COP15 agreement an ‘unambiguous message’ to finance firms

Concerns around wording and scale of flows remain but sector sees opportunities in biodiversity deal

Finance professionals have welcomed increased clarity on financial flows to protect ecosystems around the world following global leaders’ agreement of the wording of the Kunming-Montreal global biodiversity framework (GBF) at COP15.

The framework, which has been under negotiation for four years with talks ramping up in Montreal over the past two weeks, sets out four goals and 23 targets for how countries will protect 30% of the planet for nature by 2030.

The agreement, which was reached on Monday and adopted by 196 countries under the UN Convention on Biological Diversity, includes a pledge to reform $500bn of environmentally damaging subsidiaries and $30bn a year by 2030 for conservation in the developing world and aims to “catalyse, enable and galvanise urgent and transformative action by governments, subnational and local governments, and with the involvement of all of society to halt and reverse biodiversity loss…”

Clear message?

“It sends a clear, strong message to all stakeholders, including the financial sector,” said Sonya Likhtman, manager at Federated Hermes and co-chair of the public policy advocacy working group at the Finance for Biodiversity Foundation.

“Goal D requires the alignment of financial flows with both the 2030 targets and the 2050 vision, securing a focus on implementation in the short, medium and long term. This goal, along with several targets that reference private financial flows, provides the hook required to stimulate and scale up action from the financial sector,” she said.

Likhtman added she is also pleased target 15 requires governments to ensure that large companies and financial institutions assess and disclose their risks, impacts and dependencies on biodiversity throughout operations, value chains and portfolios.

However, Katie Leach, head of biodiversity at responsible investment NGO ShareAction, said although the agreement was an important step, the wording was vague in some places and “non-specific targets in parts of the agreement could undermine the urgent action that’s needed to protect threatened wildlife and ecosystems”.

She also commented success of the GBF will come down to “implementation and how the goals and targets are interpreted at a national level.”

Gautier Queru, Land Degradation Neutrality fund project manager at Mirova, agreed more ambitious and quantitative objectives would have been preferable.  

“Nevertheless, having this clear framework now will establish the design of the architecture of our indicators and methodologies on a solid foundation,” said Queru.

Disclosing risk

ShareAction’s Leach encouraged mandatory disclosure of nature risks as a next step.

“Target 15 for all large and transnational businesses and financial institutions to assess and disclose their risks, dependencies and impacts on biodiversity has huge potential to drive action to halt and reverse biodiversity loss – governments should make it mandatory and call for implementation in line with the Taskforce on Nature-related Financial Disclosures,” she said.

Noeleen Cowley, head of FS ESG at KPMG UK said COP15 was first time the private sector has really been inside the ‘nature tent’ and also highlighted disclosures as a key part of the agreement.

“A key aspect for the finance community has been around disclosures. Although many will be disappointed that the word ‘mandatory’ does not feature, as 330 institutions from 52 countries had called for, the text does provide an unambiguous message to firms to prepare to disclose their risks, dependencies and impacts on nature – and that stronger requirements from individual jurisdictions is coming down the line, by 2030 at the latest,” said Cowley.

New markets

According to Robeco biodiversity equities strategy portfolio managers, Aaron Re’em and David Thomas, the agreement is a “great step forwards in tackling the twin challenges of nature preservation and funding.”

“$200bn a year in global biodiversity financing by 2030 will rapidly spawn new markets for nature-based solutions,” they said.

“The five-fold increase of $30bn in international financing by 2030 to developing countries will accelerate conservation efforts at the heart of biodiversity rich habitats, we hope especially for an increase in marine biodiversity investments, where it’s desperately needed.” 

Re’em and Thomas said it was encouraging the agreement was tackling the contributors of biodiversity loss, including agriculture.

“The framework’s mission to reduce excess nutrient loss in agriculture by 50% will lift regional commitments to the EU’s ambitious biodiversity strategy targets,” they noted.

Impact funds

Target 19 of the agreement has reassured Queru that Mirova’s own strategy towards investing in natural capital is on the right track.  

The target stated parties shall “substantially and progressively increase the level of financial resources from all sources… including by… 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.”

Target 19 also encourages innovative schemes such as “payment for ecosystem services, green bonds, biodiversity offsets and credits, benefit-sharing mechanisms, with environmental and social safeguards.”

Queru said: “Here both references to impact funds and innovative schemes such as biodiversity credits are very encouraging and confirm that what Mirova has developed for the past seven years in the field of natural capital investing is deemed relevant and useful. It is an incentive for us to do more and will only encourage us to accelerate.”

Financial flows

Target 14 of the agreement tackles integration of biodiversity into “policies, regulations, planning and development processes, poverty eradication strategies, strategic environmental assessments, environmental impact assessments and, as appropriate, national accounting.”

It noted all relevant public and private activities, fiscal and financial flows should be progressively aligned with the GBF’s goals.

Sophie Lawrence, stewardship and engagement lead at Rathbone Greenbank Investments said the fact private financial flows needing to be aligned with the goals and targets of the GBF, alongside public finance, was “welcome”.

However, Lawrence also said: “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 GBF is an effective mechanism for distributing funds equitably.”