Finance

Unleashing the potential of nature finance: a pathway to mitigate risks and unlock benefits

Szilvia Szabó — Thu, 16 May 2024 15:59:49 +0000

Unleashing the potential of nature finance: a pathway to mitigate risks and unlock benefits

Tags

Finance

Nature-based Solutions

Nature Positive Economy

Nature Conversation

Business

Economy

Topic

Nature Positive Economy

The loss of wildlife has rapidly accelerated and has reached a staggering 69% decline on average since 1970, according to World Wild Fund's latest Living Planet Report, which we could assume is an issue for environmentalists to deal with.

However, nature provides all kinds of ecosystem services that businesses leverage, directly or indirectly, and according to KPMG, more than half the world’s economic output depends on nature, and its contribution is estimated at more than $125 trillion USD annually.

“Businesses rely on nature for products and suitable operating conditions. If these services are lost, it will affect business profitability and viability,” says Gillian Power, Director of Communications and Marketing at the International Sustainable Finance Centre of Excellence (ISFCOE), also referred to as the Centre.

She adds:

“While the economic value extracted from nature has continued to grow, such as crop production, many of nature’s other contributions to people are in decline, like soil productivity or pollinator abundance.”

The Centre first released its scoping study, ‘Nature and biodiversity finance: Risks and opportunities for Ireland’ in 2022 to examine the biodiversity agenda and highlight nature-related risks and potential impacts on various sectors, such as agriculture, real estate, and manufacturing.

Gillian explains that “the financial sector drives nature loss through the activities it lends to, insures, and invests in and is also exposed to financial risks from short- and long-term nature loss.”

Gillian Power, Director of Communications and Marketing at the International Sustainable Finance Centre of Excellence (ISFCOE)

To put this in perspective, she shares an example of the greenhouse gas emissions induced by Canadian banks' investments and loans to fossil fuel companies being 100 times higher than the operational emissions from the banks themselves.

She underscores that the finance sector, with its pivotal role in directing capital flows, has the power to steer away from detrimental practices and towards more sustainable investments, thereby contributing to net-zero goals.

“Banks have allocated over $2.6 trillion to sectors predominantly accountable for biodiversity loss, with many lacking sufficient processes or policies to monitor or mitigate these impacts and their exposure to nature-related risks. Similarly, globally, publicly funded development banks are estimated to finance approximately $800 billion in harmful activities annually.”

Based on their first study, ISFCOE realised that more detailed research covering the full spectrum of biodiversity-related risks and opportunities for the Irish financial system was needed, which led them to publish the Nature of Finance report in 2023.

The Nature of Finance report is Ireland’s first study on nature-related risks and opportunities to the financial sector, published by Dublin-based International Sustainable Finance Centre of Excellence.

KPMG Sustainable Futures and ISFCOE co-authored the report with support from Skillnet Ireland to establish a baseline in this area, raise awareness of the sector's interactions with and reliance on nature, and ignite deeper investigations.

This first-of-its-kind landmark study found that more than half (58%) of Irish lending goes to economic sectors with a high dependency on biodiversity and nature, while 94% (€85 billion) of lending goes to industries that potentially have a high impact on nature.

It also showed a clear link between bank lending in Ireland and economic sectors highly dependent on ecosystem services and impact nature in areas like managing surface and groundwater, climate regulation, flood and storm protection, erosion control, and pollination.

In addition, it recognises that Ireland hosts one of the largest insurance services sectors in Europe, which could open up new opportunities.

“The insurance industry in Ireland is a key agent of change in the move towards a more sustainable economy and society.”

She adds: “Transitioning to a carbon-neutral economic model requires long-term financing, and insurers are amongst the most significant institutional investors.

Many insurers have started to screen their investments using ESG criteria and increase their sustainable investment commitments.

As a result, they have become significant investors in green, social, and sustainable financial instruments.”

Based on her experience, Gillian believes that insurers and reinsurers increasingly acknowledge the imperative of addressing nature-related risks within their risk management and underwriting frameworks.

