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The world is waking up to the realisation that we cannot achieve the Paris Agreement target without nature. COP26 highlights nature restoration as a key element in combatting climate change. Thus, the renewed biodiversity goals coming from the Convention on Biological Diversity (COP15) will be paramount in addressing the twin global challenges of climate change and biodiversity loss in a more coordinated manner.
The Rio Earth Summit in 1992 was a ground-breaking event that highlighted the increased awareness of our environment and the global resolve to protect it. It led to the establishment of three important conventions: the Convention on Biological Diversity (CBD), the United Nations Framework Convention on Climate Change (UNFCCC), and the United Nations Convention to Combat Desertification (UNCCD).
The CBD was ratified by 195 countries, plus the European Union and has since been meeting biennially with the three main goals of:
The last decisive CBD meeting, the 10th Conference of the Parties (COP10) was in Nagoya, Aichi Prefecture, Japan in 2010. COP10 brought forth the “Aichi Biodiversity Targets”, an ambitious set of 20 targets that were to be achieved over the decade to 2020. They included increasing the global awareness of biodiversity and halving the loss of all natural habitats. Sadly, none of the targets were achieved, with only six recording partial achievements.
Commentators point to the overly ambitious and perhaps unrealistic targets, combined with lack of coordinated action from member states and the lack of measurement that could determine and administer their progress. Thus, at COP15 in Kunming China last October, countries declared their commitment to put biodiversity on a path to recovery by 2030 at the latest. The post-2020 global biodiversity framework is due to be agreed at the scheduled COP15 meeting (the second half) in May 2022.
There is an increasing realisation that the pathway to achieving net zero is impossible without nature. Until now, the conferences on climate and biodiversity have acted independently of each other; however, it is now acknowledged that they are two intertwined crises that should be addressed together.1
Nature, such as forests, mangroves and oceans, organically sequester and store carbon. Research2 demonstrates that nature-based solutions can provide around one-third of the cost-effective climate mitigation needed between now and 2030 to achieve the Paris Agreement goal. However, to date, nature has made up only a fraction of the climate conversation – evidenced by the lack of achievement of the Aichi Biodiversity Targets.
The focus of climate change discussions has been around emissions reduction. However, it alone cannot achieve the mid-century goal of net zero. The agenda for COP26 recognises that the climate is already changing and will continue to do so despite the massive efforts to reduce emissions. Nature-based (or interchangeably referred to as natural climate) solutions are necessary in achieving net zero by 2050.
The second goal of COP26 therefore encourages countries to protect and restore ecosystems and work together to reform the global trade in agricultural commodities. This includes rewarding sustainable agricultural production to support the economic well-being of farmers while also protecting forests, which play a central role in removing carbon from the atmosphere.
Net zero will be achieved only when the reductions in emissions is combined with the investments to protect and restore natural habitats. The finalisation of the post-2020 global biodiversity framework will be key in addressing the twin global challenges of climate change biodiversity loss.
There are a few areas asset owners can start considering in relation to biodiversity and nature-based solutions.
It is estimated that a total US$8.1 trillion investment in nature is required between now and 2050, a four-fold increase, to successfully tackle the interlinked climate, biodiversity, and land degradation crises3. In 2018, private sector investment in nature-based solutions was US$18 billion, or only 14 per cent of the total investment in nature.
There remains many challenges in the still nascent market for nature-based solutions. Of note is the lack of scalability, measurability and investability, stemming from the absence of appropriate market prices for natural assets. However, we have seen an increasing number of private sector-led initiatives and evidence is starting to show that biodiversity restoration or conservation projects can be profitable, through mechanisms such as green bonds, green private equity and sustainable agriculture.4
JANA continues to research potential nature-based investment opportunities and emphasises that skilled active management will be even more fundamental in this space, particularly in identifying greenwashing.
Measurement and Disclosure
Going forward we can expect asset owners to be required to integrate nature-related considerations within their objectives, akin to the assessment and disclosure of climate-related risks. That act of disclosing holdings/exposures requires measurement, which in turn leads to the awareness of potential risks and appropriate management of those risks.
The Task Force on Nature-related Financial Disclosures (TNFD) is currently developing a framework that aims to standardise reporting on biodiversity risks and dependencies for companies and financial institutions. The framework, which is expected for release in the second half of 2023, aims to address how nature may impact an organisation and how an organisation may impact nature, thereby leading to opportunities for the protection and restoration of natural capital assets.
Initiatives such as the EU Taxonomy will also support the standardised measurement of biodiversity, leading to consistency and ease of comparison that not only benefits biodiversity, but also end investors.
Tools such as ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) can help asset owners assess the risks that environmental degradation, such as the destruction of forests, causes for financial institutions. The tool is a good start in recognising how the economy depends on nature and how environmental change creates risks for businesses.
Along with JANA asset owners can engage with investment managers, asking how they are considering exposures to biodiversity loss and what strategies they have in place for appropriate risk management. Active ownership that halts potential nature degrading practices and promotes nature positive outcomes will be key to effective management of climate change risks and success in achieving net zero targets.
1 Elizabeth Maruma, Executive Secretary of the Convention on Biological Diversity
2 “Natural climate solutions”, Proceedings of the National Academy of Sciences of the United States of America (PNAS)
3 “State of Finance for Nature. Tripling investments in nature-based solutions by 2030.” UNEP, WEF, ELD, Vivid Economics
4 “Finance & Biodiversity, Understanding and Acting”, Forum Pour L’Investissement Responsible, Iceberg Data Lab
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