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January 24, 2020

Davos 2020: Climate Change takes centre stage but are businesses listening?

By Raymond Harte, CEO, Mozaic Markets

It has been incredibly pleasing to see the real sense of desire to take action on the critical issues facing the world at this week’s World Economic Forum (WEF) in Davos.

Climate change and sustainability have dominated news headlines from Davos all week, both sceptics and activists. But one thing which jumped out to me amongst all of the impassioned rhetoric was a clear consensus on a need for strong global leadership in restoring, growing and better managing the world’s forests.

Global collaboration is vital if we are to achieve climate, biodiversity and sustainable development goals.

And as my colleague, Louisa Bartoszek, stated in her recent article discussing why we need to persuade Governments and private landowners to tokenise the world’s forests. Nature, specifically trees, are a tool to fix our broken climate.

I was therefore thrilled to see the WEF launch its 1t.org project this week, a global initiative to grow, restore and conserve 1 trillion trees around the world in a bid to restore biodiversity and help fight climate change.

This is a terrific initiative and one which I and the team at Mozaic Markets fully supports.

But to quote climate activist Greta Thunberg’s Davos speech from January 21, ‘planting trees is good, of course, but it’s nowhere near enough of what needs to be done, and it cannot replace real mitigation or rewilding nature.’

Climate risk is investment risk

It was therefore interesting to read this week’s survey from PwC which showed that “climate change and environmental damage” only comes in at number 11 in the rankings CEOs gave as the biggest threats to their company growth prospects (3,501 CEOs in 83 territories were surveyed in September and October 2019).

Instead, Bob Moritz, chair of PwC International, told CNBC on January 20, that CEOs see climate-related issues as an ‘opportunity for differentiation’.

I agree, but I also wonder how big of a priority a company is going to make climate-related initiatives if it is not viewed as a serious risk to revenue growth? To me, climate risk is investment risk. I’m surprised to see it not make the top 10.

Ultimately, I think it’s going to take the world’s largest and most respected companies to lead the charge. So much so, that if a company is not doing the right thing by the climate, the financial risks become substantial.

And the good news is it’s happening. Some of the world’s largest companies in financial services and technology are finally making firm, clear and measurable commitments, to which they can be held accountable by their shareholders and customers.

For example, in a blog post on January 16, Microsoft launched a $1 billion climate innovation fund to accelerate the global development of carbon reduction.

This coincided with them stating they would be carbon negative by 2030, and by 2050, Microsoft will remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975.

Elsewhere, speaking at Davos this week, Larry Fink – chairman and CEO of BlackRock, the world’s biggest asset management firm – said he feared how bosses would respond to his recent letter warning climate change is the biggest threat to the market.

In his letter, Fink vowed to exit investments with “high sustainability-related risk,” offer more investment products free from fossil fuel investing, and to work with companies in the company’s portfolios on sustainability issues.

In my own conversations amongst the financial services community, I’ve seen a noticeable shift in attitudes over the last 12 months towards ESG investing or sustainable finance solutions.

Conversations start with what can be done to reduce a company’s carbon footprint, but swiftly move onto more, what can be done to create a circular economy. How can we contribute to a sustainable future?

Tokenizing Natural Resources

New financial solutions, such as Tokenization, are emerging as new sustainable financing ways for Governments/businesses to take action and contribute to the climate emergency agenda.

We’ve talked recently about tokenizing forests, but this could as easily apply to grasslands, wetlands, mountains. Anything has the potential to be tokenized.

And tokenization could support the three pillars identified by Thunberg in her #NatureNow video from last year: Protect, Restore and Fund.

Protect

It could provide a revenue stream for the landowner, providing a financial incentive to not sell the land for deforestation and commercial development. Protecting historic forests and habitats for wildlife.

Restore

The additional investment can be reinvested into planting lost trees and restoring lost woodlands, supporting global reforestation initiatives like WEF’s 1t.org project

Fund

The money raised through tokenizing could be reinvested into further sustainable development initiatives. For example, to support local forest dwelling communities or clean water to reduce pollution which annually impacts the health of existing natural areas.

The range of innovative solutions is growing. But are Government’s and financial services utilising them?

Not yet. But I can confidently predict we are on the brink of a fundamental reshaping of the financial landscape, driven by decentralized technology solutions like tokenization.

Participants need to understand the magnitude of the changes coming in.

And this change is going to happen fast.

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