The Dasgupta Review strengthens the case for finance sector action on nature

The Dasgupta Review of the Economics of Biodiversity sets out priority actions for governments, financial institutions, central banks and regulators to shift the financial system to nature-positive

By Beate Triantafilidis

Finance Content Lead

Commissioned almost two years ago by HM Treasury, the UK government’s economic and finance ministry, the much-awaited Dasgupta review of the Economics of Biodiversity launched yesterday.

Running to over 600 pages, the comprehensive Review calls for urgent changes in how all societal actors “think, act and measure economic success” to protect and restore natural capital, and use that capital sustainably.

The finance sector is highlighted as a particularly important lever to tackle the escalating nature crisis, alongside the introduction of natural capital into national accounting systems, transforming institutions and integrating nature into education.

“A significant portion of the responsibility for helping us to shift course will fall on the global financial system. Governments, central banks, international financial institutions and private financial institutions all have a role to play.”

The Dasgupta Review

Removing subsidies that harm nature

Governments “almost everywhere” must recognise that they amplify pressures on nature by subsidising activities that drive nature loss and degradation, the Review says. Estimating the total cost globally of subsidies that damage nature to be at least USD 4 to 6 trillion per year, the Review highlights that subsidies and other nature-negative investments currently far outweigh the financial flows that support nature. Global Canopy’s Little Book of Investing in Nature, released last month, estimates that the annual biodiversity gap reaches USD 824bn.

“Nature loss is not simply a market failure: it is a broader institutional failure too. Many of our institutions have proved unfit to manage the externalities.”

The Dasgupta Review

To close the funding gap for nature, in addition to redirecting subsidies that have a negative impact on nature, governments can use a mix of taxes, subsidies, regulations and bans to ensure nature is protected. The Review argues: “To leave Nature alone so that it is able to thrive is to invest in it.” Rolling out nature-specific mechanisms, like payments for ecosystem services and biodiversity offsetting schemes, can play a valuable complementary role. Another priority action is creating binding targets on public investments in natural capital.

Standardising measurement and disclosure

For financial institutions and corporates, evaluating their dependencies and impacts on nature is a first step towards managing the risks arising from nature loss, the Review says. Measuring and disclosing their nature-related risks, alongside climate-related financial risks, will enable financial institutions to integrate natural capital into their decision-making.

“There have been signs that policymakers and financial regulators will increasingly demand that financial institutions systematically assess both nature-related financial risks and their own impacts on nature,” the Review comments.

“What is ultimately required is a set of global standards underpinned by credible, decision-grade data. Businesses and financial institutions could then be obliged to integrate nature-related considerations with their other objectives. The idea ultimately is to have them assess and disclose their use of natural capital. The Task Force on Nature-related Financial Disclosures, established in 2020, is a step in that direction.”

The Dasgupta Review

The initiative to bring together a Taskforce on Nature-related Financial Disclosures (TNFD) now includes 48 financial institutions from five continents, as well as governments and corporates. The UK government was an early supporter of the initiative. The Taskforce itself will launch later this year.

“I have great hopes that the TNFD will ensure the risks of misusing nature will be properly identified, and so avoided,” said His Royal Highness Prince Charles, Prince of Wales, speaking at the Review’s virtual launch event yesterday.

Assessing systemic risk

While leading financial institutions are increasingly aware of the rising nature-related risks, central banks and financial regulators can help strengthen the case for action across the whole finance sector by assessing the systemic extent of nature-related financial risks, the Review recommends. They also highlight that making nature protection part of investors’ and asset managers’ fiduciary duties would help ensure they integrate nature in their decision-making.

The Dutch Central Bank and financial supervisor, De Nederlandsche Bank (DNB), became the first central bank to highlight biodiversity as a material financial risk in June 2020, as the Review highlights. Using the ENCORE tool – developed by the Natural Capital Finance Alliance, a joint project between Global Canopy and UNEP FI, in partnership with UNEP-WCMC – the Dutch Central bank found that 36 percent of the portfolio values of the Dutch financial institutions were exposed to nature-related risks.

The Dasgupta Review highlights ENCORE as one of the existing tools financial institutions can use to support nature-related risk assessments.

Looking ahead

Following the One Planet Summit last month, the Dasgupta Review is yet another signal that nature and biodiversity is rising up the policy agenda, and crucially, it’s now becoming a priority outside environmental ministries.

“Natural capital should now be included in the work of the finance ministries around the world, not just in the environment ministries,” said Sir Professor Partha Dasgupta at the virtual launch event yesterday.

“Today Professor Dasgupta passes the baton to us, politicians and policymakers, and now it’s up to us to take action,” said Boris Johnson, Prime Minister of the UK, in his remarks at the launch. “Biodiversity is not just a nice-to-have, it’s an essential element of ensuring economic growth.”

Hero image: Photo by Marek Okon on Unsplash