rewiggle: We know how to put a number on money, markets, valuations, and financial risk. But can we put a number on nature? Can nature actually sit on a company's balance sheet? Today's guest on Rewiggle, David Craig, has spent decades thinking about how businesses and financial institutions understand and manage risk. He is the former founder and CEO of Refinitive, one of the world's leading financial, data and technology businesses. And today he is the co-chair of the task force on nature-related financial disclosures or the TNFT. And listeners would have already heard from Andrew Mitchell on the TNFT. So today we're going to focus on how to actually put nature on the balance sheet and what are those financially viable and attractive investments that nature opportunities offers us. So, David, first of all, welcome to Rewiggle. Good morning. So, David, what drew you to the role as TNFT co-chair? It was a number of things. I really started to appreciate that actually financial markets were pivoting to care about this issue. I discovered this when one of the businesses that I run I ran under Refinitive was called WorldCheck, which does AML and sanctioned screening. It's a very powerful database that's used by many financial organizations around the world to ensure they're dealing with The right people and they understand who their customers and counterparties are. And we we launched a service called Green Crime, which identified those actors in the financial system or that could be in the financial system that have been involved in illegal wildlife trafficking or illegal deforestation or environmental pollution and the other crimes. And this product with very little marketing literally ran off the shelves. It was very interesting. And I kind of remarked to a couple of colleagues, there's something in this financial markets want to understand who they're dealing with, but they've also recognised that a lot of the bad actors that are involved in illicit financial transactions or the terrible humanitarian problem of people trafficking modern slavery are also involved in wildlife trafficking and crime in those air areas. It told me that there's something in here. And having worked in data in financial markets for For 30 years, what I realized was in ESG, which was, you know, created in two thousand and four to put a category around something that was non-financial, we were letting the financial market down. We weren't delivering the data and the understanding that the financial markets need to really understand the dependencies and impacts on nature. And as it happened, an opportunity came up to be involved in something very new, very exciting. with a lot of momentum well backed called the task force on nature related financial disclosures, which was essentially to take everything that we'd done in its predecessor, the TCFD, the Task Force on Climate Related Financial Disclosures, to build on that, to use those tools to create a big, powerful community of supporters and designers and advocates in the industry to not just focus on climate, but to actually focus on nature. Arguably should have done it the other way around. Climate is a subset of nature. Nature is not a subset of climate. But here we are. And that was the real reason and calling for myself. One other thing that I would say is my my son, who was, I think, 14 at the time, watched one of these various YouTube videos on the planet and the planetary crisis and the the barriers that we're all crossing and and said, Dad, you run this very large business. What are doing about this? and it's an interesting moment with your children where you look at them and try and explain what you're doing, and they look at you with a sort of curious gaze and say, well, that doesn't seem to be enough. and I think it's, you know, but but it's the hest on all of us to not think about ourselves, but our children and the generations to come and make sure that we're great stewards of this planet. We're not just exploiting the resources as fast as we can, which sometimes seems to be the way that the markets and economies can operate. So that was my calling. It was something I was passionate about. I felt that I could Leverage my network in financial markets, my experience in data, and really try and solve this problem in a better way. Going back to your time at Refinitive, when you mentioned that you launched this new facility, if you'd like, on green crime to generate data that threaded together the links between illicit wildlife trade and human trafficking, etc., why not just develop that further? What did you feel you could do differently at the TNFD? Well, what I discovered with TNFD is that scientists ecologists, business and and finance were not working well together. There was this sort of adversarial relationship where each would attack the other and accuse them of of not dealing with the problem in the right way. And I recognized that actually there was a language barrier, there's a communications barrier. Finance didn't understand nature. Nature didn't understand finance. And yet everything we know is that our most powerful and valuable, arguably valuable asset class isn't equities or tet or government bonds. It's it's the natural system that we rely upon. And and here we were in a situation where those who understand the natural system communicate with those who understood the financial system. And how do