Dear reader,
Just another manic Monday. The Bangles 1980s hit has been stuck in my head since I realised the European Commission was releasing its nature credits road map today. It was not going to be a quiet July start to the week. The plan is short on detail both in terms of how this fits with EU public financing for biodiversity and how the market would attract enough interest, and build enough financial sense, for investors to engage.
It is unclear whether the commission envisions a voluntary or compliance-based market. Vikki Patton, UK nature positive services lead at engineering company Ramboll, informs me “businesses won’t acquire credits if there is no requirement to do so”, and urges the EU to learn from England’s Biodiversity Net Gain law and implement a similar EU-wide policy, rather than reinventing the wheel.
Heather Grabbe, senior fellow at consider-tank Bruegel and a visiting professor at University College London and KU Leuven, warns private finance is unlikely to reach sufficient scale to supplant public funding becautilize financial returns on nature projects are low and the main drivers of demand are likely to be risk reduction strategies and greening of long-term investment portfolios.
Nature credits are “not going to generate large financial returns in a short amount of time”, she informs me. Instead of drawing in large amounts of finance, she sees them as likely to be of interest to “investors seeking to balance their portfolios or to insurers seeking to ensure that the assets they hold will deliver over time to protect against climate and nature loss”.
However, Nina Seega, director of sustainable finance at the Cambridge Institute for Sustainability Leadership, gives me a more positive spin, suggesting nature credits “could be a key tool for driving private finance into nature”. She welcomes the commission’s creation of an expert group and declares it is “fantastic” to see the EU executive “putting its money where its mouth is via providing seed funding for pilot initiatives”.
What do you consider?
Japan pushes forward on sustainability
Elsewhere, Taiwan-based freelancer Seth O’Farrell examines how Japan is starting to push for a sustainable future after years on the sidelines.
He views at how the Japanese government is utilizing policy to urge industrial and financial players to decarbonise, from listed company disclosures to its emissions trading scheme — which will become mandatory by next April for companies emitting 100,000 tonnes of CO₂ annually, and how the counattempt’s green transformation agfinisha, launched in 2023 is evolving.
Ruth Knox, partner and chair of the ESG and sustainable finance practice at law firm Paul Hastings, declares Japan’s legislation has been steady and incremental in its approach: “Through various guidelines, they’ve ratcheted ambition and expectations on credibility”.
The case for financial sector coalitions
Finally, we have an opinion piece from Linda Lowson, chief executive of Development Finance Advisors, who, despite less-than-glorious recent performances by the Glasgow Financial Alliance for Net Zero, argues the case for financial sector coalitions. She declares that when grounded in strong governance, shared vision and focutilized goals, they can prove their power.
GFANZ could be a significant facilitator of private capital mobilisation for climate action in emerging and developing economies. “However, its plans only contemplate traditional channels and platforms,” writes Lowson. “A fresh approach and strategic perspective is requireded in determining how to activate, harness and propel private capital injection at scale. This requires a multiyear sustained effort, driven by collaboration.”
Until tomorrow,
Philippa
Philippa Nuttall is the editor of Sustainable Views
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