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In a previous Spark articles, we discussed the origin and relevance of the UN Convention on Biological Diversity (CBD) and the critical importance of biodiversity. With biodiversity continuing to receive more attention, this article summarises the outcomes of COP15, opportunities and thoughts on a ‘whole-of-society’ approach.
Biodiversity continues to receive more attention as we get closer to our climate agreement deadlines and greater recognition that we cannot achieve our climate goals without confronting the current biodiversity crisis. They are intertwined and must be tackled together. The recent CBD Conference of the Parties (COP) meeting showed there is increasing momentum in this space and in this article, we will focus on two targets relevant to our industry, which are essentially better data for measurement and monitoring, and increasing investment opportunities to ensure we do not reach any irreversible tipping points. However, this will only be possible though a ‘whole-of-society’ approach which includes indigenous communities, who are the natural custodians of many of our lands.
COP15 adopted the “Kunming-Montreal Global Biodiversity Framework” (GBF), which include four goals and 23 targets for achievement by 2030. The GBF aims to address biodiversity loss, restore ecosystems, and protect indigenous rights. The graphic, below, summarises some key milestones that got us to COP15.
Two key targets that have relevance for the finance/investment industry are targets 15 and 19.
Target 15 states that large and transnational companies and financial institutions should, “Regularly monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity… along their operations, supply and value chains and portfolios; … to progressively reduce negative impacts on biodiversity, increase positive impacts, reduce biodiversity-related risks to business and financial institutions, and promote actions to ensure sustainable patterns of production.”
All businesses depend on natural capital assets and ecosystem services either directly or through their supply chains. According to the World Economic Forum (WEF), more than half the world’s economic output – US$44 trillion of economic value generation – is moderately or highly dependent on nature1. In using that methodology, the Australian Conservation Foundation2 calculated that 49.3% (AU$892.8 billion) of Australia’s economy has a moderate to high direct dependency on nature. New Zealand also has a high direct dependency on nature, with agriculture, forestry and the marine economy alone contributing around NZ$80 billion to the economy3.
Target 15 sends a firm signal to corporates and financial institutions to monitor and report on how their business is impacting nature and biodiversity. This is a huge leap from traditional ESG risk monitoring which focusses on measuring how a company’s dependence on nature impacts its bottom line.
Currently, progress on monitoring and assessing nature-related impacts and dependencies is minimal. The Australian Conservation Foundation4 recently conducted a study on 20 of Australia’s largest banks and superannuation funds and their actions related to the current nature crisis. The findings showed that 50% of banks and 70% super funds had not evaluated nature related impacts or dependencies, with only 20% of them saying they had plans to.
It is increasingly acknowledged that solving the climate crisis and biodiversity crisis are inextricably linked, and we cannot achieve our climate goals without focusing on nature too. The barrier to action appears to be an immature market in nature-related data available for conducting the nature-related analysis stipulated by Target 15.
Fortunately, the Taskforce on Nature-related Financial Disclosures (TNFD) framework will aid companies and financial institutions in understanding, reporting and acting on this interlinked relationship. The TNFD is on track to release its risk management and disclosures framework in September 2023. While these disclosures are voluntary, some countries, such as the collective EU, have indicated that it will likely become mandatory. It is only a matter of time for this to become best-practice and follow the same path of the TCFD in becoming a mandatory disclosure requirement in an increasingly number of global jurisdictions. We welcome this trend as the WEF estimates that moving from a business-as-usual pathway to a nature-positive economic model could create over US$10.1 trillion of business opportunities5.
JANA has been following the updates of the beta versions6 of the framework and is part of the TNFD Forum, where we support and share the vision and mission of the TNFD. The goal of maintaining or restoring all ecosystems and halting and reducing human induced extinction of species will only be possible through effective measurement and monitoring – since you cannot you manage what you don’t know.
Target 19 states to “Substantially and progressively increase the level of financial resources from all sources, in an effective, timely and easily accessible manner… including by:
(c) Leveraging private finance, promoting blended finance, implementing strategies for raising new and additional resources, and encouraging the private sector to invest in biodiversity, including through impact funds and other instruments;
(d) Stimulating innovative schemes such as payment for ecosystem services, green bonds, biodiversity offsets and credits, benefit-sharing mechanisms, with environmental and social safeguards
(f) Enhancing the role of collective actions, including by indigenous peoples and local communities, Mother Earth centric actions and non-market-based approaches including community based natural resource management and civil society cooperation and solidarity aimed at the conservation of biodiversity
Many banks and super funds are taking some action despite not having nature-related targets and whole-of-portfolio measurement processes in place7. We are seeing pockets of positive action through direct investments in nature via impact funds, loans and other financial instruments. However, there remains a massive funding gap between what is required to avert our current biodiversity crisis and what is currently committed.
