Looking at finance through nature’s lens
Nature and finance may seem like unlikely bedfellows. But companies, investors, governments, and accountants should take note: there’s a new wave of finance building momentum. Now that most institutions have become used to measuring and publishing carbon emissions, it’s now time to tackle the risks and opportunities associated with biodiversity. Tineke Lambooy, Professor of Corporate Law at Nyenrode Business University and Karin van Dijk, Fund Manager of the ASN Biodiversity Fund, will present a talk provisionally entitled “Designing a Nature Positive Financial System” during the Sustainable Finance and Climate Risk Event in Amsterdam. We had an in-depth conversation with them ahead of the event about this fascinating approach to finance.
What is Nature Positive Finance?
Karin van Dijk: Nature Positive Finance is a term we use to describe a system where projects and businesses contribute to the protection and regeneration, rather than the decline, of nature. Through impact investing and impact financing we can support companies and projects that develop their business models around nature, so that while developing products and services they are also protecting and restoring nature and biodiversity. We are utterly convinced that financial returns can go hand-in-hand with biodiversity returns. It is therefore essential that we invest in healthy business cases: only then will we able to restore biodiversity over the longer term.
Tineke Lambooy: Eventually, all business models and markets will have to transform into circular economy models and markets, where almost everything is regenerative and recyclable. We therefore now need to find out how dependent companies are on nature and ecosystems. We then need to explore ways to make that dependence regenerative. In order to remain viable in 5, 10 or 50 years, there is no other option than to look very carefully at every product, every business model, and every market setting, and ask ourselves “what can we do better to keep nature alive?”
Isn’t that major challenge for companies and corporations involved in traditional industry?
Karin van Dijk: This may be so, but it is necessary. My personal belief is that the transition is not going to come from large corporations, but the rapid decline in biodiversity which we see at the moment make the situation very urgent. We need to transition much sooner to nature-friendly business models.
Is it impossible for traditional industry to regenerate itself into a more circular way of doing business?
Tineke Lambooy: Innovative business models such as investing in biodiversity have been around for the past 15 years. This is not new. Hence, traditional companies can apply the insights that have been generated. I have also done research with large companies such as Heineken, Unilever and even Shell. All these corporations have employees on board who care about biodiversity. Most of those companies have teams tasked to work on reducing their company’s negative impacts on biodiversity.
Too often however, we see tension within those big companies between the people tasked with reducing environmental impacts on the one hand and the commercial and finance people on the other hand, who basically aim to steer the business towards financial profits. The business and accounting models with which these people work are very linear. The circular model demands a different approach. While big companies are looking at biodiversity, we don’t see a lot of progress because this internal battle in continuing.
I always challenge controllers and accountants to adjust the financial reporting system in such a way that it enables reporting in a circular economy manner. Corporations have been assessing their carbon impact, which is good: it is also the easy part. Carbon is calculable. You can measure a project and make carbon impact calculations. Now we need to focus our attention and energy on biodiversity, and this is where the accountants need to reframe the world. Biodiversity loss is a fast-growing financial risk as well, which isn’t yet been considered.
ASN Biodiversity Fund invests in sustainable forestry, agroforestry, sustainable oceans, and eco-tourism. Karin, you are at the front end of investing in highly innovative new companies, younger companies which are changing the way we look at biodiversity and production.
Do you have any advice for the major corporations of this world?
Karin van Dijk: Worldwide there are more than 40,000 stock exchange listed companies. We did a global quest to find companies that have a positive impact on biodiversity, or at least do not harm biodiversity. We only found three listed companies which fitted that description. At ASN we invest in a lot of large companies with our other fund strategies. These are large companies that meet our strict sustainability criteria. We engage with them to do less harm to biodiversity.
But we also see that the transition towards Nature Positive finance of these companies isn’t going fast enough. We developed the ASN Biodiversity Fund to show that it is possible to invest in companies that already have a positive impact on biodiversity and to show how it works. This also helps to inspire other financial institutions and large corporations to do the same.
What reasons do the corporations give for not including biodiversity criteria?
