TRANSPATH: navigating the complexity of transformative change with the financial sector

The TRANSPATH project bridges the Social and Environmental Sciences Group of WUR, bringing together economists, governance researchers, and natural scientists. “We focus on biodiversity and climate change risks, and on the financial sector’s crucial role in addressing them,” explains Francisco Alpizar, chair holder and Environmental economist at WUR. Jeanne Nel, programme lead biodiverse environment, highlights the shifting perspective of the financial sector: “Once seeing nature merely as a resource, it’s now rapidly recognizing that biodiversity loss and climate change are serious threats to its stability.”

Harnessing the power of finance

Alpizar emphasizes the financial sector’s dual responsibility, described as ‘double materiality.’ “Through their investments, financial institutions can harm ecosystems, but they also face the consequences, like depleted soils or crop failures from extreme weather. While the financial sector isn’t solely to blame for overexploitation, Alpizar highlights its potential for driving transformation. “It’s a magnificent driver of change, one that should not be underestimated,” he emphasizes.

“Reports do not deliver sufficient change”

Although the EU TRANSPATH project is only in its second year of a four-year program, it is already yielding valuable insights. “So far, financial institutions have mainly focused on mapping, modeling, and collecting data to understand the effects of biodiversity loss,” explains Nel. “But reporting on these impacts and their risks alone doesn’t drive real change. What we need are long-term visions for the financial sector’s role in society and strategies to engage with local actors.” She emphasizes the importance of integrating nature into financial decision-making: “This needs to be done in a precautionary way, ensuring that environmental considerations are at the core of these processes.”

Where to intervene for meaningful change

The first step in the TRANSPATH project has been to define the desired outcomes within the EU’s transformative change narrative, which emphasizes achieving ‘an environmentally safe and socially just operating space.’ But what does ‘safe’ truly mean? And what does ‘just’ look like in practice? “We use both a top-down approach, relying on models, and a bottom-up approach, incorporating case studies and stakeholder input, to explore these questions,” explains Alpizar. The next phase involves identifying policy entry points and key actions. “We need to pinpoint where in the system we can intervene to drive meaningful change,” says Alpizar. “This might involve leveraging laws or implementing specific policy instruments to create impact.” For the financial sector, TRANSPATH highlights three paradigm shifts as long term leverage points, each with promising levers to enact these.

New paradigms for the financial sector

A fresh outcome of the project is a paper that examines the values and beliefs underpinning our current financial systems. This paper, that was co-authored by WUR PhD candidate Paul Dingkuhn and prof. dr. Schoenmaker of Rotterdam School of Management, they present three paradigm shifts that draw promising pathways for transformative change in the financial sector. “We don’t just want new models or data,” Alpizar asserts. “Those lead to shallow interventions, not the deep systemic changes we need.”

The first shift has to do with acknowledging our dependency on nature. “The financial system must be recognized as deeply interconnected with the natural and social world,” says Alpizar. Policies must redefine risk management to prioritize sustainability, embedding planetary boundaries as prerequisites for long-term financial and economic stability. Supervisors and central banks play a vital role in incorporating ecological considerations into their mandates.

The second shift involves redirecting financial flows from nature harming towards nature enhancing activities. Instead of reacting to problems, the financial sector should proactively shape markets to align financial flows with societal and ecological goals. “Governments and regulators need to adopt proactive policies, guiding markets with clear industrial strategies and robust regulations,” Alpizar emphasizes. Transition planning, green investments, and public-private collaborations are essential to phase out harmful practices and promote coherence across financial sub-sectors.

Finally, the third shift is working on behalf of all value chain stakeholders instead of only shareholders. Nel enthusiastically elaborates: “This shift calls for a redefinition of corporate governance to prioritize shared value for all stakeholders, including future generations and the environment, rather than just maximizing shareholder profits.” Mechanisms such as mission-driven company charters, expanded fiduciary duties, and linking executive compensation to environmental performance can embed sustainability into corporate strategies.

Laying the groundwork for systemic change

The paradigm shifts provide a transformative framework for aligning the financial sector with nature-positive principles, paving the way for systemic change. “The next step is to establish a solid foundation for a robust research agenda focused on the financial sector and biodiversity-positive food and ecosystems,” says Alpizar. This agenda aims to create actionable leverage points and help stakeholders break free from current deadlocks exacerbated by unstable political landscapes. An important next step is also to dive deeper into understanding consumer and producer behavior. “When new systems are implemented, that's where potential loopholes can appear. Our goal is to identify which economic drivers might create these loopholes and figure out how to prevent them,” Alpizar concludes.