Chapter 2
Finance and Our Living Planet
The financial sector is not only connected to climate change through its investments. The decisions made by financial institutions also impact our living planet: the forests, the lakes, the coral reefs and other ecosystems on land and in the oceans – as well as the people who depend on them.
If unguided, this interconnectivity is a threat. Harnessed, it presents an opportunity for investors to accelerate action for a stable climate system, and for the sustainable and equitable stewardship of the Amazon rainforest, the ocean and other key biomes.
Investments are key to a transition to a net-zero world, climate stability and biosphere stewardship. The institutions that mediate these investments are central to our ability to shift our economies in a direction that promotes a thriving planet, both on land and in the oceans.
Promising signs include a total of US$632 billion climate-related financial investment worldwide, and almost 40% of all European Union–domiciled funds marketed as “sustainable”.
The growing interest in “green,” “net zero” or “climate friendly” investments is, however, not yet sufficient to help achieve the Paris Agreement or the ambitions of the Sustainable Development Goals (SDGs).
Investing in climate stability and global health
Investors providing equity, loans and bonds to companies contributing to deforestation can have major impacts on both climate stability and human health. New data about the most important financial institutions in the world show one of the main culprits: investments in industries that undermine the resilience of key biomes. For example, many banks and pension funds have significant ownership in the soy and beef sectors connected to the stability of the whole Amazon rainforest, which in turn is critical for biodiversity conservation, water supplies and global climate stability.
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New research also shows clear and increased risks for domino effects among climate change, ecosystem degradation and the financial sector.
The ocean finance gap
For the world’s ocean ecosystems, finance could also play a key role in assisting transformation towards sustainability. While the finance sector could help bridge a vast “ocean finance gap” by unlocking capital for a resilient ocean economy for all, less than 1% (US$13 billion) of the total monetary value of the ocean has so far been invested in sustainable projects.
The vast majority of investments have gone to large-scale activities that counter the delivery of the Sustainable Development Goals.
Through technological innovation and increasing human demand for food, energy, material and space, ocean-based industries are growing at an unprecedented pace. A focus on who and what are financing this “Blue Acceleration” can unlock powerful leverage points to redirect corporate finance to support implementation of the 2030 Agenda, including the SDGs.
In fact, SDG 14 (“Life Below Water”) remains the least funded goal. While an estimated US $175 billion per year is needed to fund SDG 14, it received just below US $10 billion in total over the period 2015–2019.
The new planetary reality, with combined financial, climatic and ecological risks, changes the way systemic risks should be understood and dealt with in the financial sector. Addressing this will require investors to engage in new ways and on new topics. It will also require new methods for translating climate risks, including physical, transition and liability risks, into actionable information for the finance sector.
The influence and responsibility of financial actors to contribute to a transformation towards a just and safe future for all has never been clearer.
