By Tracy Vegro OBE, CEO of the Chartered Institute for Securities & Investment and Chair of the Chartered Body Alliance
Television viewers around the world have been wowed by the BBC’s (British Broadcasting Corporation’s) latest nature epic, Wild Isles, from veteran documentary maker Sir David Attenborough. It celebrates the beauty and vigour of Britain’s natural capital, as the financial world would label it: the land, seas, lakes and rivers, and everything on and in them. But Sir David, a still-robust 97-year-old, laces every programme with a warning that Britain (and much of the rest of the world) is losing that natural capital—the biodiversity on which so much depends—at an all-time-record rate.
That focus on the world of nature, going beyond the climate challenges on which so much attention is focused, has become the leading-edge issue in the first half of 2023, eclipsing ESG—the world of environmental, social and governance factors, which has become muddied by concerns about measurements, reporting and political dilemmas.
Finance has begun to tackle the climate crisis but, until very recently, had completely overlooked the crisis in nature. The United Nations COP15 (United Nations Biodiversity Conference) in Montreal, Quebec, Canada, in December 2022 (part of the United Nations series on biodiversity and long the poor cousin of the much glitzier climate COP [Conference of the Parties] series—of which the latest, COP28, will be held in dazzling Dubai, United Arab Emirates [UAE], later this year), finally moved natural capital to its rightful place high up on the financial agenda.
The Taskforce on Nature-related Financial Disclosures (TNFD) has made much progress on this front. This project, science-based and market-led, will enable companies and financial institutions to integrate nature into decision-making on the fundamental premise that while nature poses major risks to businesses, nature-positive investments offer great opportunities. It is led by David Craig, formerly a senior officer with London Stock Exchange Group (LSEG) and the founder and chief executive officer of Refinitiv (bought by the Group four years ago in a $27-billion deal), and Elizabeth Maruma Mrema, assistant secretary-general of the United Nations.
Its framework provides a model that businesses and financial institutions can use to manage risks and disclose information about those nature-related risks and opportunities. Having critical information on risks paves the way for institutions to set science-based targets to reduce their impacts on nature. The TNFD is finessing its plans based on ongoing feedback from market participants and insights from pilot testing until the first version of its framework launches in September 2023.
A short film from the producers of the BBC series—Banking on a Wilder Tomorrow, available on our CISI (Chartered Institute for Securities & Investment) website—has helped open the financial sector’s eyes in Britain and beyond to the twin crises of changes in climate and threats to nature. It demonstrates clearly how these crises are intricately connected and pose significant threats—and great opportunities—for finance and the world more generally.
Science-based targets for nature matter because without credible and ambitious targets against which business and finance can be judged, there may not be fast-enough progress. Dame Sharon (Michele) White, chair of the John Lewis Partnership, a major British shop chain, pointed out in the film that “science-based targets for nature matter, because unless we set credible, ambitious targets that we can be judged against, we think that we won’t make fast enough progress, and so we’ve set some incredibly ambitious targets for how we as a retailer, both encourage greater biodiversity but also be really thoughtful about how we protect nature in our supply chains”.
Dr. Steve Waygood, chief responsible investment officer at Aviva Investors—one of Europe’s biggest, said that “roughly 400 trillion of capital is out there in the global financial system. We know that is many times what is needed to solve the climate crisis, the nature crisis, simultaneously. We need to invest at least 11 trillion dollars in nature, between now and 2050, to have any hope of limiting warming to 1.5 degrees.”
Emily McKenzie, technical director of the TNFD, offered peatlands as “an example of nature as a form of capital. They are one of the biggest sinks of carbon on the land and yet once they deteriorate, they can become emitters of carbon rather than sequestering it.”
Building capacity and capability in sustainable finance
The knowledge and skill requirements to tackle these vital issues are ever-changing. With our colleagues in the Chartered Body Alliance—the Chartered Banker Institute and the Chartered Insurance Institute—we commissioned research by PwC (PricewaterhouseCoopers) into the gaps and future needs. This was done on behalf of the Sustainable Finance Education Charter (SFEC) group, which comprises 14 major professional bodies and includes more than one million members between us, with support from the UK Government. Our mantra comes from Dr. Mark Carney, former governor of the Bank of England (BoE) and United Nations special envoy for climate action and finance. As he prepared his “path to COP26”, the 2021 climate summit held in Glasgow, Scotland (for which Britain was president [with Italy] of the climate COP series, and Carney was the advisor to Prime Minister Boris Johnson), he declared that “in [the] future, every professional financial decision must be made with climate in mind”. To that statement, he would almost certainly now add the word nature.
The findings have given cause for concern, which all Charter bodies are urgently addressing. The majority of respondents to the survey did not consider their organisations to be “highly prepared” for future requirements in green and sustainable finance. Although the majority (55 percent) had engaged in training in this area, only 8 percent believed their organisations were highly prepared for future knowledge and skill requirements in this area.
This is a worry, given the United Kingdom’s net-zero ambitions and the sustainability commitments and strategies of many financial-services employers. Firms must be able to respond quickly to the rapidly evolving sustainability landscape to help clients and customers manage sustainability risks and take advantage of the opportunities offered by the transition.
Additionally, most respondents stated they were not investing in training employees in sustainable finance to support their organisations’ sustainability strategies. The survey identified that 65 percent of organisations allocated 0 to 10 percent of their training budgets to green and sustainable finance, suggesting that the focus of these organisations was not to upskill employees on the topic.
There were also indications that budgets allocated to green and sustainable training were mainly targeted at only a small group of individuals. The survey identified that 34 percent of respondents prioritised training the board, senior executives and key management personnel. Findings in the UK Financial Conduct Authority’s (FCA’s) “Finance for positive sustainable change” discussion paper earlier this year suggested that board members were not typically experts in this area, and hence they needed to gain a better understanding of the issues by seeking guidance from others with the relevant skills and expertise.
Each organisation needs to review its investment in board-level training to assess if it is an efficient use of its budget and prioritise those groups of employees that can leverage the skills to capture opportunities in green and sustainable finance.
Our conclusions? To support the UK’s net-zero and international-competitiveness ambitions and maintain the UK’s position as a global sustainable-finance hub, employers and others (including the UK Government, professional bodies and training providers) need to significantly scale up the prioritisation they give to building capacity and capabilities, backed by increased investments in relevant education and training.
- Organisations should increase and prioritise investments in sustainable-finance skills and knowledge.
- Training programmes should build on the current knowledge of the workforces within the financial-services sector to address the skills gap and allow applications of theoretical knowledge in practice.
- Organisations should implement formal training plans for sustainable finance, including assessments of current knowledge and skills gaps. While specific knowledge and skill requirements will vary between professions, across roles and over time, a common core of knowledge for all professionals has already emerged.
- Training providers should consider the fluidity of their training programmes to address the evolving nature of sustainable finance.
- Current public programmes, such as the apprenticeship levy in the UK, should be used by organisations as opportunities to upskill their workforces in this space.