Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Welcome to the Business Plan for the Planet podcast, a series centered around ESG insights.
Speaker: In these episodes, you'll hear from experts whose work is at the heart of sustainability linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
Speaker: Join us as we shine a spotlight on their commitment to a sustainable future.
Speaker: Good afternoon and thank you for joining us on the discussion about financing biodiversity, risks, opportunities and challenge.
Speaker: My name is Nina Seega.
Speaker: I'm a research director responsible for sustainable finance at the Cambridge Institute for Sustainability Leadership.
Speaker: I've got an absolutely fantastic panel here with me.
Speaker: Let me start by introducing them before we have hopefully an overarching and interesting conversation around all things biodiversity.
Speaker: Let me start with introducing
Speaker: Eric Usher, who is the head of the United Nations Environment Programme Finance Initiative.
Speaker: We're also joined by Maureen de Bazelaire, who is a group advisor to HSBC on natural capital, and she's also an executive committee member for HSBC Continental Europe.
Speaker: And last, but absolutely definitely not least, we've got Willem Evers,
Speaker: who is the head of the Sustainable Finance Office at the D&B, the Dutch Central Bank.
Speaker: And his job is to coordinate all work in the area of sustainable finance and the central bank and supervisor, as well as represent D&B on sustainable finance related issues.
Speaker: So welcome everybody to the panel.
Speaker: Let's jump right in.
Speaker: And I will start with asking Eric about the impact
Speaker: of financial services on biodiversity.
Speaker: So how can banks, investors, insurers and other businesses in the financial sector understand their impact on biodiversity?
Speaker: Thanks very much, Nina, and a pleasure to be with you for today's discussion.
Speaker: I think we can start to break down the notion of biodiversity and nature related risks
Speaker: across financial portfolios.
Speaker: And in some ways they're similar in terms of taxonomy to climate related losses.
Speaker: And of course the two interact with various feedback loops.
Speaker: And the financial risks here are described as related to four specific areas of risk.
Speaker: The first being the physical impacts of biodiversity loss.
Speaker: The second being the systemic impacts.
Speaker: biodiversity loss, the third being the litigation and around biodiversity loss and breach of underlying legal frameworks.
Speaker: And fourth, the notion of the transition to an economy which addresses these risks and losses and what implications that has on existing business models.
Speaker: So in terms of how financial institutions can get started, the same approach is through the model Encore, which is a tool that helps financial institutions assess their exposure to nature-related risks.
Speaker: It explores the dependencies on natural capital of specific economic activities such as
Speaker: power generation or different forms of agriculture, and the effects of changes in the condition of natural assets on business viability.
Speaker: Potential disruptions in the provision of ecosystem services, for instance, the dying off of pollinators, are linked to business production processes by what we call an ecosystem service materiality assessment.
Speaker: The Natural Capital Protocol is another example of a framework for conducting natural capital assessments
Speaker: Final point, I think though around the opportunistic side is it's not just about seeking out these specific opportunities.
Speaker: Everyone can do a bit of this, a bit of that, included in our sustainability reports, and then continue with business as usual.
Speaker: And so I think, you know, like with climate action,
Speaker: For the finance sector to really play its role in stabilizing, reversing nature loss, it has to go beyond just seeking out opportunities.
Speaker: And it really needs to start looking at how can they align entire portfolios with the nature objective.
Speaker: Can I actually draw you up on that last point around alignment?
Speaker: So within the climate sphere, it's a relative.
Speaker: We now have a relatively easy anchor to align ourselves.
Speaker: It's the one and a half degree warming.
Speaker: What can be used within the biodiversity space to achieve the same objective?
Speaker: It's a key question.
Speaker: I mean, I think, you know, for financial institutions,
Speaker: who need to start thinking about this really holistically.
Speaker: How do we align financial flows with the conservation, restoration and sustainable use of biodiversity?
Speaker: It's a tough question.
Speaker: We do hope that this sort of nature alignment will be clearly called for in the next version of the CBD, the Convention for Biological Diversity, and specifically their post-2020 global biodiversity framework, which is expected to be released later this year.
Speaker: I think the next step once you have a broad framework is to start to set relevant targets, especially interim targets.
Speaker: For example, by establishing relevant policies at a minimum to do no harm or even considering exclusions.
