Rethinking regeneration at Davos: “If markets are going to be formed, let’s form them around the best quality science.”   

JANUARY 2023 –  Over 2,500 leaders, including 52 heads of state and over 600 CEOs, met in Davos to discuss the world’s most pressing economic issues at the annual meeting of the World Economic Forum. 

At the top of this year’s agenda? Climate and the environment. Only one month after the historic agreement to protect and restore nature at the UN Convention on Biological Diversity COP15, escalating food and energy crises ramped up calls at Davos for the urgent transition to a nature-positive global economy. 

On the sidelines of the forum, NatureFinance and ETH Zurich co-hosted a discussion that brought many of these themes – and the interplay between science, finance and politics – into focus. Panellists Simon Zadek, Executive Director of NatureFinance; Sonja Gibbs, Managing Director of the Institute of International Finance; and Tom Crowther, Scientist at ETH Zurich and Chair of UN Decade on Ecosystem Restoration, discussed resetting the relationship between people, the economy, and nature.

A huge moment for nature

There was strong agreement among the panellists that this year’s forum was happening at a unique moment for nature – a time of widespread acknowledgement that the natural environment is increasingly at risk and of a looming breaking point where our planet can no longer support life as we know it.

There is also growing recognition of the critical role finance will play in backing us away from this precipice. We are seeing an unprecedented surge in the monetisation of nature and the trade of nature. There is growing demand for ESG investing and, from the supply side, a growing arsenal of financial instruments to channel investment towards nature-positive outcomes. This September, the Task for Nature-related Financial Disclosures will release its recommendations for businesses and investors to disclose information about nature-related risks and opportunities, following the model developed for climate-related financial disclosures. 

“Exactly what people have been arguing for – let’s value nature properly – is now in play,” said Mr Zadek. “This is really good news because it makes visible how nature works in the global economy and it forces us to think about how we value nature moving forward.”

Driving investment using data, not opinion

Most of the world’s biodiversity hotspots are located in developing and emerging economies, many of which are experiencing a looming debt crisis that threatens to undo decades of hard-won developmental gains. The confluence of these two crises underscores the inevitable trade-offs of this debate. How do we balance the needs of nature with the urgent actions needed on crucial development targets?

The panellists pointed to several promising areas where development, finance and nature are converging around shared objectives. Debt-for-nature swaps are gaining traction in countries like Ecuador and Barbados. Last year, Chile and Uruguay became the first countries to issue sovereign sustainability-linked bonds.

At the heart of these new financing instruments? Good data and rigorous monitoring. Redirecting investment towards biodiversity conservation requires proving issuers are doing what they actually say they are going to do. “You have to be able to assess to invest,” said Tom Crowther. “Using data, not just opinion.”

For companies and financial firms already adjusting to the added burden of climate-related disclosures, simplicity is key. It’s the job of scientists, like those working at ETH Zurich, to translate complex bioresearch into measures that businesses, investors, regulators and insurance firms can use to assess their impacts on nature and communicate them easily and broadly. 

The SEED Index, a joint venture of NatureFinance and the Crowther Lab at ETH Zurich, is an example of how science can be used to translate biocomplexity for a mass audience. The index draws on datasets and satellite information to provide a comprehensive assessment of the state of nature, rating ecosystem health on a scale from 0 to 1. 

This type of standardised measure, comparable across regions and over time, is the secret to unlocking investment in projects with lower nature-related risks and a higher upside for regeneration. “There is no way we can scale these markets without scalability and benchmarking,” said Ms Gibbs.

Accounting for complexity 

While the promise of these new financial tools is high (though not without scepticism), the panellists issued a clear warning: we need to learn from past mistakes to avoid the common pitfalls of putting a price on nature. 

High on the list of past mistakes is the consistent sidelining of complexity in favour of simple metrics for valuing nature. We have a history of valuing one aspect of biodiversity over others, explained Mr Crowther. The latest iteration of this pattern can be seen in efforts to curb climate change through tree planting and land restoration…at the expense of everything else. 

“If we are basing markets on a single part of nature, i.e. carbon, we are incentivising vast monoculture,” said Mr Crowther. “If we are going to build markets to promote nature, they must reflect the complexity of nature.”

Comprehensive measurements, like the SEED Index, can provide a snapshot of biological complexity – the plants, microbes and animals and the genetic, species and ecosystem variation that sustain life on this planet. 

If we can integrate this measure into our financial decision-making, we have the opportunity to correct past mistakes and redesign the global financial system to work for nature, not against.

With the expansive growth in financial instruments, there is a small window of opportunity to get this right. “We have just a short time to figure out what role financialisation is going to play in favour of a nature economy,” said Dr Zadek. “Finance is either at the core of either the problem or the solution.”