More Relief than Regret as Montreal Fails to Make it Mandatory

Imperfect but foundational GBF sends signal for urgent action on biodiversity by investors and policymakers.

Palpable relief swept around the world shortly after 3.30am Montreal time on Monday morning, as China’s COP15 Presidency brought down the gavel on a new global agreement to address biodiversity loss and restore natural ecosystems, bringing four years of negotiation to a close.

It is hoped that the end will mark a new beginning for humanity’s relationship with nature. While almost everyone found something to praise in the final text of the Kunming-Montreal Global Biodiversity Framework (GBF), most also identified ways in which it fell short.

Discussions will continue about whether its headline 30% by 2030 targets for restoration and conservation are sufficient, but the inclusion of “terrestrial, inland water, and coastal and marine areas” was welcomed for its comprehensive reach.

Against a backdrop of macroeconomic uncertainty and geopolitical tension, notably the growing mistrust between developed and developing nations, the deal was seen as a significant achievement, especially given the absence of impetus from global political leaders.

Arguments throughout the two weeks of COP15, largely over financing, were largely allayed at the end, but the GBF too often lacked numerical targets and time-bound commitments for a document aimed at reversing decades of over-exploitation by the end of the decade.

“Vague wording and non-specific targets in parts of the agreement could undermine the urgent action that’s needed to protect threatened wildlife and ecosystems,” said Katie Leach, Head of Biodiversity at responsible investment NGO ShareAction.

“The success of this framework will come down to implementation and how the goals and targets are interpreted at a national level.”

Simon Zadek, CEO of NatureFinance, a non-profit focused on developing nature finance solutions, said the GBF was sufficiently robust and ambitious to further accelerate policy, business and investor action.

“This agreement is more than adequate to further acceleration and scale. The text has a set of global targets, and a focus both on mobilising funds and aligning global finance, as well as explicit and extensive reference to nature-related risks and the responsibilities of the financial community,” he said

“These are signals about what needs to happen on the ground. Given where we’ve come from over a short period, it’s quite remarkable.”

“Finance showed up”

Both the COP15 summit and the GBF document appeared to mark a new beginning for nature’s relationship with business and finance. This was the first UN Convention on Biological Diversity conference to be attended by hundreds of companies and institutions and thousands of senior representatives. Unlike at COP27 in Sharm El Sheikh, when fossil fuel lobbyists swelled the climate summit’s headcount, COP15 in Montreal saw the private sector calling for more change, not less.

In September, CEOs of major financial institutions, including Aviva and Storebrand Asset Management, called on finance ministers to align their policies with the GBF. A statement from 150 global financial institutions with US$24 trillion in AUM backed a “robust” GBF that provided a clear mandate for the alignment of financial flows, supported the disclosure of nature-related risks, impacts and dependencies, and outlined clear targets and definitions to enable the development of nature-positive projects.

“Finance showed up at COP15,” Lauren Lutic-Muusse, Investor Engagement Lead at the World Benchmarking Alliance (WBA), told ESG Investor.

“Investors in Montreal were there to support an ambitious GBF, one which would meaningfully support progress. They also came ready to share their journeys on biodiversity, showing that action can and is being taken on assessing impacts, reducing negative impacts and maximising opportunities to reverse biodiversity loss.”

Like everyone else, they came away with some progress, if not certainty. The GBF’s Goal D, on implementation, contained an unambiguous commitment to aligning public and private financial flows to its overall objectives, with supporting language in the enabling targets, analogous to the Paris Agreement clauses that put climate change on the global agenda in 2015.

“We have been pushing this text for one and a half years, because it can establish the necessary actions to be taken by all stakeholders, including the financial sector, to urgently halt and reverse biodiversity loss,” said Anita de Horde, Coordinator Finance for Biodiversity Foundation.

“We hope this agreement will create the incentive for financial institutions to align their portfolios with a pathway towards halting and reversing nature loss in 2030.”

Disappointment tempered

The 400-plus firms that signed up to the Make it Mandatory campaign came away disappointed that the GBF will only “encourage” reporting by “large and transnational” companies and institutions via “legal, administrative or policy measures”. This was tempered by the fact that obligations to monitor and disclose include nature dependencies, not just risks and impacts, with the former seen as critical to gaining an accurate understanding of their relationship with nature.

With firms only being “required” to disclose, “it will now be up to individual governments to implement policies that ensure this happens and we hope that this will be through enforcing mandatory disclosure on nature,” said Helen Finlay, Global Associate Director for Policy Engagement at environmental disclosure platform CDP.

