Investors, Policymakers Urged to Raise Ambition Ahead of COP15

Private sector capital must be mobilised to protect biodiversity, reports say, while GBF needs to set targets for “transformative change”.

Those responsible for allocating private sector capital have a “significant role” to play in addressing biodiversity loss, said sustainability focused Impax Asset Management. However, investors seeking to avoid harming nature often lack the information and the tools for effective risk management.

The absence of economic tools – such as market mechanisms or valuation methods – to support the restoration of individual habitats is holding back the creation or expansion of “significant investment opportunities” in nature-positive solutions, said Impax CEO Ian Simm, in a recent article co-authored by Chris Dodwell, Head of Policy and Advocacy, and Julie Gorte, Senior Vice President for Sustainable Investing.

Institutional investors and other actors are increasing their focus on biodiversity risks ahead of the second half of the UN Biodiversity Conference (COP15) in May in China, which is expected to conclude negotiations for the Post-2020 Global Biodiversity Framework (GBF).

Sonya Likhtman, Engagement Manager at Federated Hermes International and co-chair of the Public Policy Advocacy working group of the Finance for Biodiversity Foundation, a finance sector coalition with €12.6 trillion AUM, said establishing an “ambitious GBF” was key to meeting the opportunity for “transformative change” that COP15 presents to address the biodiversity crisis.

“For the upcoming GBF to be successful, it must highlight the necessary actions to be taken by all stakeholders, including the financial sector, to urgently halt and reverse biodiversity loss,” she said.

The GBF will set targets to be used by governments, investors and corporates to inform strategies to protect natural capital over the next decade. It has been referred to as the ‘Paris Agreement for Nature’ for its potential to set a global agenda to tackle biodiversity loss. A parallel development is the impending release of the Taskforce on Nature-related Financial Disclosures’ draft voluntary reporting framework for biodiversity-related risks and impacts.

Principles to address biodiversity loss

While biodiversity is often characterised as a complex issue, Impax said lessons can be learned from past experience of environmental management. Joint international action by multiple government stakeholders, market-based approaches whereby government and business work together, metrics, impact assessments, and policy roadmaps – which have all delivered results in the wider environmental sphere – can all help to address biodiversity loss.

Impax said there were four “fundamental principles” that could lay the foundation for stemming biodiversity losses. First, the wider topic of biodiversity should be broken down into ‘biodiversity imperatives’ for analysis. Understanding each sub-issue should inform policy priorities and the design of programmes. The US Endangered Species Act, for example, required various layers of government to define and implement protection plans specific to individual habitats and species. By 2020, 91 species listed as threatened or endangered when it was passed in 1973, had recovered.

The second principle is a ‘multi-local’ approach in which multiple policymakers coordinate their actions. An example is the International Coral Reef Initiative, a multilateral partnership to address the loss of coral reefs. The Initiative, which comprises 44 countries, has adopted a set of indicators that measure the health, integrity and function of coral reefs, with a monitoring network to report on their condition.

Impax’s third principle is that of creating a shared vision that helps to identify nature-positive solutions. “Just as scenario analysis of what a low-carbon economy could look like has helped direct climate policy, we now need a realistic ambition for a global society that does not destroy its natural environment,” it said. A shared vision of the economic and financial opportunities that can be generated by addressing biodiversity loss will be key to this.

Role for financial institutions

Finally, Impax said the reduction and potential reversal of biodiversity loss would require “effective collaboration between the public and private sectors”. Those responsible for financial institutions have a vital part to play in supporting the development of solutions, it added. “In parallel, investors should seek to analyse and manage biodiversity-related risks and consider opportunities. They should also target progress through engagement activities and proxy voting.”

The Finance for Biodiversity Foundation’s GBF position paper emphasised the need for COP15 participants to ensure that the GBF is a policy aim “for both for government action and for financial market actors”. The framework should include an “explicit goal for financial institutions and businesses to align financial flows to global biodiversity goals and targets”, said the paper.

Emine Isciel, Head of Climate and Environment at Storebrand and Likhtman’s working group co-chair, said financial institutions were increasingly aware that, alongside climate change, the loss of biodiversity and the related decline in ecosystem services were creating risks to businesses and increasing systemic risk for the financial system. “An enabling policy environment that supports financial institutions in better managing the risks and capitalising on the opportunities is key,” she said.

More funds needed

Coalition groups The B Team and Business for Nature are calling for the US$500 billion per year target on subsidy reform in the draft GBF to be strengthened. A joint paper said reforming the US$1.8 trillion a year of subsidies that are currently harming the environment could make an “important contribution towards unlocking the over US$700 billion a year needed to reverse nature loss by 2030”, as well as the cost of reaching net zero carbon emissions by 2050.

“This needs to happen alongside aligning all private financial flows to nature-positive solutions and increasing public and private finance to deliver innovative financial solutions that help protect, restore and conserve nature,” the paper said.

Subsidy reform would support the ambitions of the Paris Climate Agreement and boost ESG-motivated investor interest, it added. “Informed reform of subsidies can boost business and investment opportunities, create jobs, reverse nature loss and help ensure a sustainable future for our planet. Businesses can mobilise and implement change with speed (often faster than policy-makers), setting a precedent for improvement across industry.

“Investors are starting to acknowledge the financial and sustainability risks of environmentally harmful subsidies and forward-looking companies recognise they need to prepare for subsidy reform.”

Separately, a report from bodies including the UN Environment Programme and the World Economic Forum called on Group of 20 governments to more than double current annual levels of investment on nature-based solutions to US$285 billion by 2050 to tackle inter-related nature, climate, and land degradation crises. The report also outlined recommendations on how to align development and economic recovery with nature goals by setting quantifiable monetary objectives, governance and policy options, and devices to facilitate systemic change.

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