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Natural Capital High on the Agenda for Public and Private Sector Alike: CCICED International Chief Advisor Scott Vaughan at the Annual Meeting of the New Champions

Blog post by Scott Vaughan, CCICED International Chief Advisor, from the World Economic Forum’s “Annual Meeting of the New Champions” in Tianjin, China, June 27-29.

Interest in natural capital was high at the World Economic Forum’s Annual Meeting of the New Champions in Tianjin, China, where more than 1,500 global leaders from business, government, and civil society gathered. Governments and companies are increasingly moving beyond GDP indicators and turning to natural capital valuations with the help of emerging accounting standards.

New frameworks were discussed, such as the United States’ National Strategy to Develop Statistics for Environmental-Economic Decisions. The strategy from the White House underlines the need to measure both income flows and underlying stocks, including ecosystem asset values like biodiversity, water, oceans, and carbon stocks. One of the goals of the U.S. strategy is to increase business competitiveness, beginning by measuring risk.

A case in point is a recent report from the European Central Bank about risk exposure due to the loss of nature, which warns that 73% of EU companies and 75% of the loans in the bloc face financial risk due to natural capital exposure loss.

The conversations in Tianjin highlighted emerging risk and reporting company standards, such as the ones being developed by the Taskforce on Nature-related Financial Disclosures and the International Sustainability Standards Board’s exposure draft for natural capital. In the international governance arena, the Kunming-Montreal Global Biodiversity Framework adopted at the CBD COP 15 last year also encourages more action on disclosures of nature-based risks.

In 2018, IISD published a comprehensive review of Canada’s produced, natural, human, financial, and social capital over the last 35 years, which showed that the country’s natural capital had eroded by 17%, with an average annual decline of 0.5%.

Market demand for carbon offsets represents the most significant movement within natural capital accounting at the moment. While credits from compliance markets are progressing, a temporary moratorium on voluntary carbon offsets should be considered until robust, science-based, transparent, and community-led markets are working.

Panel Explores Climate and Trade Nexus

Another topic explored at the Annual Meeting of the New Champions was the nexus of climate and trade. Low-carbon technology markets exceeded USD 1 trillion in 2022 and trade in renewables—led by solar and wind power—and electrical vehicles is both increasing in numbers and comprising a larger proportion of trade in goods. Together with direct investment, trade continues to be the main channel to spread green technologies.

However, tariffs on low-carbon goods push up prices, which makes meeting the goals set out in the more expensive.

Panelists at the event also discussed how the global trade system could address emerging green subsidy schemes, such as the United States’ USD 500 billion Inflation Reduction Act and carbon border schemes like the EU’s Carbon Border Adjustment Mechanism.

The reconciling of over 70 different carbon pricing schemes was highlighted as a particularly important—but difficult—challenge.

The tensions at the heart of the climate and trade nexus regard concerns over how developing countries will be affected, both directly and through supply chains.

Suggested strategies to lower these prospective frictions included enhancing the transparency of climate policies, a potential non-proliferation clause for carbon border measures, redirecting revenues from carbon tariffs to developing countries, and international convergence around carbon pricing.

The views expressed in this blog post represent the views of the authors and not necessarily those of CCICED.

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