Sustainable finance taxonomies: a common language to shift finance towards nature-positive investments

Posted on 05 December 2022

A new WWF report, “When Finance Talks Nature” reveals that while a growing number of countries are developing government-led sustainable finance investment frameworks, the majority fails to adequately address nature loss.  Urgent action is required in all G20 countries to ramp up efforts to include nature-related aspects into these investment frameworks (also called “Sustainable finance taxonomies”)[1] that can help businesses and financial institutions avoid negative impacts on biodiversity and increase their positive impacts.

International negotiations on biodiversity opening next week in Canada[2], represent a historic opportunity to kick-start transformative change and reverse biodiversity loss this decade. But this can only happen if we reduce the negative impacts of finance on our world’s natural resources and redirect financial flows towards nature-positive business models.  

New research conducted by WWF in cooperation with the German think-tank Climate & Company shows that most government-led efforts to develop sustainable investment frameworks (also called “sustainable finance taxonomies”) to support this shift in finance currently fail to integrate nature-related aspects. Of the 14 taxonomies currently under development in G20 countries [3], only six include or plan to include nature-relevant environmental objectives or performance criteria for the most impactful industry sectors. Even in mega-diverse G20 countries that are developing taxonomies, the main focus is on climate. Nature-related environmental performance criteria still remain the exception rather than the rule.

Government leaders of G20 countries have recently acknowledged “the urgent need to strengthen policies and mobilise financing, from all sources in a predictable, adequate and timely manner to address climate change, biodiversity loss, and environmental degradation including significantly increasing support for developing countries”[4], but there is still much work to be done to close the global biodiversity gap.    

Margaret Kuhlow, WWF Finance Practice Leader, said: 
The science clearly tells us that climate change and nature loss are interrelated dual crises that need to be addressed together. We have the tools we need to align finance to help us meet the agreed global goals of the Paris Agreement on Climate and the Sustainable Development Goals as well as the developing Global Biodiversity Framework. A common language can help get there faster.”
Ongoing government-led efforts to develop sustainable finance taxonomies offer a unique opportunity to promote investment for the conservation and preservation of nature by simply integrating nature-relevant economic activities.  

Jochen Krimphoff, lead - data, tools and methods of WWF’s Greening Financial Regulation Initiative (GFRI), said: 
When the EU started to develop its taxonomy in 2018 the ambition was to create a ‘common language’ for sustainable finance, a global, science-based standard to make sure investments are aligned with environmental policy priorities. Four years later, more than two dozen taxonomies are being developed. But nobody can make sense of them if they are all different and don’t fit together. The G20 Sustainable Finance Roadmap has already committed to this work, but a more explicit focus on common design features for nature-related taxonomies is now urgently needed”.

Anshul Mishra, senior specialist - sustainable finance WWF India
The Indian G20 presidency provides a unique opportunity for the government of India, one of the 17 recognized mega-diverse countries of the world[5], to turn the recent G20 commitment “to align private and public financial flows with biodiversity objectives[6]” into swift action by kick-starting work on nature-related criteria in taxonomies under the G20 Working Group on Sustainable Finance [7]”. Our upcoming report with BCG in this regard, titled ‘Sustainable Finance regulations from a nature lens” aims to bring forth the critical interlinkages between nature and financial stability. 

Note to the editors:

Climate & Company is one of Europe's leading sustainable finance think-tanks. Climate & Climate & Company is home to a diverse team of young and more experienced sustainability, finance and policy geeks, who decided to spend their working lives exclusively on being part of the solution and to do whatever it takes to save planet Earth and contribute their share to achieving a good life for all.
On Wednesday, 14 December 2022 from 1:30 to 2:30 p.m. (local time: Easter Standard Time) WWF will be hosting an event at the COP-15 in Canada, to discuss the findings of the report with financial market participants and government representatives. The event will be live streamed through the Nature Positive Platform here: https://www.naturepositive.org/cop15schedule 

Endnotes and further references
[1]   Sustainable finance Taxonomies are government- or market-driven investment frameworks to promote sustainable investments, first introduced in 2015. These dictionary-style instruments are currently high on the G20 policy agenda for their potential to define a ‘common language’ as to what economic activities are considered ‘sustainable’.
[2] COP 15 - Fifteenth meeting of the Conference of the Parties to the Convention on Biological Diversity (Part Two), Montreal, Canada, 7 - 19 December 2022.
[3] Fourteen sustainable finance taxonomies are currently being developed in the following G20 countries (* indicates industry-led processes): Argentina, Australia*, Brazil*, Canada*, China, European Union (including France, Germany, Italy), India, Indonesia, Mexico, Russia, South Africa, South Korea, Turkey and the United Kingdom. Only six G20 taxonomies include (or plan to include) nature-related objectives: China, European Union (including France, Germany and Italy), Russia, South Africa, South Korea and the United Kingdom.
[4] See, paragraph 16, G20 BALI LEADERS’ DECLARATION, Bali, Indonesia, 15-16 November 2022. 
[5] According to the Convention on Biological Diversity (CBD) India is one of the recognized mega-diverse countries of the world, harbouring nearly 7-8% of the recorded species of the world, and representing 4 of the 34 globally identified biodiversity hotspots (Himalaya, Indo-Burma, Western Ghats and Sri Lanka, Sundaland), see: CBP country profile India.
[6] See, paragraph 14, G20 BALI LEADERS’ DECLARATION, Bali, Indonesia, 15-16 November 2022. 
[7] Action 2 of Focus Area 1 of the G20 sustainable finance roadmap adopted under the Italian G20 presidency in 2021, calls to “improve coordination at the regional and international level to facilitate the comparability, interoperability, and, as appropriate, the consistency of different alignment approaches […] by encouraging jurisdictions which intend to pursue a taxonomy-based approach to consider developing sustainable finance taxonomies using the same language (e.g., international standard industry classification and other internationally recognized classification systems), voluntary use of reference or common taxonomies, and regional collaboration on taxonomies”.