[Blog] What nature conservationists can learn from the finance sector
In the past five years, Romie Goedicke, senior expert Green Economy at IUCN NL, has been actively engaging and working with representatives from the financial sector. Inspired by the way financial institutions operate, she distilled five lessons that nature conservationists can draw from the financial sector.
Lesson 1: Put risk at the center
Financial institutions are driven by risk, or - to be more precise - a material risk to the asset. They look at the world through one lens, namely: What the risk of an action is to our portfolio? To determine this, they focus on an action’s short-term and, sometimes, long-term impact.
If this works for financial institutions, I figure it could also work for organizations working to conserve nature.
So what if we stop using the term conservation and start talking about risk? What if we put the mitigation of risks at the core of what we do? Maybe this allows us to finally stop investing in practices like coal mining, because we realize that if we don’t, we create a material risk to the asset – being ourselves. If we don’t limit the impact of certain practices – like land clearing for beef production – we run the risk that we create stranded assets, which can only be paid back by future generations. And if we don’t include the costs of restoration or offsetting in our corporate or national accounts we are depending on the future generation to bail us out.
Lesson 2: Balance different strategies
Don’t put your eggs in one basket. Like financial institutions, professionals in nature conservation need to create a balanced portfolio of interest and need to effectively combine different conservation strategies to reach our shared result.
Increasing the size or percentage of protected areas worldwide alone is not going to be enough to save nature. If we want to protect nature and its livelihoods, we need to develop methodologies which ensure that humans can live in balance with nature. This means that we need to balance the actions of governments, business and – there it is again – the financial sector.
Lesson 3: Size matters
We need to dare to think big, we should not focus on the crumbles but on the pie itself. The financial sector is always looking for ways to invest and increase the size of funds.
Estimates show that we are losing an estimated 200-300 Billion USD in natural resources every year. Some of this gap – around 50 Billion USD - can be filled with philanthropic money and put into projects that do not include a financial return on investment. But what if we do something else instead and use this money to lever soft return seeking investments (e.g. World Bank, climate funds or development banks) that double the amount, and once we double this keep on doubling until we got the real risk avoidant girls and boys – think: pension funds – interested.
Lesson 4: Perfect is the enemy of good
In finance, only a small number of projects come out of the valley of death between venture capital and project finance, meaning that only a small number ideas are actually successful.
As conservationists, we make theories of change based on the assumption that we are in the driver’s seat. We hold endless planning meetings, often inspired by the donor who wants to – rightly – ensure that their money is used well. However, this creates an environment in which failure is not allowed.
We need to be honest to ourselves and realize that, as in the financial world, only 1 out of 10 good ideas is really going to fly. We need to find solutions that are about 80% right, or can be applied in 80% of cases instead of spending all of our time to find the golden bullet.
Lesson 5: Real-time data
We need a Bloomberg terminal with real time data on the status of natural capital, with specific pieces of information on threats to and impacts (such as climate change, water scarcity or invasive species) on key biodiversity. And the possibility to invest based on this data.
The IUCN Red list is the world’s most comprehensive information source on the global conservation status of animal, fungi and plant species – a great starting point. But in the coming years we need to look for ways in which we can make this information relevant to a broader spectrum of stakeholders, including financial institutions themselves.
I therefore applaud the development of innovative tools such as STAR – Species Threat Abatement Restoration metrics, which is being tested now and makes it possible to measure the contribution of an investment towards extinction risk in a specific area.
So how can conservationists start thinking like bankers – without the pinstriped suit, and paycheck? I believe we need to develop new methods that take risk at the core, that include a mix of strategies that are big enough to scale up, are wise and coherent but not all encompassing and lastly, we need make use of science.