Karin van Dijk: They often say that they lack data and that it is too difficult to measure the various elements of biodiversity which they impact, and to report on them in their annual reports. They often sound like they have lost sight of the end goal and only talk about the challenges. The ASN Biodiversity Fund focuses on positive impact. Take the example of a company such as Aqua Spark in which we invest. They managed to help grow a start-up to a billion-dollar company in the past 5 years! These young companies can scale-up fast. Granted, these are still relatively small companies, but they show how it is done and can inspire large corporations to look at their own market potential and how to become future proof to continue generating good financial returns. That makes financial sense for investors too.
What would you advise the traditional corporations to do?
Tineke Lambooy: I recommend that management and supervisory boards collaborate with social enterprises that are in the same line of business. They can examine the innovative business model of such social enterprises and find out what could work for them. They could also hire a social enterprise to provide advice on how to revise the traditional business model. In this way, such innovative companies and start-ups can show them the way.
What are your favourite examples of companies that are successful in redesigning a traditional business model?
Tineke Lambooy: Some social enterprises in the Netherlands, such as Tony’s Chocolonely or Dopper, have grown into relevant commercial players. They started out with a simple focus and proved that their ideas are commercially viable. Tony’s goal is to demonstrate that chocolate- makers can ensure a slave-free chocolate production process. Dopper’s goals are to stimulate people to drink tap water instead of buying single-use plastic bottles with water. The Dopper water bottle can be used and reused. Their aim is to reduce the plastic pollution in the oceans.
Other examples include Interface, one of the world’s biggest carpet manufacturers which uses high percentages of recycled and bio-based raw materials. Another example is Faith in Nature, a Scottish B-Corp which makes beauty products. They have a non-executive director for Nature on their board. She is always asked to make recommendations regarding the biodiversity impact of a certain decision. If the board does not follow her advice, it has to explain this on their website. Patagonia is perhaps the most well-known example: has ‘Nature’ (a nature protection NGO) as a shareholder.
Clothing company G-Star (we have collaborated with G-Star in a European research project) is working very well with a focus on among other biodiversity. They use recycled cotton, organic cotton, hemp fibres, and plastic from the ocean. So, there are numerous big companies which demonstrate that it is possible to include biodiversity into your business model.
What is the way forward for companies struggling with this?
Karin van Dijk: I do understand that for corporations it’s quite a burden to report all their carbon accounting, and perhaps even more difficult to report on biodiversity. We measure the impact of all the companies in which we have been investing since 2015. To do that, we developed an open-source methodology to measure companies’ impact on biodiversity. We launched the platform Biodiversity Accounting for Financials (PBAF) together with other financial institutions to reach common ground in the financial sector and have a single methodology. This both helps corporations to measure their impact and allows financial institutions to compare and contrast companies’ biodiversity performance.
So, companies can use that model?
Karin van Dijk: Certainly! But it is important to stress that measurement is just a means to an end. While we all talk a lot about net zero targets, for example, but reversing climate crisis is not the goal, it’s not why I get out of bed in the morning. My goal is to create a liveable planet.
How can companies make this inventory process compact and workable?
Tineke Lambooy: there are many consultants who can help identify which biodiversity and ecosystem services a company and its products are dependent on or have adverse impact on. The next stage is to reduce that dependency and impact. Ultimately, any damage to biodiversity and ecosystems must be restored. If that is impossible, the areas should be replaced by creating new nature.
How can financial institutions have a positive impact on biodiversity?
Karin van Dijk: everything that is produced by companies is dependent on nature, but also has an impact on nature. Financial institutions provide funds for these companies. Personally, this is the reason why I started to work as an investor, because with money you can steer and influence positive change. I truly believe that financial institutions have a huge impact on the transition to a more sustainable economy, through investments.
I also think it is very necessary: in today’s market we mainly see public investors providing grants and donations to innovative companies which are very important to develop new businesses models that support biodiversity. However, in order to make real change you also need private investors, who also demand a financial return. This is essential if we want to protect nature in the long term, you need viable and healthy business cases. That is also a great opportunity for financial institutions.
Tineke Lambooy and Karin van Dijk will present Biodiversity: designing a Nature Positive Financial System at the Sustainable Finance and Climate Risk Event in Amsterdam on September 21, 2023. They will deep-dive into topics such as quantifying biodiversity risks, strategic solutions, and the links between biodiversity and other ESG issues.
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