Climate change threatens not just the solvency of financial institutions and their corporate clients, but it is an existential threat to humankind. Most critically, time is not on our side. A failure to take meaningful action imminently will have catastrophic consequences. "Covid-19 is the first sustainability crisis of the 21stcentury. Businesses have a major role to play in the collective combat against climate change, social inequality and bio-diversity erosion," comments Herve Duteil, Chief Sustainability Officer, Americas at BNP Paribas.
Policymakers, business leaders and activists gathered for Climate Week NYC 2020, where they shared their unique insights into some of the global challenges we are facing, and outlined the solutions that need to be implemented.
1) Biodiversity must be preservedRight now, approximately 1 million – or one in eight – species are threatened with extinction. The situation has become so serious that a number of scientists are of the view that the world is entering into its sixth mass extinction period, the last being the demise of the dinosaurs. Unlike previous mass extinctions, which were brought about by natural events (i.e. volcanic eruptions, meteor strikes, etc.), this one is entirely manmade. The impact of biodiversity on economic growth, however, is vastly undervalued. Some estimates suggest that ecosystem services generate around $125-$140 trillion, or 1.5 times global GDP. A loss of biodiversity will therefore have far-reaching economic ramifications. More seriously, unchecked ecological destruction will also create a crisis in food security, something that could be a precursor to further geopolitical instability. Further, a loss of natural wildlife habitat also brings animal species into closer and more regular contact with humans thereby increasing the transmission risk of new infectious diseases.
Covid-19, however, has given society a chance to reset itself. Instead of economic growth being contingent on environmental destruction, businesses need to invest into ecological restoration and conservation, as this will be crucial to their long-term sustainability. This can be facilitated by financial institutions channelling funding into companies with a strong commitment to sustainability and biodiversity. In order to mitigate wider ecological degradation, businesses need to develop measurable KPIs and build robust data-sets enabling them to assess the impact they are having on biodiversity. In response, a handful of leading global banks including BNP Paribas are now in the process of creating non-financial KPIs for investments linked to biodiversity.
2) Accelerating sustainabilityDuring a panel session titled "Sustainable Finance in a Covid-19 Impacted World," Katerina Elias-Trostmann, Head of Sustainability for BNP Paribas in Brazil, highlighted that companies needed to come together and take systematic action to address future threats such as climate change. Others concur that an entirely different approach towards investment is required. Adam Kanzer, Head of Stewardship for the Americas at BNP Paribas Asset Management, argues investors need to be more proactive in reshaping corporate behaviour and traditional business practices, embracing their role as future makers, as opposed to future takers. "We are in the midst of several global crises – climate, biodiversity collapse, and inequality. If we don't embrace our role as future makers, we'll be forced to take a future none of our clients want, comments Kanzer.
The increased focus on sustainable practices is being accelerated by several drivers. Mark Howard, Senior Multi-asset Class Specialist at BNP Paribas, says investor demand is prompting organizations to take sustainability more seriously. So, too, is risk management as corporates – especially those that are major carbon emitters – are facing growing scrutiny from lenders and shareholders about whether their business models are sufficiently future-proofed to weather the challenges that climate change will bring. While US regulators have been less forceful on sustainable finance than, say, in the European Union, pressure is mounting on companies to demonstrate their ESG credentials ahead of the November election.