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Finance overlooks climate because it's ‘mesmerized by the magic of markets’: WWF International president

·4 min read

The European Central Bank this month announced it would factor climate change considerations into its policy decisions, and the Bank of Japan launched an effort to finance projects that address the warming planet.

Those moves mark the latest steps taken by some of the world's largest financial institutions to aid the environmental fight. 

But the financial sector as a whole remains slow to recognize and address the costs of climate change, says Pavan Sukhdev, president of WWF International, one of the world's leading environmental advocacy groups. 

The industry's focus on financial capital results in neglect for value derived from the natural world, and renders the sector sluggish in fighting the degradation of the environment, he told Yahoo Finance in a recent interview.

"In all of these deliveries of benefits which don't transact in a marketplace — just because they don't transact in the marketplace — our tendency is to ignore them," says Sukhdev, a former managing director at Deutsche Bank (DB).  

"Because we are so fixated — we are so mesmerized — by the magic of markets," he adds. "We keep forgetting that there's value elsewhere as well."

A focus on financial capital

Some top financial leaders in recent years have urged the sector to better consider its impact on the environment. In an annual letter to investors in January 2020, BlackRock (BLK) CEO Larry Fink announced the world's largest asset manager would make sustainability a core goal of its investments. Earlier this month, Fink urged the G20 nations to develop a stronger climate finance plan.

Despite Fink's advocacy, when climate change measures have arisen at publicly traded companies owned by BlackRock, the firm has voted against them 80% of the time, according to a Morningstar analysis released in September. 

Still, surveys suggest that sustainable investing has grown in popularity among professional money managers. Roughly 77% of fund selectors incorporate environmental, social, and governance (ESG) considerations into their investment choices, according to an April study from Natixis Investment Managers. That proportion had grown 18 percentage points since 2018, the study found.

Financial regulators, however, have warned that some firms use murky metrics to determine which investments qualify for the ESG label. "Many financial firms are finding gold in the green," SEC Commissioner Hester Peirce said in April

Speaking to Yahoo Finance, Sukhdev said the financial world has long way to go in understanding how its business model fits within broader environmental concerns.

"I'd say that the world of finance is only just beginning to understand two things actually," he says. "One is the nature of value, and the other is the value of nature." 

"Financial capital, produced capital, is actually one of four capitals: natural, human, social and financial capitals," he says. 

"So there is this tendency in the world of finance to think only of the capital that you are most involved in on a day-to-day basis, which is financial capital," he adds.

Beech trees are pictured in Bilstein, Germany, Tuesday, July 27, 2021. (Photo/Michael Sohn)
Beech trees are pictured in Bilstein, Germany, Tuesday, July 27, 2021. (Photo/Michael Sohn)

Born in India and educated in Switzerland and England, Sukhdev worked as a banker for more than two decades before he turned to environmental advocacy. In 2017, he was named the president of WWF International, a leading environmental organization with more than 6 million donors worldwide.

More than half of the world's gross domestic product, amounting to roughly $44 trillion in value, is moderately or highly dependent on nature, a report released by the World Economic Forum in January 2020 showed.

Citing that report, Sukhdev said the massive figure shouldn't astonish economic observers, since people derive tremendous value from the natural world.

"That does not surprise me because we keep forgetting how much is delivered for free, but which is still valuable, because nobody has put in the effort to recognize the economic value of what's delivered," he says.

"If it's your enjoyment of the beautiful forest that you are in, in Maine, you pay for being there," he says. "And it's something that is delivered by the forest for free."

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