we wake make those work together? And and that problem by the way hasn't got probably talk in this podcast about how we solve that communication barrier, how we break that down. But I saw a real opportunity to to to challenge this. So I'm an engineer. And engineers love problems. They love to solve things. And I saw this as an engineering challenge. How can we break down this problem into its constituent parts? Start allowing finance to understand terms like ecosystem service dependency, which I would confess I didn't really understand before I started. Break it into its parts and and actually make it simple. One of the wonderful things about nature is its complexity, its interrelationships. It's so hard to understand. We'd argue that we still don't really understand nature. But finance likes things to be relatively simple. So how do we break down that complexity and give simple tools and approaches and frankly also s break some myths? I I remember saying that my job was myth breaker. And the myths were that, you know, climate was more important than nature and we needed to solve climate first. Well, that clearly is is a myth that we've shown to be a misconception and and a very dangerous approach. The second one was it's too complicated. So how do we create the simple tools and frameworks that allow us to break down the challenge. And the third one was there's not enough data on nature. And so those are the three myths that I said, let's let's really break these down and and break them apart. And and I think the TNFD has done a very good job over the last four and a half years of of breaking down those myths. We're not there yet. There's a lot of work to do. There's still people who believe there's not enough data or believe it's too complicated. But one of our challenges is to to help educate. and inform and and equip people to to address this existential challenge that we have. So David, you touched on something very important, which is the language barrier and the need for finance to understand nature, nature to understand finance. And then you pointed out that when you started, you know, this role, you didn't quite understand ecosystem services as well. So here's a gentle challenge for you. Would you be able to describe TNFT without using the words ecosystem, nature, impacts or dependencies? yeah, I mean TNFD in terms of describing the tool and the framework and the approach, it very simply allows you to understand your interface with nature, how that interface works, what you rely upon, and therefore how to in effect put nature's resources onto your PL. We call it the balance sheet. It's actually more about your PL, because what you're really looking at is How do I quantify and qualify the risks and issues that I might have on nature and put them onto my PL so I future proof my business? That that is really what fundamentally it's about. But you did use the word nature, but that's fine. No, I use the word nature. Okay, fine. That's fine. I mean but you also said that when you spoke about the TCFT and the TNFT, that we should have ideally done it the other way around and that nature is the universal set, you know, climate is a subset of nature. So what would you say to a CEO or a CFO who says, nature can wait. We need to wrap our heads around climate first? Well, the climate crisis that we are in is a symptom of our overuse of resources, our exploitation of the natural system, not the other way around. Now, clearly the climate crisis is something that is right here before us. We we look at the weather and the storms and the rising sea levels and all the issues. But the natural system is basically breaking because we're emitting too many greenhouse gases, cutting down too many forests, we're destroying the very natural resources that absorb CO two in the sea, in the land and other areas, and we're polluting as well. My advice to any CEO is that actually it's much more effective and more efficient to look at a holistic planetary system when it comes to your business and not just pick on climate. Some may choose to just look at greenhouse gas emissions and try and solve that problem, but they're missing the bigger problem. How do I look at the system as a whole? Our our beautiful Mother Earth is highly connected. It doesn't recognize the acronyms that we like to use and it doesn't recognize the the barriers or the segmentation that we divide it up by. It's a connected system. And so many of the parts of the system need to be addressed holistically. So for a CEO, look at nature and climate together. engage your teams on looking at that holistically. And also what I've learned over the last five years is is climate and greenhouse gas is is somewhat elusive, whereas nature everyone can see, everyone can touch. It's far more emotional. Someone once said to me, while whilst greenhouse gas might be more measurable, nature is more emotional. If you talk to any customer or employee or or young person or others and say, Are you okay that we're destroying the natural system of the planet, you'll undoubtedly find very few people who say yes. Ask them if you're okay with this green emitting greenhouse gas and they sort of look at you and think, Well, I'm not actually sure how to see that, what's what's happening. I think I think the tangibility of nature and thinking about that holistically is something that we should use to our advantage in this fight. And