“Loss of biodiversity and degradation of nature pose risks for the financial sector, including physical risk due to increased frequency and severity of natural disasters such as floods, droughts, and storms, leading to infrastructure damage and disrupted supply chains.

You will also need to manage market risk, which means consumers are shifting preferences towards environmentally sustainable products and services.

Besides, businesses operating in sectors dependent on natural resources may face increased credit risks due to their vulnerability to environmental shocks and regulatory changes.

Given the scale and complexity of nature-related financial impacts, risks, and opportunities and how underdeveloped this area is, the report proposed a draft Nature Finance Roadmap to position Ireland as a leader on the nature finance agenda.

Nature Finance Roadmap draft proposed in the Nature of Finance report as a next step.

This Roadmap mirrors Ireland's Sustainable Finance Roadmap introduced in 2021 and is structured around its five main pillars: developing talent, improving industry readiness, leveraging digital and data, creating a nature-positive enabling environment, and enhancing communications and engagements on nature and finance risks and opportunities.

It also recommends establishing a Nature Finance Roadmap Delivery Group as an additional Pillar 0, including experts and stakeholders from public, private, and academic institutions.

Gillian further explains that the public sector is currently the more prominent actor in nature-based and biodiversity finance, offering financial instruments that would encourage businesses to advance conservation outcomes through tax breaks and other incentives.

She points out that the State also has a critical role in attracting foreign direct investment as capability and critical mass of expertise emerges.

“Our ongoing research in the nature and biodiversity finance space has presented us with a unique set of opportunities for both private and public sector financial actors and businesses in Ireland.

We are also advancing efforts in the space through ‘Communities of Practice’ discussions and by working on developing an upcoming course for finance professionals on Biodiversity Finance.”

Background style

Light

Sponsored?

May 2024

Collaborative content with

Profit with Purpose Magazine

What are the alternative ways of funding climate innovations?

Bronagh Loughlin — Fri, 08 Mar 2024 09:26:51 +0000

What are the alternative ways of funding climate innovations?

Tags

Funding

Climate Innovation

Topic

Funding

Climate technologies and purpose-driven enterprises can help us to rapidly curb greenhouse gas emissions to achieve net zero by 2050.

However, to scale and deliver these solutions, climate tech companies and purpose-driven enterprises need to be able to access funding opportunities.

One of the biggest hurdles for impact entrepreneurs is securing adequate funding for their initiatives.

They may face challenges with having to pay higher upfront costs but also many investors can still be unfamiliar with or sceptical of the potential and impact of sustainable businesses.

With this in mind, many impact entrepreneurs find they must develop innovative business models, demonstrate their value proposition, and look for alternative sources of finance such as impact investing, green bonds, or crowdfunding.

They may also lack knowledge concerning climate finance, and this lack of education can act as a significant barrier.

It was for these reasons that Esme Verity, a Fundraising and Alternative Funding Expert, set up Considered Capital, a hub of empowerment and education.

Having worked with thousands of founders to connect them with the right sources of funding and support, Esme found early on that when founders are not shown all funding options, they hit a brick wall with their business.

Esme says: “I’ve personally coached over 100 purpose-led founders over the past 12 months to raise funding, and one of the biggest challenges I see is that most founders do not understand what type of funding is best for their business.

Esme Verity, Founder of Considered Capital

The funding landscape can be very difficult to navigate; it’s complex, time-consuming, and vast.

Part of our work at Considered Capital focuses on this issue, recognising that accessing funding is challenging and purpose-led founders need tailored support.”

She adds: “I built Considered Capital to support founders in feeling more confident and thinking outside the box when going after what they need to build a successful business.

Raising money can feel like a long, complicated slog. However, with education, and a community of brilliant minds and supportive energy, founders feel like they are in this together and reinforce one another’s confidence.”

So far, Considered Capital has empowered thousands of founders to think beyond VC-style funding and consider other funding routes.

They are determined to challenge the notion that venture capital is the only way to fund your business and to find a funding fit that aligns with your values.

