At WWF-UK, we perceive finance as a key lever to influence business strategy and corporate supply chains to reduce their threats to the natural world, and to provide financial mechanisms which protect and encourage sustainable ecosystems.
We have been working with the finance sector for over five years in innovative collaborations that seek to integrate extra-financial risks and opportunities into mainstream finance and lending. These extra-financial issues, such as carbon, water and biodiversity, are increasingly material to financing decisions.
We help and challenge pension funds, asset managers, insurance companies, and other financial institutions address the challenges and opportunities of sustainable finance and investment, by integrating environmental and social (E&S) issues into their business strategies and planning. We also work with financial regulators, recognizing that the integration of E&S criteria at regulatory frameworks' level can have a great impact on the entire finance industry. Finally, we realise the need to utilise other tactics such as contributing to campaigns or engaging in strategic research or policy advocacy in order to achieve our conservation objectives.
At WWF-UK we are focused on two main areas of work: Climate Credible Investment, and Financing Sustainable Ecosystems. Both areas are supported by broader engagement on corporate tranparency.
In addition, WWF-UK and the Institute of Chartered Accountants in England and Wales (ICAEW) founded the Finance Innovation Lab in 2009 in order to change the financial system so it serves people and planet.
Climate credible investment:
The investment sector needs to reallocate capital away from carbon intensive industries to investments which help meet our climate ambitions. For that to happen, we need a more sophisticated understanding of carbon risk, an increased appetite to seek out appropriate renewable and low carbon investment opportunities as well as more robust enabling policies set by Governments.
As recent reports by the Intergovernmental Panel on Climate Change (IPCC) have said, if we are to have any reasonable chance of tackling climate change, we have to address one of the biggest sources of greenhouse gases, which means rapidly decarbonising the world’s energy systems.
In investment terms, this means directing investment away from fossil fuels and into solutions such as renewable energy, something which has been echoed by others credible international bodies such as the IEA, OECD, IMF and World Bank. In January 2014, the sustainable investment organisation Ceres calculated that US$36tn in global investment in clean energy will be required by 2050 (a target the IEA recently revised up to US$44tn), in order to keep global temperature rise below 2°C. This means that "the world needs to invest an average of US$1tn per year in clean energy for the next 36 years to avoid climate catastrophe".
Examples of projects and partnerships in this area include:
- Investment risk and return under climate change scenarios: WWF is a partner in a new study on strategic asset allocation led by the investment consultant Mercer. The study will be framed by several plausible climate scenarios with distinctive economic and market impacts, modelled out to 2030 and 2050. It will relate these scenarios to the risk and return characteristics of key asset classes, regions and sectors, helping investors identify ways to hedge against climate risks as we transition to a lower carbon economy. Institutional investors participating in the collaboration are collectively responsible for more than US$1.5 trillion in assets under management.
- Green Light campaign: WWF-UK is a supporting partner of ShareAction’s Green Light campaign whose objective is to ensure people’s pension schemes are more ethical and sustainable. The GreenLight campaign encourages pension providers to embed climate-awareness into their investment decisions, into dialogue with companies and into policy advocacy. We are now working to extend some of the findings to the insurance sector. The new project envisages high-level engagement with publicly listed insurance companies not only about their profile and influence in the public policy space but on the subject of their own investment decisions, asset allocation and stewardship of high carbon industries.
- Divestment report and stranded assets work with Oxford’s Smith School: Building on recent empirical efforts, this 2013 study articulates a new theoretical framework to evaluate and predict the direct and indirect impacts of a divestment campaign. It concludes that the impacts of the fossil fuel divestment campaign are likely to be small when analysed through the lens of mainstream finance (e.g. impacts on share prices, availability and cost of debt). However, the study concludes that the real power of the divestment movement comes through indirect effects on fossil fuel companies emerging from increased uncertainty and the process of stigmatization. In addition, the divestment campaign can lead to changes in market norms and debt financing, with negative consequences primarily to less liquid, high-polluting industries such as coal.
- Mandatory carbon reporting: In partnership with the Aldersgate Group (AG), Christian Aid, and The Co-operative, WWF-UK commissioned a report in 2011 which provided independent analysis of Defra’s Impact Assessment (IA) for mandatory carbon reporting. It found that for all large companies (option 3), Defra overestimated the total costs by up to £4,600m and underestimated the benefits by up to £980m. This led to the inclusion of a mandatory carbon reporting requirement in the Companies Act in October 2013.
Natural Capital - Financing Sustainable Ecosystems:
We work with partners to develop alternative investment mechanisms and models to sustainably manage resources and protect ecosystems. These have also been used to inform policy and/or public-private finance flows.
Examples of projects and partnerships in this area include:
- Forest finance: WWF-UK is a supporting partner of the Unlocking Forest Finance (UFF) project led by the Oxford-based Global Canopy Programme. The project aims to catalyse proactive investment in the natural capital of Brazil and Peru, by investing in sustainable land use, conservation and sustainable livelihoods at the sub-national level. It will link opportunities to invest in natural capital with institutional investors by creating innovative financial products, such as forest bonds.
- Deforestation and financial flows: WWF-UK and the Living Amazon Initiative are working together to identify and quantify financial flows, at national and regional level, from national or international financial institutions, related to economic activities that drive forest loss in the Amazon region. The research will focus on the three economic activities that WWF has identified as key drivers of deforestation in the region: cattle ranching, agriculture, and water infrastructure development.
- Marine finance mechanism: WWF-UK is working with the WWF Smart Fishing Initiative (SFI) to investigate the opportunities for a Financial Institution for Recovery of Marine Ecosystems (FIRME). The aim of the FIRME is to generate new, long-term, and diversified sources of revenue for fisheries conservation through the self-sustaining financial institution that will complement the economic incentives created by sustainable seafood markets.
The Finance Innovation Lab connects people who are changing the financial system, develops them as leaders and helps them scale their work.
Its purpose is to empower positive disruptors in the financial system.
The Lab works with:
- Entrepreneurs creating alternative business models in finance
- Civil society leaders advocating for financial reform
- “Intrapreneurs” in mainstream finance re-purposing their professions
Both organisations continue to support The Lab through significant funding, strategic oversight as Trustees and through ongoing collaboration with The Lab on projects of mutual strategic interest.
To find out more about the work of the Finance Innovation Lab, please visit www.financeinnovationlab.org