Exploring markets for nature at Building Bridges Week 2022

OCTOBER 2022 –  The third annual Building Bridges Week brought international organizations and financial institutions to Geneva with the common goal of accelerating the transition to a sustainable global economic model. 

One thousand eight hundred people from 51 countries attended the four-day event, where discussions centred on the role of the financial sector in addressing the transition to net-zero and preserving biodiversity. 

This year, the Enterprise for Society Center (a joint venture of the University of Lausanne, the Institute for Management Development and the Ecole polytechnique fédérale de Lausanne) and ETH Zurich hosted an event that explored the role of biodiversity metrics in shaping nature markets to achieve nature positive and equitable outcomes.

Panellists discussed the role of scientists, financial institutions and policymakers in ensuring that the biodiversity metrics incorporated into financial mechanisms and transactions work for people and planet, not against. 

More complexity means greater resilience

Tom Crowther, Founder and Lead Scientist of the Crowther Lab at ETH Zurich, opened the event by explaining the common pitfalls of valuing nature and how this has exacerbated some of the current crises we face today. 

“Vast monocultures of agricultural lands have fed a growing population, but they come at the expense of nature,” explained Dr Crowther. “This has contributed to threats like biodiversity loss and climate change so, in our reaction, what we’ve tended to do in the last couple of decades is make a new kind of farm.” Instead of focusing on food, we’re planting vast tree plantations to capture carbon.

“Plantations can be carbon dense but biodiversity poor,” echoed Daisy Dent, Crowther Lab Lead Scientist. These carbon-dense plantations often lack resilience. When a system lacks diversity, it is vulnerable to pathogens, disease and climate risks, like drought. 

Once again, by focusing on the single metric – carbon – we are neglecting and, in many cases, destroying the thousands of other services that nature provides. 

“The simple lesson,” said Dr Crowther “is whenever we extract any particular aspect of biodiversity and place value on it, that aspect will be propagated at scale at the expense of all other species.”

The SEED Index, a new measure of biodiversity launched by the Crowther Lab and NatureFinance, follows a different approach. By drawing on massive ecological datasets, machine learning and satellite information and condensing that information down to a single number between 0 and 1, the index captures biological complexity while providing a metric that is easy to scale, compare and communicate. 

This means companies, asset managers and financial regulators are able to use a more comprehensive measure of biodiversity health to shape the way nature flows into and influences markets over time – and correct the mistakes of the past.

Metrics are good, but they need to be contextualised

Panellists from the private and financial sectors agreed that good data is essential, but, to make an impact, numbers must be contextualised within broader frameworks that set benchmarks and goals. 

“Looking in general to ESG investments, one of the reasons why CO2 solutions have been so successful is that you can actually standardise it and measure it and compare it,” said Ruediger Fahlenbrach, Professor of Finance, at École polytechnique fédérale de Lausanne. “The better that metric is, the more you can quantify it, the more excited investors can become.” 

Better metrics for biodiversity, like SEED, can help companies measure the biodiversity impact across their value chain, which can be used to track performance and encourage investment to flow towards nature-positive companies or activities.  From a risk perspective, greater transparency and accuracy of biodiversity impact measurement can help investors assess their exposure to nature-related risks and adjust their portfolios accordingly. 

Applying lessons from the climate mitigation space can ensure biodiversity restoration and conservation draws from the successes and failures of past movements. One of the key lessons? Communication is key. 

“One of the challenges of these indices is that in communicating them you lose meaning,” said Thomas Hohne-Sparborth, Head of Sustainability Research at Lombard Odier. “This physical metric of 1.5 °C as the key target has some real-world meaning. How do you make these biodiversity indices a bit more communicable?” 

Beyond a metric that outlines the severity of biodiversity loss in a particular area, the panellists expressed a need for a comprehensive framework outlining what is expected of companies and how quickly they should be improving. “How do we define a more forward-looking metric?” asked Mr Hohne-Sparborth.

“We can’t sit still” 

These questions are ones of governance that should not be left to market forces alone. 

“We are seeing a wave of change where nature is valued and crystalised as having a distinct value,” said Simon Zadek, Executive Director of NatureFinance. “We now have the opportunity to moderate and manage how nature is valued and moderate and manage how it is traded.” 

It was clear from the panel discussion that investor interest is there. Speakers from financial firms like Lombard Odier and Pictet Asset Management explained the growth in investment models for clients looking to both invest in nature-positive solutions and mitigate nature-related risks. 

Pointing to examples of conservation easements, inclusion of biodiversity into carbon markets, and biodiversity net gain legislation, Pernille Holtedahl a research fellow at the Imperial Business School was hopeful. “This will lead to more money,” said Ms Holtedahl. “But many of these examples are small scale. They are not always easy to replicate.”

What’s needed is further experimentation and systems for scaling and standardising the approaches that work. Metrics, like the SEED Index, can be helpful in this respect by offering governments, businesses and financial institutions a standardised model for measuring and communicating impact at both local and global scales. 

But markets move faster than policy. Urgent decisions need to be made while the questions of what form nature markets will take, how they will be regulated and, importantly, who they will benefit from are still on the table. 

“We need to provide investors with a sense of where we are, what is our current impact and where are we trying to get to,” said Owen Bethel, Nestlé’s Environment Impact Lead. “We can’t sit still.”