Speaker: Certainly a concrete step is to start encouraging one's clients and customers to set their own science-based targets for nature.
Speaker: Through the principles for responsible banking, we'll be releasing guidance for banks on setting biodiversity targets.
Speaker: This is being developed with the Science-Based Targets Network.
Speaker: Thanks, Eric.
Speaker: And if I actually bring Willem here also on the alignment point and on the various processes that are currently ongoing around the world that are driving us towards that alignment.
Speaker: Yes, thanks, Nina, and thanks, Eric, for your interesting introductory remarks.
Speaker: So I think we as a central bank and supervisor are relatively late to this party, but we've just beginning our journey to understand the impacts of biodiversity loss on the financial institutions and therefore our core tasks maintaining financial stability and
Speaker: maintaining institution stability as a supervisor.
Speaker: So I think one of the key risks, because that's the perspective that we tend to take as supervisors, one of the key risks is a transition risk.
Speaker: Now, if we do not understand these transition risks at a certain point, then there's this
Speaker: It's a clear risk that financial institutions will continue to have activities, landings, investments that will have a risk once society has a tipping point and transition is taking part.
Speaker: And that is just one angle.
Speaker: We also see as a supervisor the physical risk.
Speaker: So the actual risk.
Speaker: impacts on financial institutions' operations and loan books of a declining biodiversity.
Speaker: For example, 8% of all the global food crops is directly affected by animal pollination.
Speaker: So if you're exposed to these sorts of ecosystem services as a company, but also as a financier of such a company, then there's a direct physical risk if such a service is declined or even abolished all the way.
Speaker: And a third angle would be reputational risk.
Speaker: So we identified that there's biodiversity controversies.
Speaker: A lot of banks in the Netherlands, for example, are lending to companies which emit nitrogen.
Speaker: So this emittance, it disturbs the natural nitrogen cycle in which nature is protected and biodiversity loss is affected.
Speaker: And there's a clear societal tendency now to really
Speaker: look at financial institutions for their role in this scandal as it was perceived in Dutch society.
Speaker: So there's a growing societal awareness of the effects on their livelihood of a decline in biodiversity loss.
Speaker: So we think and we urge financial institutions to pay attention to these effects, both three types of risks in their activities.
Speaker: And especially on the alignment and the transition risk, we foresee that there's clear governmental roadmaps to be established in the upcoming years.
Speaker: And we urge them to take those into account as well.
Speaker: Thank you so much, Willem.
Speaker: And let me now bring in Maureen.
Speaker: Maureen, if I come to you right now and ask for your perspective on kind of how do banks see nature-related risks and their financial risk framework, especially as HSBC is part of our steering group for our handbook.
Speaker: So it's a relatively natural question to bring Maureen in on.
Speaker: Thank you very much, Nina.
Speaker: And thank you for looping me in this very interesting conference.
Speaker: So how do we approach
Speaker: biodiversity and natural capital loss.
Speaker: I would say maybe how do we assess this?
Speaker: How do we address those and is it effective?
Speaker: So how do we assess this?
Speaker: Will said a lot about the materiality of the risk.
Speaker: Taking a few figures, I mean, the EU estimates the losses in ecosystem services to range
Speaker: and from around 4 to 18 trillion per year between 1997 and 2011.
Speaker: So yes, the materiality of the risk is unquestionable for the financial industry.
Speaker: And how do we address those risks?
Speaker: Well, it's not new in a way.
Speaker: I mean, we have had sector policies
Speaker: to address the way we finance different sectors within the financial industry for a very long time, within HSBC since 2004.
Speaker: And it started with a dedicated one to forests and products derived from forestry.
Speaker: Being said that, I mean, is it effective?
Speaker: Well, up to the limit of it.
Speaker: Do we really understand what is the chain of consequences?
Speaker: Meaning, do we tackle the risks along the value chain?
Speaker: Are we able to translate those issues into a risk framework?
Speaker: Well, we have to be very humble at that stage.
Speaker: You may know that the Equator Principles has now included since July 2020 new commitments on biodiversity.
Speaker: and data sharing.
Speaker: And for the moment, it's quite aspirational, I would say.
Speaker: Not completely, but I mean, it brings us to commit to support conservation, including with the aim of improving the evidence base for research and decisions related to biodiversity.
Speaker: So meaning that we don't have all the right knowledge to really assess well those risks.