the connections to nature in terms of well being and health, lifestyle and others are so important. We as CEOs of companies can't just look at one side of the problem. We've got to look at the whole system it It's a bit like when a patient comes into hospital and they've got multiple things wrong with them. You don't just divide them into the department that can fix one thing. You have to look holistically at the patient and fix the whole thing. That's a great example of the interconnectedness of this this issue. So the TNFT has enjoyed a lot of success, even in the absence of any mandatory requirement for companies to report and disclose on their nature related gyros or dependencies, impacts, risks and opportunities. And you've got Over seven hundred and eighty global adopters, as you know, across sectors and geographies. But David, what's the most telling example that the TNFT disclosures are actually moving beyond being just disclosures and actually translating into decisive action and changed behavior? Yeah, you're right. I mean, we're seeing fantastic pickup. We're we're we're doubling each year the number of adopters and reporters, which which is extraordinary. over a hundred countries now across sectors, financial markets and corporates. Incredible momentum, some companies now on their third year of adopting TNFD. I've often said that I wish I could change the D in TNFD from disclosures to decisions. Because it's not just about disclosures. Disclosures are very important. They create transparency, they create accountability, and they could create comparability, particularly important for investors looking across sectors or between sectors. But the really important part of TNFD and these frameworks is the assessment part, which is how do I understand my locations of where I am, the ecosystem services that I'm dependent upon or I'm having impact upon, and how does that manifest itself? And what am I going to do about it? and what encourages me, and I read lots and lots of TNFD reports, is not just it's a disclosure exercise, which ultimately can look and feel and could be like compliance, but it's really an assessment of our str strategy. In our surveys of participants, they say, well actually what we've achieved with T N F D is strategic change. We're changing our procurement. We're changing our location. We're changing our materials. we're changing how we recycle. We're changing how we reuse. And and that to me is the important part. Disclosures are important. particularly for investors, particularly for the debt markets or for MA or other areas. But they are not the goal. The goal is to change our impact on nature and to redirect finance. Disclosures are part of that. But the real goal is to redirect finance into nature positive outcomes and away from the things that are harming nature. So it's the whole package that's that's that's really important. And and you know, as you know, I do a lot of investment in sustainable technology. And what's really encouraging is how a l so many people are now saying we're we're doing this because of TNFD and others raising the awareness of these problems and recognizing that that what we're doing now in our supply chains and the materials we use and the recycling that we don't do is not sustainable and we're changing because of that. And I think this is part of the whole movement. TNFD is just one cog in the wheel. There are so many other parts of this ecosystem that are changing companies and people's behavior that are important. David, you mentioned that you invest in sustainable technology. I also know that you put personal coin into certain nature tech. startups. Now is that a philanthropic gesture or is that a commercially minded gesture? No, it's it's commercially minded and and lots of people talk about how do we invest in nature, how do we invest in nature. And and I I feel very strongly about this is that we often fall into the trap of thinking in investing in nature is just about restoration or conservation. You know, I call it the bees and trees. Really important, really critical, often philanthropic. Often also has benefits of improving flood water protection and resilience and other areas. There is an attribution issue that economists know know about well, which we need to solve. It's not there isn't a positive case for nature. It's how do you attribute the benefits that is the challenge? But the really interesting area of investing in nature is investing in technologies, processes, and methods that reduce impact on nature and actually align to nature positive goals. So good examples are. recycling, recycling of the waste from brewing, waste from food production, new materials that use plant-based approaches rather than oil-based polymers and plastics and other areas. things like metals recycling. We we currently take most of our electronics circuit boards and phones and the AI chips that, you know, last eighteen months and we incinerate them. Creates pollutants, doesn't collect much of the gold, copper, lead and other precious metals. There are now technologies that can dissolve them at sixty degrees. And at a very low cost extract ninety-nine percent of the precious metals. I mean, think about what that does to your supply chain and what that does to your your ability to source precious metals without harming the environment. I mean, these are the things that I think are creating exciting