De Horde said the wording on legal, administrative or policy measures means “governments need to have policies and regulatory frameworks in place”. This will help investors who require nature-related data from investee companies so that they can better align their financial flows with biodiversity goals and targets, she added.

While many large companies are willing to disclose their biodiversity risks and impacts, according to data from CDP, few are currently managing or reporting these. The WBA’s first Nature Benchmark found that 5% of 400 global firms had conducted a science-based assessment of their biodiversity impacts, while a recent study by the FAIRR Initiative said the largest meat and dairy producers are not yet reporting their impacts on water and forests.

In addition, satisfaction with Target 15’s calls for policy measures to “progressively reduce negative impacts” was offset by a wish for greater specificity, now left up to individual countries.

“It’s clear that the business and financial sectors want clarity and guidance from governments on how they should contribute to halting and reversing biodiversity loss and environmental degradation,” said Finlay.

Although some called for the GBF to require disclosure consistent with internationally recognised standards, no specific frameworks – such as that being developed by the Taskforce on Nature-related Financial Disclosures (TNFD) – are mentioned.

For large firms, Target 15’s requirements span operations, supply and value chains and portfolios. Further, the GBF notes that firms should provide information to consumers to promote sustainable consumption patterns, and report on compliance with access and benefit-sharing regulations and measures “as applicable”.

“It is welcome to see Target 15’s language on nature disclosures for business that refers to the impacts on biodiversity along supply and value chains, especially since impact across the supply chain are particularly important for agricultural and food sector companies,” said Dr Helena Wright, FAIRR’s Policy Director.

Intended direction of travel

Despite its imperfections, Target 15 does indicate a new level of responsibility for business and finance alongside governments in addressing nature risks, especially when put alongside other targets.

In particular, Target 14 requires signatories to progressively align “all relevant public and private activities, fiscal and financial flows” with the GBF’s goals as part of a “full integration” of biodiversity into the normal course of government.

The reorientation of public finance flows is also made explicit in Target 18, which calls on governments to identify harmful subsidies by 2025 and reduce them by US$500 billion by 2030, while scaling up positive incentives for conservation and sustainable use of biodiversity.

Further, Target 19 effectively instructs governments to mobilise finance from all possible sources and as soon as possible, specifying a target of US$200 billion per annum by 2030. This is a clear indication to private finance, but its sub-clauses go further by making specific reference to blended finance, impact funds, green bonds and biodiversity credits, combining with climate finance initiatives where appropriate.

Organisations in civil society and the private sector have pointed out the potential flaws and weaknesses in these requirements. “Certain parties, such as India and Indonesia, initially opposed any numerical values in relation to the elimination, phase out and reform of harmful subsidies, particularly invoking their ‘right to development’,” noted Ioannis Agapakis, Environmental Lawyer at ClientEarth.

But they also argue there is little room for interpretation regarding the intended direction of travel for governments and the signals they give to the business and finance sectors.

“It gives the enabling environment we need. The solutions are not going to come through inter-governmental agreements. They come from state and non-state actors on the ground,” said Zadek at NatureFinance.

What was needed was a deal that gave the market confidence that this is a serious policy agenda in motion, that they will not be striking out alone if they look at nature-related risks, that showed an understanding of the importance of the role of non-state actors, and that reinforced the role of local and indigenous communities.”

Passing on the baton

If Montreal did pass on much of the responsibility for implementing the GBF, COP15 also served as a showcase for the tools, mechanisms and commitment to take up the baton, by governments but also business and finance.

While negotiations were ongoing, governments demonstrated their support for its aims by committing to increase public and private finance flows to restore nature under the Donor Joint Statement. Canada pledged US$350 million to support developing countries with conservation efforts, while France said it will double its international finance for biodiversity to €1 billion a year by 2025 and Germany will be increasing its funding to €1.5 billion by 2025. Further, the European Commission pledged €7 billion for biodiversity over the course of 2021-27. All of these commitments will help to finance the targets of the GBF.

The Donor Joint Statement, while welcomed, followed rising tensions with developing countries, with some walking out of negotiations on 14 December over the sharing of the financial costs of reversing nature degradation and biodiversity loss between rich and poor.

Emerging markets nations such as Brazil and China should be contributing more to international biodiversity funding, smaller developing countries also argued, noting that the two nations are currently the top two recipients of the UN’s Global Environment Facility (GEF), alongside India, Mexico and Indonesia, and are expected to receive US$5.3 billion in the next GEF funding cycle from 2022-26.

