Regulations and Nature-Related Finance

Can regulations talk about nature?

As nature and biodiversity losses emerge as one of the most critical environmental issues in the transition towards a more sustainable economy, WWF and Climate & Company analyse how regulations tackle them around the world.

They focus more specifically on sustainable finance taxonomies, which emerged as a critical tool to provide a framework on what counts as green or environmentally harmful. They are used in the finance industry to classify investments based on environmental performance criteria.

As only 12 of 29 identified taxonomies consider nature-relevant topics, the authors come up with several recommendations for policymakers:

• All jurisdictions, especially G20, must develop taxonomies along with comprehensive financing strategies aligned with nature-positive outcomes and taking into account nature loss.
• To account for the shared responsibility of wealthier countries in biodiversity destruction, taxonomies should take into account direct and indirect nature-related effects through supply and value chain.
• Taxonomies should allow for the identification of green and harmful activities, but also those in transition to facilitate policy dialogue.
• Taxonomies should be developed through an « adopt or adapt » process by adopting useful characteristics of existing regulations around the world and adapting the remaining ones to local circumstances.
• Policymakers should rely on strong science-based scenarios to establish forward-looking targets at ecosystem, activity and company levels.

Taxonomies are a critical tool to promote and monitor sustainable investments, but can only work globally with enough interoperability between jurisdictions. The participation of G20 and mega diverse countries is paramount to prevent further uncontrolled nature loss and facilitate a transition based on relevant and forward-looking environmental targets.