Lack of price for nature risks stalls investment opportunity, says Aviva’s Blamey

By Rebecca Delaney

June 26 - (The Insurer) - Financial models do not currently give adequate value to nature-related dependencies, Aviva’s chief sustainability officer Claudine Blamey has argued, even though these risks are beginning to feed through to balance sheets and cash flows.

Speaking on a panel at the Net Zero Delivery Summit at Mansion House as part of London Climate Action Week, Blamey outlined the practical steps for insurance and investment firms to embrace nature-related risks.

“The challenge comes from the operating model at the moment. Financial models not giving nature value in the way it should,” she said.

“The problem then is that we treat it as a free resource, so we haven't been able to incorporate that into investments. We even call it externalities, and until we stop calling them externalities and really internalise the costs, that's the way that we as an investment sector and as an insurance sector are really able to put money behind that.”

Blamey called for organisations to better integrate nature into their transition planning, rather than solely focusing on carbon emissions.

“It's bigger than just climate, and we need to bring these issues together, because otherwise we're thinking about them in silos and you'll see all sorts of unintended consequences start to come out of that,” she said.

“Nature has been talked about everywhere I go, partly maybe because we're talking less about net zero and climate. Nature is actually rising above, and I think that's such an amazing, encouraging part of what's going on at the moment.”

In combining climate and nature, Blamey identified a significant investment opportunity for nature-based carbon removal solutions, such as carbon removal funds.

“We see great potential in nature-based solutions for carbon removals. Carbon has a price attached to it – we need to attach prices to other bits of nature to be able to do the same,” said Blamey.

“A carbon removal fund doesn't mean it only removes carbon. It increases biodiversity, it helps with health, it helps with flood risk and all of those issues that we're facing, both on the adaptation and the mitigation side. There's so much opportunity.”

Nicola Ranger, executive director and professor in practice for natural capital, risk and finance at the London School of Economics, added during the panel that understanding of nature-related dependencies has evolved into firms beginning to tackle investment and financial risks.

“We've moved on to what this actually means in terms of probabilities of default and asset valuation changes. What we can see there is a very material risk,” said Ranger.

“For example, we've worked with financial regulators and financial institutions in the UK, and we can see through those analyses that about 6% to 12% of UK GDP is at risk from nature loss. This isn't about birds and bees and butterflies. This is about key ecosystem services on which our economy depends.”

Reporting is currently informed by the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD), which in July last year called for (re)insurers to disclose their exposure to sectors with material nature-related risks and to sensitive locations, stated either as a percentage of gross written premium or as total sums insured.

“Obviously, given the current political context, people are being cautious about what they say publicly, but I'm actually very encouraged by the progress and by the work that's happening,” said Tony Goldner, CEO of TNFD.

“I can tell you, there are hundreds, probably thousands, of organisations now around the world doing a LEAP assessment and trying to figure out what their nature-related issues are within their organisation. So I'm really encouraged that there's a lot of assessment work going on under the surface.”

Goldner continued: “These risks are materialising now. They're hitting cash flows, they're hitting balance sheets, they're hitting investment portfolios now. In some cases, that can be absorbed, but we know that the frequency and the magnitude of nature-related challenges is only going to get sharper and harder.”

He concluded that TNFD has proposed a global open access nature data public facility to provide a set of core state of nature data, with specific recommendations to be set out at COP30 in Belém, Brazil in November.