There was a notable lack of state heads at COP15 but, after seeming to hit a wall last week, negotiations finally yielded an agreement on biodiversity – in a move that some hope will make it easier for the finance sector to address nature-related risks to their portfolios.
Viewed by some as an equivalent of the COP26’s Paris Agreement, which has set the goalposts for global decarbonisation efforts since 2015, the Kunming-Montreal Global Biodiversity Framework is less long term in its aspirations, but still lays down a plan for dealing with the ecological crisis over coming years.
For one, it codifies the commitment to “take action” to conserve 30% of land, sea and freshwater sources by the end of the decade – known as the ‘30x30’ pledge.
Negotiators also agreed to overhaul about $500bn in annual subsidies to business activities and projects that undermine nature-related objectives, and to raise at least $200bn each year for conservation. More details are expected on the rewards and penalties that might be introduced to encourage progress towards 30x30 over the coming months.
Elena Tedesco, a portfolio manager at Swiss investment house Vontobel, told IPE that “clear regulation and incentives” could encourage companies to change their business models “and allow EPS growth for the firms that have a hedge”.
“We’ve seen it before with subsidies for clean energy, which have shifted investor perceptions on these issues,” she added. “If history repeats itself, biodiversity-centered solutions could be an attractive place to invest with a long-term view. We expect a positive outlook for companies that offer solutions for the reduction of plastic waste and the assessment of nature-related risk to name a few.”
There were also important developments on the reporting front. Target 15 of the new framework relates to disclosure of nature-related risks and performance, and the Taskforce on Nature-related Financial Disclosures (TNFD) is widely understood to be the means through which these targets will be executed on the global stage. On that basis, the German government is stumping up €29m to fund the TNFD for the next six years. Set up last year to provide the private sector with guidance on how to report information about nature-related risks in the same way the Task Force on Climate-Related Financial Disclosures (TCFD) has done for climate change, the TNFD will launch its first disclosure framework in 2023.
Vontobel research analyst Matthias Fawer said investors broadly welcomed the funding and hoped it would enable “further progress in measuring and tracking the biodiversity footprint of a country, company and/or fund in due course”.
Tamsin Ballard, the Principle for Responsible Investment’s climate director, said that, overall, the adoption of a global biodiversity framework by 196 governments marked “an historic moment for the conservation and restoration of nature”.
“PRI particularly welcomes the call to align global financial flows with the goals and targets of the framework, the ask for large and transnational companies and financial institutions to assess and disclose their risks, dependencies and impacts on biodiversity and the intent to eliminate, phase out or reform harmful subsidies on biodiversity by 2030,” she said in a statement. “However, to ensure successful implementation, it will now be essential that countries deliver on the Agreement, by translating it into national plans and policies and ensuring the efficient mobilisation of resources.”
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