opportunities. There's a long way to go. These traditional methods are established over fifty years of industrialization. It's quite hard for these startups to get going because they're battling supply chains of they're trying to create new systems. But they're tremendously exciting. And the science and the technology is really, really interesting. and a lot of kids say, you know, what should I study at study at university now? I think material science, chemistry, all of these areas around materials is fascinating now because we've got to change a lot of the materials that we're using, the process we're using. I haven't even mentioned regenerative farming, a whole podcast in its own, but it's just one good example of you really see the movement changing now. Regenerative farming from being something quite niche. a few years ago to really becoming mainstream and demonstrating that it can produce food in a much more sustainable and and even more economic than the traditional methods of high intense, high polluting farming approach that we use. So it's a really exciting area, but but I think my summary is investing in nature is not just philanthropic restoration, preservation. It's not just investing in bees and trees. It's investing in what I call technology impact reduction on nature. So I want to get into the shoes of a skeptic and ask you what kind of returns are you actually generating on this portfolio? Give us an average estimate. Well it's it's early days. Anyone who knows a venture portfolio will know that one one or two or three of these will generate outsized returns. So I very confident that a couple of these technologies are going to generate at least ten, twenty, even fifty times return because of the way they're being picked up and and the way that they're being used to do it. I I think the big question, of course, though, is not just how do we create venture companies, but how do we create the next unicorn? How do we create the billion dollar company that is involved in areas like water reuse or e or others? I often use the example of Ecolab. Now it does many other things in addition to water reuse. But because of its technology and how it's leveraged and used in particular areas like data centers or manufacturing, this is a fifty billion dollar company. So I use that as an example to think about the unicorns that could come out of these areas and see how they're going to grow and use. And and also, you know, let let's not just rely on small companies trying to make change. You need the big companies, agricultural companies, I think it has a whole division now focused on precision tooling and farming that's used for region. because you need different equipment to do it. So you need the large companies as well as the small innovators to really get involved in this. Obviously, there's a big discussion around how policy and government policy can help. but it's also creating those off-take agreements, getting collaboration across industries, getting investors excited to do it. But I really see a change happening in the last couple of years in particular that is moving this market in the right direction. You've spoken a lot about technology, and I want to stay on that topic, but expand slightly to AI and data centers. As you know, this is the latest hot. topic and every government is looking at setting up more data centers from the lenses of you know national security, et cetera. not all data centers and large leading AI companies are thinking about their environmental footprint. How would you frame it in a manner that makes business sense to them? Well, if you don't have water, you can't run technology. And it's not just because you need to cool the data centers, you actually need to make the chips. and there's lots of literature published about the Taiwanese chip manufacturers and the problems of droughts and how chip manufacturers require hundreds of thousands of very, very clean liters of water every single day. So it's not just data centers, it's actually the whole upstream supply chain is very dependent on water. And if you don't have water, you cannot manufacture the chips. At the moment, data centers use a lot of water for cooling. So it's highly inefficient. You blow air over the chips. The air absorbs some of the heat, not much, and then you push the air through water cooling systems. Very, very inefficient. There are ways of making it more efficient by recycling that water, by using air conditioning. There's also technologies that cool chips. I saw technology at the Sustainable Markets Initiative in Hampton Court, where they actually immerse The chips in a non-conducting liquid, which is a hundred times more efficient at transferring the heat. So immediately reduces far, far less water. So my my advice to technology firms, and Trielle's reading the sustainability report from one of these, is you need to be absolutely aware of this in the same way that you need to be aware that there is growing backlash to building data centers in communities, not just because of the water use, but because of the use of an enormous amount of power. like many real estate constructions not particularly attractive. And so the idea that you can just go and build these things without engaging in local communities and understanding environmental impact is a false idea. But also embrace the new technologies that that will radically reduce both power