Esme explains: “Our mission is to open up alternative funding and the world of funding options available for startups, founders, and socially-led businesses.

We’re educating people across the globe on all of the alternative routes to funding businesses through our free events, workshops, and our flagship programme, the Alternative Funding School.”

The Alt Funding School aims to support purpose-led founders to get funded, helping entrepreneurs explore the full range of funding options, which allows them to select a route to funding and build a fundraising strategy that best aligns with their business and values.

According to the World Economic Forum’s Global Risk Report 2023, the leading risk facing the world over the next decade is failing to mitigate the environmental crisis.

Climate technologies and purpose-driven enterprises could play a massive role in helping us achieve global climate goals.

However, without investment and funding opportunities, these trailblazing initiatives and solutions cannot take their wings and fly.

Climate incubators and accelerators have an important and multidimensional role to play in supporting new low-emission and climate-resilient technologies to be developed, embraced, and utilised by society.

Beyond helping entrepreneurs access funding, accelerators can provide an environment to test innovations besides getting quality advice and guidance. Image: Canva

One of the most well-known global programme for start-ups to catalyse, innovate, and scale the potential for their climate solutions is the ClimAccelerator from Climate-KIC .

This accelerator has been running for the past 10 years and is being scaled to break new groups in areas such as carbon reduction, resilience and adaptation, and more.

Ireland is one of the countries that offers entrepreneurs more options to choose from to embrace climate innovation.

The 2050 Accelerator powered by Dogpatch Labs and supported by the Department of the Environment, Climate and Communications is helping to make Ireland the leading platform for sustainability innovation.

The Green for Business program is run by the Local Enterprise Offices (LEO) in Ireland and offers practical mentoring and other support for SMEs to integrate sustainability into their businesses.

Accelerate Green is an executive accelerator designed to help entrepreneurs scale their purpose-driven businesses, supported by Bord na Móna in conjunction with Resolve Partners.

Recently, Trinity College Dublin launched a brand new accelerator programme for SMEs focusing on the built environment. This six-month virtual programme enables businesses to scale up innovations that can decarbonise the sector.

The number of green accelerators and supports is rising across Europe and beyond; however, more accessible funding is needed to ensure we can achieve a net-zero economy by 2050.

Background style

Light

Sponsored?

March 2024

Collaborative content with

Profit with Purpose Magazine

New narrative to position Africa as an ideal impact investment frontier

Climate Journal reporting — Mon, 20 Nov 2023 14:55:04 +0000

New narrative to position Africa as an ideal impact investment frontier

Tags

Topic

The African Venture Philanthropy Alliance (AVPA) launched a new communication channel, The Africa Advantage digital magazine, to smash assumptions and showcase the continent as a globally competitive destination for impact capital.

As an ecosystem builder and a network of social investors collaborating to mobilise and deploy impact investments in Africa, AVPA hopes that with this new format, they can better present market potential, innovation, human capital and a wealth of untapped opportunities.

“Africa's complex and unique social challenges have often been viewed as an embarrassment, but instead, we see them as exciting impact investing opportunities for social transformation”, says Dr Frank Aswani, CEO of AVPA and the Editor-in-Chief of The Africa Advantage magazine.

The first edition of the publication features a collection of sector or opportunity-specific articles written by African experts, highlighting the unique opportunities not just for Africa but the world at large.

Topics include Africa`s impact investing landscape, interviews with leading changemakers, impact entrepreneurs and policymakers such as Ojoma Ochai, Managing Partner of The Creative Economy Practice at CC Hub, which aims to stimulate innovation and technology application to catalyse African Creative Economy growth.

Dr Frank Aswani, CEO of AVPA and the Editor-in-Chief of The Africa Advantage magazine.

Dr Aswani adds:

“We intend to connect a diverse network of social investors, ecosystem enablers, innovators, policymakers and knowledge actors, not just within Africa, but also with those from Asia, Europe, North and Latin America.”

