what can drive the transition to not just a net-zero future, but a fair and nature-positive future at the necessary pace.

“We can do better, we must,” were the parting words of outgoing UN climate chief Patricia Espinosa. And that means doing better at researching and acting on the interplay of problems as we use what’s left of Earth’s natural capital. It also means promoting the way financial markets support policies – we need funding targeted at our decisions.

There was a very positive push for this at COP 26 in Glasgow last year. Now, moving to COP 27, we need to accelerate this momentum.