Commentary

The High Seas Treaty: How will it Impact Investors?

The High Seas Treaty will pave the way greater protection of the world’s oceans, but will also have implications for businesses that depend upon raw materials, says Pippa Howard, Chief Nature Strategist at NatureMetrics.

Following nearly two decades of discussion, including five years of negotiations, the UN has adopted the Biodiversity Beyond National Jurisdiction Treaty, commonly known as the High Seas Treaty. This is the first ever framework for governing a range of commercial activities in international waters and aims to enhance protections for nature in the largest ecosystem on the planet. 

Over two-thirds of the Earth’s oceans and seabeds fall into this category of the High Seas – or the ‘global commons’ – which plays a crucial role in mitigating climate change and maintaining human life: It generates 50% of the oxygen we need to breathe, and provides about 15% of human protein intake, the primary source of protein and livelihoods for 3 billion people, and is an important protein source for livestock. It absorbs 25% of all carbon dioxide emissions, captures 90% or the excess heat generated by those emissions and is the earth’s largest carbon sink. Those services are not generated by the water alone, it is the living organisms in the sea that are producing the oxygen and sequestering the carbon. Therefore, ensuring it stays healthy and able to continue providing those services is crucial to the fight against climate change. 

However, up until now, the ocean has had little to no regulation, which has led to issues which are in no one’s best interests in the long term, such as overfishing, resource depletion, habitat destruction, bioprospecting of marine species, and widespread pollution: particularly plastic waste, as well as noise pollution and pollution from shipping. These issues are particularly acute in the high seas as they fall outside of national jurisdiction. The treaty’s ability to help prevent these damaging activities is a central reason why it has been received so positively by policymakers and environmentalists alike.

The High Seas Treaty is part of a broader trend towards increased regulation aiming to mitigate the global loss of biodiversity, due to a growing realisation that our economies depend on nature. It’s a key update which will help deliver the 30 by 30 target of the Global Biodiversity Framework (GBF) for the seas . Moreover, the Task Force on Nature-related Financial Disclosures (TNFD) will be coming out with its final framework this year, which seeks to bring nature related risk assessment into the mainstream of financial and business reporting.  

This rapidly changing regulatory context means that investors need to understand which companies in their portfolio are dependent on services delivered by nature and conversely, how they are impacting upon the state of nature. As regulations evolve and/or the state of nature declines, these impacts will become increasingly financially material. Investors who start engaging now with their portfolios to require better reporting and crucially, changes to business practices to manage these impacts and dependencies, will be in a better position to understand and mitigate these risks as they materialise. For those lending directly to companies developing projects in the high seas, there will be a need for more rigorous environmental impact assessments to better understand and reduce potential impacts on biodiversity.  

Key considerations for investors 

For investors with a diverse portfolio and a long-term vision, such as those involved with pension funds, life insurance, or sovereign wealth funds, the High Seas Treaty represents an opportunity to ensure the oceans are managed in a more sustainable way, for the benefit of all. Without it, to give one example, unsustainable fishing practices in one part of your portfolio, could impact upon food prices in another and the whole ocean-based economy would eventually collapse, in addition to the impacts on climate change. The High Seas Treaty will provide a mechanism to balance any competing interests to ensure the seas are managed sustainably.  

 The High Seas Treaty will not cover deep sea mining because that is already regulated by the International Seabed Authority but that does not mean deep sea mining has a green light. There are increasing calls from several UN member states to delay or ban seabed mining due to the lack of scientific knowledge about deep sea ecosystems and potential unknown impacts of mining on marine life, and consequently the ability of the oceans to continue to mitigate climate change. Deep sea nodule mining involves collecting pebble-like nodules containing high concentrations of metals that have formed slowly over millions of years from the seabed over vast areas, stirring up sediment in the process. One potential impact of these sediments is that they could travel large distances and impact upon seafloor dwelling filter feeding organisms such as corals, which are responsible for sequestering around 70 to 90 million tonnes of carbon per year within their skeletons. The nodules themselves are also essential for regulating ocean chemistry and rely on being in an environment with low sedimentation rates. 

Adapting to the shift from only 1% of the high seas being protected to two thirds of the ocean that lies outside of national boundaries becoming protected will have impacts on business models that are dependent on exploiting ocean resources, both directly and through supply chains. This includes supply chains dependent on fish products as well as mineral extraction and bioprospecting. Changes are likely to include the establishment of vast Marine Protected Areas, more equitable sharing of the benefits of marine genetic resources, which are of interest as pharmaceutical and chemical ingredients, and a new framework for environmental impact assessments associated with activities such as geoengineering. This means associated companies will have to adapt their business models. 

Therefore, in the same way as increased regulation and consumer expectation on climate change can potentially result in stranded assets, we can expect to see the same in the nature space, including in the marine and terrestrial environments. 

Leading investors are starting to engage with their portfolios to find out how they are exposed to activities that exploit ocean and other natural resources, to measure the impacts of their activities and the effectiveness of practices put in place to mitigate them. The TNFD, the Science Based Targets for Nature and other emerging frameworks are helping to guide more consistent measurement and disclosure which will help improve comparability of data across portfolios. However, we find many investors and companies now seeking the support of specialist consultants to navigate this complex topic. 

Given broader increases in expectation for disclosure of corporate impacts and dependencies on nature, businesses and investors will need to start gathering more data about their exposure to activities that use ocean resources and measuring the effectiveness of any practices they put in place to alleviate their impact. Just as measuring greenhouse gas emissions data has become commonplace in climate impact assessments and disclosures, biodiversity monitoring will now need to become part of the reporting toolkit: lenders should begin asking companies to report site level biodiversity data to demonstrate how legislative risks are being managed effectively. 

Much of the reporting in the nature space at present is based on proxies, models and actions being taken that are assumed will improve biodiversity. Whilst this is a useful place to start, it does not provide insights into whether the actions taken by a company are actually effective at driving the anticipated improvements in biodiversity.  

Techniques now exist to make the collection of biodiversity data much more efficient, objective, replicable, and scalable than ever before – such as the collection and analysis of environmental DNA (eDNA). It will be crucial for investors to begin to demand more robust, actionable nature intelligence data on the impact of assets which can help them to make more informed decisions on their portfolios and mitigate the risk of any potentially negative outcomes.

An opportunity for alignment 

Whilst investors will need to assess and engage with their portfolios to ensure alignment with the High Seas Treaty, ultimately it should be seen as an opportunity. Measures that drive alignment between business and investors with the natural processes they rely upon should be welcomed as they protect the health of our economies and our planet in the long term.

This is the ultimate objective of the GBF agreed at COP 15 in December last year and investors can expect to see much more, similar legislation emerging around the world in the coming years. This shift in global policy making, and consumer awareness and expectations, will benefit businesses and investors that are effectively managing their impacts and dependencies on nature.

In terms of the High Seas Treaty, the oceans are no longer a “no man’s land” with no regulation or protection. Businesses that are able to adapt in this watershed moment for marine industries will be the ones that can bring the highest returns for investors long-term. 

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