A compromise saw the establishment of a new Global Biodiversity Fund, initially opposed by developed countries, but managed under the auspices of GEF. “Significant concerns remain over the scale of finance committed by developed countries to developing nations given the scale of the problem, in addition to questions over whether the GEF is an effective mechanism for distributing funds equitably,” said Sophie Lawrence, Stewardship and Engagement Lead, Rathbone Greenbank Investments.

These concerns reflect broader uncertainty and scope for post-COP15 backsliding, including by national governments.

“Critical to proper implementation of the financing mechanism is that there is strong accountability for all expenditures, for example, that specific financing reaches those communities, especially Indigenous communities, who are most affected by biodiversity damage and most vulnerable to biodiversity harm, but are the best placed to take real, on the ground steps to achieve biodiversity outcomes,” said Agapakis at ClientEarth.

Agapakis said the GBF’s final implementation mechanism is a “significant improvement” on the Aichi Targets set ten years ago, pointing to new global reviews of ambition and progress, as well as improvements in monitoring and reporting. But he also warned that there was no mechanism yet to review individual countries’ efforts, which “leaves the door open for countries to remain on the side-lines”.

Lessons learned

The private sector’s support for and response to the GBF at Montreal was partly inspired by its climate experience, but also suggested lessons learned and a realisation of the need for a different approach.

With almost 120 asset owners and managers already signed up, the nature summit saw the soft launch of investor-led engagement initiative Nature Action 100 (NA100). The group will officially start operations in the spring, and will serve as the nature-focused counterpart to Climate Action 100+ (CA100+), identifying and engaging with companies that are considered “systemically important” to the goal of reversing nature and biodiversity loss by 2030.

Germany announced a €29 million grant to the Taskforce on Nature-related Financial Disclosures (TNFD) over the next six years to support the ongoing development of its disclosure and risk management framework and accelerate uptake of the reporting requirements globally.

Expected to be finalised by September 2023, the TNFD recently published the most recent iteration of its framework for nature-related risk management and disclosures, including an adaptive approach to cover varying materiality and reporting preferences, while further fleshing out nature-specific guidance not covered by the four core pillars of the Task Force on Climate-related Financial Disclosure (TCFD).

“TNFD moved to being ‘the game in town’ when it comes to amalgamating the data, building the risk tools, and advancing the required disclosures. There was a consensus that TNFD has already reached a stage of maturity that one can see it’s going to be incredibly effective,” said Zadek.

Emmanuel Faber, Chair of the International Sustainability Standards Board (ISSB), also announced that the board will be referring to the TNFD framework to inform its incorporation of natural ecosystems and the just transition into its climate and general sustainability reporting standards. These are being designed to serve as a global baseline that can be adopted by jurisdictions at varying points in the climate transition journey.

Beyond climate

The ISSB was launched at COP26 alongside the Glasgow Financial Alliance for Net Zero, but there was no comparable announcement of a grand sector-wide coalition in Montreal, despite the presence of GFANZ Co-chair and former Bank of Canada Governor Mark Carney, highlighting the “interdependent” nature of the biodiversity and climate crises.

This may reflect the difficulties faced by collaborative climate-focused initiatives this year, but the response of the asset management sector is likely also to be informed by the different challenges of addressing nature risks.

Therese Niklasson, Global Head of Sustainable Investment at Newton Investment Management, said investors will be able to borrow certain concepts from how they’ve begun to factor climate risks into their capital allocation decisions. These include breaking down nature-related risks into similar sub-categories, such as physical, systemic, and transition, as well as developing a sectoral and geographic understanding of where risks, impacts and dependencies lie.

Institutional clients are seeking advice from asset managers, said Niklasson, who are looking to adjust investment processes and value at risk models before developing nature-focused fund solutions.

This exercise will involve developing sector-focused transition-focused assessment frameworks, leveraging indexes and data sets to evidence and measure the effectiveness of evolving investment approaches. “Rather than new product, the focus is on coming up with solutions that can demonstrate real-world outcomes without overstating,” she said.

Existing biodiversity-related data tools include Swiss university ETH Zurich’s biocomplexity index and the UK Natural History Museum’s biodiversity intactness index. Zadek expected new coalitions and models to emerge to meet the needs of investors and business. “Will it be open source or commercialised? Will the good be pushed out by the cheap? The biodiversity data markets will start to flame over the next year or so,” he said.

Niklasson said asset managers and owners will need to develop their access to and understanding of unfamiliar and imperfect data sets as part of their efforts to align their investment strategies with the goals of the GBF.

“We can’t wait for the data to be accurate. We have a pretty good idea of where the problems lie and a really good idea of where they stem from and where the problem is,” she said

“These risks have been on the horizon for quite a while, but this upcoming year is going to be critical.”

Additional research by Emmy Hawker.

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