The G7 finance ministers and central bank governors communique of 5 June 2021 contains commendable language to ensure a “Transformative effort to tackle climate change and biodiversity loss". The critical commitment “to properly embed climate change and biodiversity loss considerations into economic and financial decision-making” now needs to be comprehensively implemented by G7 Leaders. Beyond the G7 this provides critical guidance for engagement in the G20 and beyond.
The mandatory climate disclosures commitments and the impacting reporting suggested will need to be implemented throughout the financial systems, including in particular within all private finance sectors. The Dasgupta Review and the Taskforce on Nature-related Financial Disclosures show that net zero carbon strategies can only be implemented sustainably if they are fully aligned with biodiversity considerations and deploy sound and nature-based solutions. The text is missing a reference to the ocean, the largest and most complex ecosystem on the planet. So far ocean dynamics have only been inadequately included in financial approaches.
Blue natural capital, that is the wealth of coastal ecosystems, is reliant on foundational species such as corals, mangroves and seagrasses. These highly diverse and productive habitats on which coastal and island communities depend are at serious risk of collapse, putting entire economies at risk. Their protection with nature-based solutions can deliver multiple benefits to people and nature. Eutrophication, pollution and deoxynation contribute to the creation of marine dead zones, undermining fish stocks, ocean and human health today and limiting the options for a sustainable future blue bio-economy in the future. Major ocean tipping points, such as changes in the ocean circulation as a result of melting ice, will have even wider system effects, including to the ocean micro-biome and to phytoplankton, key to carbon recycling.
G7 central banks are rightly focusing on assessing the financial stability risks posed by climate change and on the development of key scenarios. Financial regulation does not only need to cover the sectors that are impacted by these changes but also those that cause these impacts, with consequences both for investors and financial partners. The important work of the roadmap of the Financial Stability Board and of the Sustainable Finance Working Group needs to be supplemented by adequate operational approaches of central banks.
The language of risks and potential tipping points can help to bring the interactions between nature and the financial system to the fore. Physical risks to ecosystems and projects are enhanced by transition and liability risk for industries that, when are impacts are fully considered, will no longer be able to operate with social licence. Financiers need appropriate screening tools for nature risks, full due diligence along supply chains and adequate disclosure on the basis of a comprehensive taxonomy that reflects impact metrics.
The commitment to increase climate finance both directly and through multilateral development banks (MDBs) and their private sector partners is key for a clean energy transition and funding of adaptation and resilience, including full integration of biodiversity considerations in the alignment framework. In line with the recommendations by Lord Stern to the G7 we need to enable the MDBs to scale up support for a green recovery and provide additional capital to those that fully aligned. Wildlife crime, which includes IUU fishing, needs to be addressed through disclosure of beneficial ownership and better governance, including in areas beyond national jurisdiction.
It is crucial that the diverse range of important suggestions made in the communiqué are now implemented in a way as to deliver rapidly consistent pathways to a net zero and biodiversity positive future that is just and sustainable. This requires critical engagement of finance ministers as well as many other stakeholders everywhere.