AVPA believes that while Africa faces socio-environmental challenges similar to those of other developing regions, it contains unique features that, when fully exploited, can potentially bring innovative sustainable solutions to regional and global challenges.

The organisation emphasised that unique opportunities could arise from a continent characterised by its young and diverse population, rich natural resources and various social challenges, providing unparalleled opportunities for testing innovative and globally scalable solutions.

They see these factors as enablers, making Africa the ideal sandbox for innovations with positive societal and environmental impact while testing new markets, products, services, new finance structures and impact business models.

The scope of The Africa Advantage magazine is to go beyond information dissemination and build a foundation to catalyse discussions and ultimately stimulate incremental impact capital deployment to and on the continent.

Headline image: Unsplash

Background style

Light

Sponsored?

November 2023

Alarming global decline in investing in impact businesses

Climate Journal reporting — Fri, 10 Nov 2023 14:26:04 +0000

Alarming global decline in investing in impact businesses

Tags

Topic

Data concerning a significant global slowdown in venture capital funding in startups primarily working on climate tech, renewable energy, circular economy, and social justice projects has been revealed in the Impact Startups 2023 report presented at the international ImpactFest event in the Netherlands.

The research published in November by ImpactCity and Dealroom.co predicts about a one-third drop in investing in impact startups that are addressing one or more UN Sustainable Development Goals (SDGs) globally compared to 2022 levels, with over $41 billion in funds raised in 2023, so far.

"The impact investment landscape is suffering from the increased interest rates and global economic slowdown. Impact funding has decreased in line with the rest of the market, so looking narrowly at this year, we are not seeing it outperforming other investment themes,”

says Lorenzo Chiavarini, Venture Capital Research Lead & Impact Specialist at Dealroom.co.

The Impact Startup 2023 report predicts significant drop in VC funding in the impact ecosystem. Source: Dealroom.co

These findings also feed into the worrying development that none of the 17 UN SDGs are on track to be achieved by the original deadline in 2030, which will also be discussed at the upcoming COP28, the UN Climate Change Conference in November in Dubai.

However, Chiavarini highlights that “zooming out in the last ten years, impact funding has grown 12x, more than twice the rest of the market”, saying that they “are confident Impact will start outperforming the rest of tech again in the coming years".

Despite the heavy decline, climate tech and affordable energy companies have been found to be at the forefront of unlocking investment while solutions addressing social challenges are least funded, according to this recent study that analysed the database of 17,000 impact startups.

One of the alarming trends showcased was the dramatic drop in funding for circular economy startups in fashion from its peak in 2021 at $1.8 billion to $140.8 million in 2023 at this point, despite the enormous environmental impact of the fashion industry.

The research found that Europe is leaving the US behind in becoming the leading impact investing destination while proving to be more resilient in the downturn, with the Netherlands` over-index on impact on top of the ratings compared to the European average.

Europe has taken the lead in attracting VC funding for impact businesses. Source: Dealroom.co

"It's stunning to see Europe becoming the top destination for venture capital impact investments for the first time ever. Europe has always been more impact-oriented than other regions like North America and Asia, now attracting nearly $15B of impact VC funding,"

Chiavarini adds.

Numbers also revealed that low and middle-income countries are lagging behind in attracting impact investments, securing only a minimal 5 per cent share of global impact funding even though they are most vulnerable to climate change impact and hosting over 50% of the global population.

Despite the report, the leading European annual impact event, ImpactFest, has sustained its popularity since 2016 among investors and startups, combining 'doing good and doing business', presenting solutions, and learning and networking opportunities to shake up the investment landscape.

ImpactFest is hosted by ImpactCity, an ecosystem builder supporting the development of impact companies. The event is traditionally held at the Fokker Terminal in collaboration with the Municipality of The Hague, Unknown Group, and KplusV and empowered by various partners, including Rabobank and B Lab.

ImpacFest is the leading European annual impact event. Image: ImpactCity

Headline Image: Unsplash

Background style

Light

Sponsored?

November 2023