Biodiversity finance is a growing thematic area of sustainable investment.
But what does the world's biggest asset manager consider investible, and what hurdles does it face in deploying capital?
This transcript from a fireside chat with BlackRock and the 2022 Conservation Finance Conference sets readers up to contemplate institutional opportunities and obstacles with biodiversity finance.
In June, conservation finance practitioners reconnected in a stone skyscraper overlooking New York City's Madison Square Park for the 9th annual Conservation Finance Conference, hosted by Credit Suisse in partnership with the Conservation Finance Network, Equilibrium, The Lyme Timber Company, Cornell University, and Seale & Associates. This story excerpts a dialogue between Emma Crystal, the bank's chief sustainability officer, and a BlackRock research leader named Chris Weber. Weber, who heads climate and sustainability research for the world's biggest asset manager, offers insights into how an investor can start thinking about biodiversity - and then start thinking bigger.
Crystal: Can you talk to us a bit about BlackRock and the agenda of biodiversity? Where is that interest coming from?
Weber: As we see more evidence and more interest in the kind of impacts and dependencies associated with natural capital being a material driver of business value, we are naturally interested to learn more, hear more from companies about how they're managing the risks and opportunities associated with natural capital, and how that can help deliver long term business value for our clients.
This is of particular importance in sectors where there's a material dependency or impact on natural capital because those are where the risks and opportunities really lie. In general, we're very interested in understanding how our investing companies manage natural capital as a material business risk.
Crystal: How do you talk to people who perhaps know less about biodiversity and start getting people to think a bit about those risks and those opportunities?
Weber: When we hear from clients on this topic, it's almost always a one-two step. Step one: I've heard about biodiversity. Step two: Seems complicated.
And so, we need to know how to both educate ourselves, get through the complexity, and help our clients understand the issue. So, we're doing two things internally to try and make sure that we're preparing ourselves. The first is we formed an internal expert group across the firm: bringing together investors from our active strategies, our passive strategies, our alternatives and real assets strategies, with experts from lateral parts of the organization like myself from the corporate sustainability office, from our advisory and analytic services. We're really focused on those issues that are most material to our clients.
Crystal: And can you tell us about how you select some of those focus areas -and maybe give us a bit of flavor in terms of sharing learning with clients?
Weber: So, we are founding members of the TNFD as we were with the TCFD. For those not in the know, the Taskforce on Nature Related Financial Disclosures, with the Taskforce on Climate-Related Financial Disclosures. One of the key things that's holding us back from being able in being able to make sound financial decisions is the lack of available data metrics and disclosures from companies on these topics.
Before I was at BlackRock, I was the Technical Director at the Science Based Targets Network, and also work very closely with the Science Based Targets Initiative for Climate, both of which are focused on developing the right frameworks, metrics and disclosures around nature and climate.
Climate and nature are inherently different in numerous ways. The spatial nature of natural capital doesn't really apply to climate. Impacts in one place matter very differently than impacts in another place. And that's relatively easy to explain. The other key difference is that there's a much more complicated connection between activities, impacts, and the final state of nature.
Not only do we have to get to agreement on what the right metrics are, we have to also think about the enabling ecosystem of data providers, data users, and metrics creators. We're bullish very much on geospatial ESG. This kind of emerging topic bringing together ESG data and metrics with the geospatial world. But we also very much recognize it's going to take time for that to fully actualize to get the ecosystem built to do it, both on the user and the provider side. So, in the meantime, we're focused on the metrics and measurements that we do know are relevant, standard corporate impact metrics, and we're also still very focused on hearing from companies on qualitative disclosures around their processes, their due diligence of their supply chain, and how they're managing the risks associated with natural capital.
Crystal: What are the main opportunities that you see coming from the background that you do with your knowledge of nature and nature-based solutions?
Weber: I'll flip the question first and say what I think I think the heart of the question is: what's the private sector’s role in driving conservation finance? We're increasingly hearing from our clients that they want their capital at work to support the biodiversity crisis and its solutions. So, we are looking into a wide variety of ways that we can make that happen.
If we can find those win-win solutions at the interface between climate and nature, I think that's going to be of great commercial value, and also obviously have good impact value as well.
Crystal: And where do you think we are in that process right now?
Weber: There's two big things that I see are still needed. One is just more realization of the economic importance of natural capital. We still need a lot more education of the overall value. The second piece within natural capital is still standardization, data and metrics, which I talked about a lot already.
We need to come to a consensus in the finance, the corporate, the policy, and the conservation and climate communities about what the role of nature-based solutions is in securing our climate goals like net zero 2050. There has been a lot of work in this space, a lot of dialogue. It's remained still a pretty controversial point, actually.
And I think there's still a long way to go in this space. But we do see that bringing integrity standards to the voluntary carbon markets has the potential to really help drive a lot of finance to nature-based solutions.