New Guidance On Nature Targets Will Increase Finance For The ‘Blue Economy’

The Science Based Targets Network (SBTN) has released the first set of guidance to help businesses develop targets relating to nature. The approach taken covers a five-step plan that encourages companies to assess; interpret & prioritize; measure, set and disclose; and act and track their progress. The new guidance focuses on the first three of these items. It covers freshwater, land, biodiversity, oceans and climate (linking with the SBTi framework).

The guidance follows a consultation and pilot testing period during which businesses used preliminary guidance released last year to evaluate the balance between science-based efforts and the degree to which they are actionable. The resulting output provides a useful overview – especially viewed together with the IFC’s Guidelines for Blue Finance – of the types of technology the RFI Foundation’s Blue Finance Challenge is seeking (the deadline coming up on June 9!).

RFI’s open innovation challenge, which is part of its Global Virtual Innovation Hub organized with HSBC, is searching for technology that can help financial institutions in the Middle East, North Africa and Türkiye (MENAT) to extend financing to the blue economy. Although ‘blue finance’ instruments such as blue bonds have seen somewhat limited uptake as dedicated instruments, the field has tremendous potential based on the scale of economic activity in the blue economy.

The OECD estimated a doubling of the blue economy to $3 trillion between 2015 and 2030 connected to oceans, coastal communities (40% of humanity lives within 100km of the ocean) and access to water (50% of the global population is facing acute water stress of some form by 2030). Estimates within that OECD report and elsewhere indicate that an annual $200 billion is likely to come from the MENAT region.

With COP28 coming up later this year, hosted by the United Arab Emirates, much of the effort in the region has focused target-setting on those issues related to climate change and Net Zero (which was the focus of last year’s open innovation challenge). Nature risk and natural capital loss have not featured as widely in the targets being set, in part because of the lack of tools for financial institutions when compared to what is available for climate change and Net Zero.

The relative degree of action in climate and nature only reflects the capacity of the financial sector and not the underlying impacts. There will be acute hardship if we address climate change but fail on nature, while a failure to meet goals such as preserving 30% of the area of oceans and land by 2030 (‘30 by 30’) as agreed during the Kunming-Montreal Biodiversity COP 15 will amplify the speed of impacts from climate change. There is a need to improve the ability of financial institutions to understand the risks and potential benefits that come from various forms of blue finance.

The SBTN’s guidance calls for a lot more tracking, measuring and reporting of a wide range of data beyond what will be covered by the ISSB’s climate standard (which will be aligned for many companies with their obligations for SBTi). For indicators covered related to the ‘blue economy’ such as freshwater, oceans and biodiversity there will need to be measurement of potential risks facing financial institutions in general.

There will also need to be materiality assessments for key topics including the sectors covered by the ISSB as well as other elements of science-based targets for nature. These will inform the prioritization of issues at the financial institution level and drive progress to address the ‘measure, set & disclose’ phase of the SBTN process.

Businesses have found it harder to understand the impact of nature risk on them, let alone to set forward-looking targets around the way their operations impact nature. This comes despite research from the World Economic Forum that half of global GDP is dependent on nature, and policy research from the World Bank highlighting the vulnerability within emerging & developing market banks, where exposure rises in lower-income countries in particular.

The speed at which nature risk has risen up the agenda has been more rapid during the past few years than the pace of change in responding to climate change after the Paris Agreement. The SBTN’s guidance is a useful first effort to provide assistance for companies and financial institutions to start their analysis and preparations for eventual target-setting.

What we have seen with climate is that as companies and financial institutions start to grapple with the scope of the challenge, they quickly realize they need help from technology to manage the data tracking, management, analysis and reporting. We believe that this will hold true with nature risks especially, and for the ‘blue economy’ in particular because of its diversity and breadth, which was the foundation for the Blue Finance Challenge.