The UN Secretary General António Guterres opened the opening UN Convention on Biological Diversity (COP15) in Montreal with a grim message: “Without nature we are nothing. Nature is our life support system, and yet humanity seems determined to be destroyed.”
The summit brought together delegates from more than 190 countries to negotiate the post-2020 period Global biodiversity frameworkthe implementation of which will require a transformation in the way we produce, consume and trade goods and services that depend on and impact biodiversity.
Companies and investors have therefore paid close attention. Businesses and investors play a critical role in biodiversity and conservation efforts and needs to invest in sustainable production and extraction methods.
On December 14, the Day of Finance and Biodiversity During the summit, speakers from the financial sector discussed different ways to align financial investments with the new biodiversity framework. Ahead of these financial conversations, a new global engagement initiative is underway, Nature action 100 was launched to stimulate investor action on nature-related risks and opportunities.
As a sustainable finance scholar, I believe that while these initiatives and discussions are important, we need more targeted and urgent investments in nature-friendly solutions to combat biodiversity loss.
“Without nature we are nothing”
Numerous scientific studies point to alarming statistics about the rate of biodiversity loss. The Living Planet Report 2022 shows an average decline of 69 percent in wildlife populations since 1970, highlighting the twin crises of biodiversity loss and climate change caused by human activities.
Unlike the climate crisis that led to the signing of the Paris Agreementbiodiversity loss has received little attention so far. However, the risks of biodiversity loss are enormous.
According to a OECD reportecosystem services from biodiversity, such as crop pollination, water purification, flood protection and carbon sequestration, are estimated to be worth $125 to $140 trillion per year. About $44 trillion per year of this global production depends on nature.
Bending the curve of biodiversity loss
The Convention on Biological Diversity fifth Global Biodiversity Survey summary report for policy makers, published in 2020, proposes a portfolio of actions to restore biodiversity.
These actions include restoring landscapes and marine and coastal ecosystems, redesigning agricultural systems through innovative productivity-enhancing approaches, deploying green infrastructure, enabling sustainable and healthy diets, rapidly phasing out the use of fossil fuels, and more much more.
Companies and investors have a crucial role to play in each of these action areas, especially when it comes to shifting to more sustainable production and manufacturing processes, investing in energy efficiency and waste reduction, conserving natural resources, and investing in climate solutions that also support biodiversity.
Biodiversity awareness in the financial world
Awareness of biodiversity risks within the financial community remains very limited. This year, the non-profit organization CDP, which manages the global environmental disclosure system, was involved new questions to assess companies’ approaches to biodiversity.
The results show that three-quarters of the 7,700 companies surveyed do not estimate their impact on biodiversity. Most companies in sectors that harm nature, such as clothing and manufacturing, are still failing to take meaningful action to halt biodiversity loss and environmental degradation.
According to a 2021 OECD reportIn the financial sector, nature-related dependencies, consequences and risks are poorly understood and almost completely uncompensated. This leads to a misallocation of capital, which ultimately undermines the well-being of society.
However, there are positive signs. Thirty-one percent of companies in the CDP survey have made a public commitment and/or supported biodiversity-related initiatives, and 25 percent of respondents plan to do so within the next two years.
The growing awareness is confirmed by the Global Risks Report 2022, which found that biodiversity loss ranks third top 10 global risks by severity in the next ten years.
Integrating biodiversity into financial decisions
One of the key challenges for investors and lenders is obtaining the relevant data to make evidence-based decisions about fund allocation. This is in line with the ever-increasing demand for environmental, social and governance (ESG) data disclosure.
The recently launched international initiative Task Force on Nature-related Financial Disclosures develops a risk management and disclosure framework that allows organizations to report and take action against evolving nature-related financial risks.
Biodiversity also attracts the attention of financial policy makers. In March 2022, the Network for greening the financial systema coalition of more than 120 central banks and supervisors, has published a new statementrecognizing that biodiversity loss can lead to significant risks to macroeconomic and financial stability.
The new investor-led initiative Nature action 100 builds up similar initiatives to help investors connect with companies that contribute to biodiversity loss. Working with companies to reduce their negative impact on nature can be a powerful tool for change, especially when it comes from major investors and asset owners.
The International Sustainability Standards Board (ISSB) is now considering biodiversity when developing new ESG information standards. Emmanuel Faber, President of the ISSB, addressed the COP15 delegates and announced the appointment of two special advisors who provide strategic advice on issues related to natural ecosystems and ‘just transition’.
The future lies in impact investing
While these initiatives are critical, focusing on data disclosure is not enough. Even if we quickly agree on disclosure and measurement frameworks around biodiversity, disclosures that are voluntary and not supported by regulation are vulnerable to greenwashing, which is widespread in the ESG space.
We must encourage more targeted investments in nature-positive solutions that combat biodiversity loss. Impact Investing – investing money with the intention of benefiting society and the environment – provides a framework for this.
Impact investing starts by identifying a social challenge and then screens for investment opportunities that offer measurable solutions. But impact investments remain very small compared to other responsible investment strategies. Many impact investors use the UN Sustainable Development Goals (SDGs). to set their impact objectives and measure results.
To tackle biodiversity loss, we need more investments in SDG14 (life underwater) and SDG15 (life on land). Despite the importance of ocean ecosystems for local livelihoods, food security and carbon sequestration, SDG14 receives the least amount of money of one of the SDGs.
Canada is a global leader in clean technology innovation and across the country, many companies are emerging at the intersection of nature and climate, including innovation in ocean technology, clean maritime transportation, and regenerative agriculture.
But financing remains a challenge, especially in the early stages, when the risk is high and the scale is lacking to attract large investors. More innovative financing mechanisms and instruments are needed to fill this gap.
Investing in indigenous-led projects can also advance both reconciliation and biodiversity goals, because indigenous countries 80 percent of the world’s remaining biodiversity.
The Day of Finance and Biodiversity at COP15 stimulated important discussions on how to align financial flows with the new biodiversity framework, but real action remains to be seen. We need action now, because time is not on our side.