Enhanced financing of nature-related investments will be critical in the success of achieving Target 19 and JANA is actively researching the space to determine the investment merits and identify potential investment opportunities that will increase nature positive capital flows. Ultimately, a whole-of-portfolio approach to first avoid harm and then actively contributing to solutions will be required to halt the global devastating loss of natural capital.
COP27 last year highlighted the importance of nature-based solutions8, with a focus on voluntary carbon markets and ending deforestation, in achieving our climate goals. Estimates from consulting groups show that carbon credit markets are expected to grow by a factor of 12-30 times by 20309. We can therefore expect an equivalent increase in demand for nature that underpins many of those credits, in addition to standalone biodiversity credits, which finance activities that deliver net positive biodiversity gains.
Biodiversity credits finance initiatives that result in measurable positive outcomes for biodiversity – be it the species or natural habitats – via the creation and sale of biodiversity units. They are different to offsets, which are designed to compensate for damage to biodiversity from project development. The global market for biodiversity credits is still in its infancy, but Australia and New Zealand have made progress, with the latest biodiversity credits product launched in New Zealand in July 2022.
In Australia, the Government is developing a nature repair market to make it easier for businesses, organisations, governments and individuals to invest in projects to protect, manage and restore nature. As per Target 2 of the GBF, the Australian Government had already committed to protecting 30% of Australia’s land and seas by 2030. Australia’s new nature repair market will enable landholders who protect, manage or restore local habitat (underpinned by science and legislation) to receive biodiversity certificates which can then be sold to other parties. The market will operate in line with the existing carbon market, thus encouraging carbon farming projects that also deliver biodiversity benefits.
Globally, debt-for-nature swaps exist where creditors provide debt relief in return for a government commitment to protect nature. These instruments have existed in various forms for decades but have recently regained traction with more countries considering them following recent agreements in Belize and Seychelles. While the jury is still out on these structures, the recent agreement in Belize is being viewed positively. Belize’s US$553 million swap last year created US$364 million of “blue bonds10 ” and reduced the country’s external debt by 10% of GDP. In return Belize agreed to spend approximately US$4 million annually on marine conservation until 204111. Enhanced disclosure via TNFD should enforce transparency of Belize’s commitment to conservation.
COP15 highlighted the importance of getting indigenous involvement for biodiversity conservation (Target 19) and there is high focus on Indigenous Peoples and Local Communities (IPLCs) in the TNFD framework.
Investing in indigenous-led projects can advance both reconciliation and biodiversity goals. Indigenous lands make up around 20% of the earth’s territory, containing 80% of the world’s remaining biodiversity12 – a clear sign that inclusion of indigenous peoples is critical in delivering a just transition. How this can be effectively manifested is still work in progress and will require proactive inclusion on the part of investors – asking the right questions to ensure indigenous inclusion is appropriately considered in any investment opportunity.
In Australia, the proposed nature repair market is designed to enable participation by First Nations people and ensure free, prior and informed consent to projects on their land. A project must have the consent of any exclusive and non-exclusive Native Title holders before it can be registered and be eligible to receive a biodiversity certificate. This is to ensure that First Nations people can negotiate a share of project benefits or participate in implementation of projects on their land. It also allows for Indigenous Knowledge and practice to be incorporated.
COP15 emphasised the need for a “whole-of-government and whole-of-society approach” to implementing the GBF. As stewards of capital, we have a considerable and fundamental role in supporting the achievements of the GBF. Let’s not repeat the lack of action from the Aichi targets, and collectively achieve what is best for our environment and society – a holistic approach that tackles the issues facing our climate, biodiversity and people.
4 The aforementioned Australian Conservation Foundation study
6 A ‘beta version’ is a pre-release made available for consultation, review and testing prior to the release of the final version.
7 The aforementioned Australian Conservation Foundation study
8]The World Bank defines nature-based solutions as “actions to protect, sustainably manage, or restore natural ecosystems, that address societal challenges such as climate change, human health, food and water security, and disaster risk reduction effectively and adaptively, simultaneously providing human well-being and biodiversity benefits.”
10 The World Bank defines blue bonds “as a debt instrument issued by governments, development banks or others to raise capital from impact investors to finance marine and ocean-based projects that have positive environmental, economic and climate benefits.”
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