Speaker: And certainly the work
Speaker: from the Task Force on Nature-Related Financial Disclosure, the TNFD, will be key going forward.
Speaker: It's going to be launched mid-2021, but it will help us to understand and probably assess those risks.
Speaker: So I would say we're not starting from nothing.
Speaker: A lot is already done.
Speaker: We understand the materiality of the risks, and we still need to work together to have a common, reliable framework to assess that important risk.
Speaker: Thanks, Marina.
Speaker: I just follow on and take us into the biodiversity financing space.
Speaker: Can you also say a couple of words on the opportunity side as well?
Speaker: Yes, I mean, definitely.
Speaker: You may know that HSBC has announced its strengthened ambition to be a leading bank for the transition to net zero, becoming a net zero bank and supporting our customers in their decarbonisation pathways.
Speaker: And
Speaker: through unlocking new climate solutions.
Speaker: It completely embeds biodiversity issue.
Speaker: And a few examples, I mean, unlocking new climate solutions include natural capital investing and financing.
Speaker: On the investing side, HSBC Asset Management has announced a joint venture with Pollination.
Speaker: And the aim is to create different
Speaker: real asset, nature-based solution and carbon asset fund.
Speaker: I mean, a new strong natural capital asset class.
Speaker: And the ambition is actually really strong.
Speaker: As for other examples, I mean, we can also support on the investing side of our customers.
Speaker: Actually, I think a lot, the financial industry has a lot to do to,
Speaker: support its customers' commitment to net zero and to biodiversity loss.
Speaker: And to that, it means encourage them to assess their dependency to natural capital by encouraging them to set KPIs to suppliers, meaning opportunities for us to embed those issues into our sustainable supply chain framework
Speaker: but also into our sustainable link loans framework, into our green bond and sustainable bond framework, etc.
Speaker: And ICMA can play a leading role here.
Speaker: It's also, I think, to decarbonize their business as it comes most often linked, as I said, with natural capital, given the increasing understanding to support
Speaker: high quality of sets and the TSCBM, the Task Force on Scaling the Voluntary Carbon Market, can be really key to support the development of this financing of natural capital going forward.
Speaker: And we also have clients that have natural capital assets that were undervalued and for which the growing understanding of biodiversity loss issues and carbon market
Speaker: can be drivers for enhancements.
Speaker: With biodiversity data, we can build a lot of financial products that will support biodiversity restoration and preservation.
Speaker: And I would say that maybe to start with, we need us to assess our own dependency to natural capital, meaning through our loan book and through our financial activities.
Speaker: Thank you, Maureen.
Speaker: What do we need to stop doing to achieve the speed and scale of transition that the biodiversity science dictates?
Speaker: And obviously, that's not on the nature side, right?
Speaker: We know that we need to continue protecting nature and stop causing trouble.
Speaker: But on the financial side, what do we need to stop doing in our mainstream financial business?
Speaker: I think the starting point, and this applies and learns from it as well, the biggest change is we need to stop thinking what happened in the past will happen in the future.
Speaker: And we really need to get much better at predicting how changes are going to affect on industries, on communities.
Speaker: and adapt to that.
Speaker: We really need to stop believing business as usual will continue into the future and actually understand that the world is changing around us.
Speaker: And I think the message of that is getting out.
Speaker: There are very few industries today who don't believe that they can sit back and continue to do business as usual.
Speaker: Everybody understands that change is a foot.
Speaker: And so in real practical terms, is what you're talking about things like changing the natural catastrophe models or updating the assumptions of the NACAP models in the insurance industry to reflect how quickly the situation is changing?
Speaker: Or are there other practical examples that the rest of the panel can maybe talk about?
Speaker: one of the biggest drivers for banks at least are what they're hearing from their clients and customers.
Speaker: And I think, you know, the risk agenda certainly drives decision-making, but the opportunity side in terms of understanding what your clients need.
Speaker: And when you talk to your clients in different industries and those industries realizing that they're in transformation, in disruption and the bank understanding, well, what role do we have to help them navigate through these uncertain times is that type of
Speaker: is what's new and it's certainly what's needed.
Speaker: Thank you.
Speaker: And I think we've also seen in the last year in particular, quite a lot of activity in this space.
Speaker: And we've seen obviously not enough of companies committing to certain targets or introducing new biodiversity policy.
