Nature and Biodiversity

This is how we can achieve harmony between capital markets and nature

Clear plastic bottle by the sea: Companies can tackle environmental, social, and governance (ESG) challenges while achieving long-term profitability and resilience.

Companies can tackle environmental, social, and governance (ESG) challenges while achieving long-term profitability and resilience. Image: Unsplash/Ishan @seefromthesky

Dasami Moodley
Director, Head of Sustainability, NAX Group
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Climate and Nature

This article is part of: Centre for Nature and Climate

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  • Transitioning to clean energy means also transitioning our understanding of value from being profit-driven to centred on environmental and societal gains.
  • Data can enable companies to drive environmental, social and corporate governance (ESG) goals with a new economic model.
  • Scope 3 emissions, for example, pose a particular challenge that can only be addressed through collaborative action – technology platforms and AI can facilitate that collaboration.

In the face of increasingly complex challenges like clean energy adoption, poverty eradication and sustainable urban development, we are faced with a crucial question – how do we transition from a profit-driven system to one that prioritizes environmental and social impact?

The solution lies in our ability to redefine the notion of value itself, transforming it from one centred around the extraction of nature to one rooted in its preservation. The tech industry provides unlikely inspiration for this transition.

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Learning from tech innovators

During the dot-com boom, companies like Facebook, Amazon and Alibaba recognized the untapped value in user data and attention. They revolutionized the economic landscape by leveraging this data for targeted advertising, sales and partnerships. In contrast, companies that failed to embrace data-driven approaches struggled to keep up with the rapidly evolving market dynamics, missing out on the transformative opportunities that defined the era.

This success story is inspiration for companies striving to tackle environmental, social, and governance (ESG) challenges while ensuring long-term profitability and resilience. By harnessing the power of data, businesses can unlock the latent potential of ESG and drive innovative economic models. But data is just one piece of the puzzle.

Three key steps are required to navigate this transition successfully: Embracing innovation for positive change, making strategic investments and achieving industry-wide standardization.

Embracing innovation for positive change

In the first step, businesses must embrace innovation and redefine ESG as a driver of value creation, rather than a cost, as detailed in Jeff Schumacher’s recent article on why businesses must focus on long-term value creation to drive sustainability. This shift unlocks vast potential to develop products and services that deliver economic, environmental and societal benefits. With projected spending in this domain of $158 billion by 2025, it’s clear this step is well underway.

Making strategic investments

In the second step, investors must harness their influence and strategically allocate capital to ESG-focused enterprises. With ESG-related assets under management expected to reach $33.9 trillion by 2026 – a significant increase from $18.4 trillion in 2021 – ESG has proven to be a powerful catalyst for growth in the asset and wealth management industry within a short time.

Achieving industry-wide standardization

In the third step, industry-wide standardization is critical in enabling effective comparison of ESG performance. Despite notable progress in steps one and two, the absence of standardized impact metrics remains a significant hurdle that corporates cannot tackle alone. Strategic partnerships are essential to address this challenge. The example of Scope 3 emissions demonstrates the practical implementation of these partnerships.

Addressing Scope 3 through collaborative action

Scope 3 emissions, which encompass indirect greenhouse gas emissions throughout an organization’s value chain, pose a complex and interconnected challenge. These emissions often account for a significant portion, up to 95%, of a company’s carbon impact, emphasizing the pressing need for action. Recognizing the magnitude of this task, it’s clear that collaborative efforts that extend beyond company boundaries are essential. Engaging stakeholders such as NGOs, regulatory bodies, suppliers and customers is crucial to drive meaningful change.

A key aspect of collaboration between these players involves leveraging state-of-the-art technology platforms that can facilitate comprehensive data analysis with advanced AI tools. With such a platform, the supply chain can be meticulously mapped to identify emission hotspots and formulate effective incentives and strategies for reducing Scope 3 emissions. By sharing data and insights across the partnership, a holistic view of Scope 3 emissions can be attained, fostering transparency, accountability and collective action.

Scope 3 emissions often account for a significant portion of a company's carbon impact.
Scope 3 emissions often account for a significant portion of a company's carbon impact. Image: NAX Group

Through this process, unexpected connections and shared responsibilities can be uncovered. For example, we might discover the overlap between a few copper mine suppliers catering to the tech industry and major sports leagues. This revelation presents a golden opportunity for joint initiatives and synchronized efforts towards decarbonization.

Such cross-industry collaboration promotes shared responsibility for addressing emissions and prevents individual companies from shouldering undue financial burdens for issues beyond their control. By identifying these mutual suppliers, we can empower companies to address this challenge holistically rather than placing the sole burden on individual companies.

Unleashing market forces for sustainability

By embracing this three-step journey, companies can bridge the gap between capital markets and nature, harmonizing financial returns with environmental and social impact. Just as tech giants demonstrated during the dot-com era, the key lies in redefining how value is created.

Harnessing AI and other advanced technologies for comprehensive data analysis, we have the means to achieve this transformation. Let’s seize this opportunity to unleash the full potential of our markets, driving positive change for society and the planet we call home.

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June 23, 2024

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