and water consumption of these centers. It sometimes feels like we're sort of building the next electricity grid for the cathode ray light bulb when someone will invent the LED and suddenly the power and water consumption will radically change. And so we need to think about the future innovation and build towards that, not just build against the old technology and and how we're doing it. There's a very interesting article about data centers in Scotland. The footprint and other issues are concerning the water use, are concerning them, but they made a good argument, which is, well where would you build the data center? Would you put it in the southeast of England where there's no water and the grid is really under pressure? Or would you put it up in Scotland where there's renewable power and far more water? And I think these kind of debates are the right kind of debates to have. So we've spoken a lot about opportunities. We've spoken a lot about the business imperative, the supply chain risk from a water angle for data companies and chip manufacturers to start really viewing this through a different lens, embracing new technologies. But I want to go back, David, to an all party parliamentary group session that you and I went along to, where MP Barry Gardner gave an example. Of Seychelles, where he said that there are a lot of cases of hotels and tourism revenues appearing on PLs and balance sheet, but the coral reefs that enable, that draw the tourists in and that allow, you know, hotels to run high occupancy rates. Those coral reefs are missing. And while I get that, is there a practical way to actually put nature on the balance sheet? How do you put the assets of, say, a country? or in the environment on the balance sheet of a company that depends on them is an interesting question. And your example of the coral reef and the hotels in, say, the Seychelles is a great example. And there there are many, many more of these examples. I think stepping back a little bit, one thing that I think is important is that at a country level and particularly at the sovereign debt level, we look at the natural assets that a country has. And the country's economy's dependencies on those natural assets. Now, as far as I can see, the bond market doesn't factor in these risks. They factor in many other risks. but the sovereign bond market is not factoring in natural assets as the dependency of the country. maybe they are implicitly factored in because of future risk of supply, say, of agriculture or tourism or other things, but not explicitly factored in. So I think there's a really interesting question about. How do I look at dependencies of natural assets, be it wildlife, pristine forests, seashores, coral reefs, at a country level? At a company level, it's a lot harder because, of course, these assets are shared across many constituencies. how you assign a value to that is quite difficult. The practical way of doing that through the TNFD approach is to actually look at the dependency of that coral reef or the pristine beaches or the clean water or the other things that attract tourism. To a hotel and factor in what would be the impact if those were lost? What would be the impact on our art revenue or the reduction in visitors or tourism? And as you can imagine, it would be pretty stark and pretty harsh if if that were to happen. And that methodology at least allows you to start looking at these dependencies and thinking through, well, a, is there protection I can put in place? Is there mitigation that I can do? So our approach is not to try and just assign a value on the balance sheet because At the end of the day, what does that really do? But actually to look at dependencies and impacts and understand the risks and opportunities that they may have on that hotel or that institution that is dependent on those natural services. So this is a long subject of debate. the many academics debate how to put a value and assign a value of a natural asset to an individual company. We've taken a more practical approach, which says look at the dependencies look at how that could impact your costs or revenues. And then associate that with the impact on your PL. and then look at the mitigation strategies that you could have and and raise awareness of those natural assets and how you need to look after them. That's a really practical way of looking at accounting for natural assets in one's financial statements, both at a company and at a sovereign level. David, thank you for being on the show. Since we did the recording, you've been appointed to the court of the Bank of England. Congratulations on that role. And looking forward to hearing more about how you're going to join up the two worlds of nature risks and opportunities with macroprudential risks and opportunities in due course. Thank you. Thank you, and it's been great to talk to you and be on the show. If something you've heard on the podcast has made you pause and rethink how you would partner with nature, follow ReWiggle on Apple Podcasts, Spotify. Amazon Music, Audible, and YouTube. And if you know someone who is actively rewiggling how they work with nature, building solutions, shifting systems, or turning ideas into action, we'd love to hear from you. Write to us at rewiggle at gmail.com because the best conversations don't really end when the episode does. They stay with us and sometimes they change what we do next.