Speaker: So there's a lot of talk.
Speaker: How do we move that talk into action and implementation?
Speaker: So what's stopping some companies from implementing biodiversity initiatives in their core business?
Speaker: Maureen?
Speaker: Yes, I would say that we perfectly foresee that voluntary action is not driving the change that we need of halting biodiversity loss.
Speaker: And we need broader government and regulatory policies to correct the financial
Speaker: It is absolutely key to accelerate the preservation and conservation of natural capital.
Speaker: And given that we've gotten to the policies, Willem, obviously.
Speaker: I have to jump in here.
Speaker: Thank you, Maureen.
Speaker: And I completely agree with you.
Speaker: I think, I mean, we should encourage absolutely, as long as there is no agreed governmental level framework, we should definitely encourage private initiatives and voluntary contributions to this important topic.
Speaker: I think what really is lacking at this moment is a clear roadmap to go on how to prevent further biodiversity loss and clear metrics, a common taxonomy, things that we have seen in the climate sphere, which I think indeed there is much interaction and one impacts the other and vice versa.
Speaker: But a similar line of thinking is needed to also address this issue of biodiversity loss.
Speaker: And I think we as a supervisory community, but of course we are also the regulator and the government level, we are the ones to set clear goals.
Speaker: but also to define what metrics should be used by financial institutions to address these issues so that we start to talk in the same language, people start to share and use the same set of data because there's also a risk, again, risks.
Speaker: Thank you.
Speaker: And I guess we're almost out of time, but I have one more question.
Speaker: It's actually quite an interesting one.
Speaker: It regards the relationship between climate and nature.
Speaker: And very much right now, we're talking about climate as the primary objective within many financial institutions, the objective where you've got
Speaker: the budget's flowing, how do we learn from that and how do we direct an equivalent amount of attention, an equivalent amount of budget into the biodiversity conversation?
Speaker: So what lessons do we learn from the climate journey and how do we apply them now onto the journey to financing biodiversity?
Speaker: If I start with Eric.
Speaker: Thanks.
Speaker: We need to start thinking about the deep integration of these issues across financial practice.
Speaker: And there's no longer enough to just have a crack team who deals with these issues and everybody else in the bank or the financial organization can kind of refer to them.
Speaker: Everybody needs to be informed, needs to understand what role they need to play.
Speaker: And increasingly, we need to be looking at these, once again, in a holistic term.
Speaker: So it's not so much about issuing great new transactions and promoting them.
Speaker: It's really about holistically saying, so if we talk about the simplistic green bonds universe, it's not so much about issuing the next green bond.
Speaker: It's about the greenness of the entire bond portfolio.
Speaker: Thanks, Eric.
Speaker: A couple of words, William, from you.
Speaker: Yes, I completely agree with Eric.
Speaker: I would add to that, maybe a second, the previously introduced topics of having the taxonomy and metrics.
Speaker: I think that is the key to what we learn from the climate journey is to have a clear taxonomy on what is green, what is brown.
Speaker: Actually, there is no taxonomy on brown yet, but there will be hopefully in the near future so that institutions, economic agents, individuals can
Speaker: have a clear goal and can have a clear assessment of how they can contribute to economic activities that actually do contribute to tackling climate change.
Speaker: And a similar journey, similar taxonomy, similar metrics we need with the biodiversity issues.
Speaker: Thanks, William.
Speaker: Two words literally from Maureen.
Speaker: Yes, I think we don't need to spend as much on biodiversity as we did on climate because a lot has been done and will help on biodiversity, a lot of what has been done on climate.
Speaker: But we need to be careful not to fall into the trap of thinking that we're going to have one metric as we do with CO2 equivalent for biodiversity.
Speaker: So we need to follow the path and lesson learns from climate and adapt cleverly to biodiversity issues.
Speaker: Thank you very much.
Speaker: And the only thing that's left is for me to thank everybody.
Speaker: Thank Eric, William and Maureen for their wonderful contributions.
Speaker: Thank you.
Speaker: This has been a special podcast in the Business Plan for the Planet series.
Speaker: More episodes will follow shortly.
Speaker: So please do keep an eye out for those.
Speaker: For more information on the program, visit business.hsbc.com forward slash sustainability.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint Banking and Markets.
Speaker: For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
