Biodiversity on the agenda: Four trends to watch

Nature is finally clawing its way onto investors’ agendas, with the launch of collective engagement initiatives and the development of disclosure frameworks.

Policy action steps up a gear

Not so long ago, biodiversity was highly unlikely to crop up as a subject for boardroom discussion – unless, perhaps, an executive decided to share their experience of a weekend trip to the zoo. Within the past year, however, the picture has changed dramatically. Biodiversity has shot up the agenda to join climate change as one of the top priorities for ESG-conscious investors.

The startling shift in focus reflects the fact that policymakers are finally waking up to the scale of the crisis facing nature around the world.

Representatives of 198 countries, along with a host of high-powered business delegations, descended on Montreal last December for the UN’s Biodiversity Conference. The stakes at COP15 could not have been higher. Humanity has pushed biodiversity to the brink of a sixth mass extinction event – the first on Earth since an asteroid strike wiped out the dinosaurs more than 65 million years ago.

“This conference is our chance to stop this orgy of destruction,” said UN Secretary-General António Guterres.

It remains to be seen whether the world will rise to the challenge. But COP15 certainly delivered an ambitious agenda for protecting nature and setting the course towards a more sustainable use of the Earth’s resources.

Among the key pledges in the Global Biodiversity Framework agreed at the conference was a commitment to protect at least 30 percent of the world’s land, inland waters, coastal areas and oceans by 2030. The loss of “areas of high biodiversity importance” is to be reduced to “near zero”, while 30 percent of degraded ecosystems are to be restored.

Of key importance for investors is a target to require financial institutions to transparently disclose their risks, dependencies and impacts on biodiversity. The ultimate aim is to reduce the negative impact of investments on nature, and promote investment in “sustainable patterns of production”.

It is against this backdrop that investors are scrambling to put in place strategies for disclosing their impacts on biodiversity and engaging with corporates to encourage nature-friendly practices.

Collective action

A plethora of initiatives have emerged over the past year as the investor community attempts to define a collective approach to biodiversity decline.

Among the key developments is the advent of Nature Action 100 (NA100), which had its soft launch at COP15. Mooted as the nature equivalent of the Climate Action 100+ initiative, NA100 is set to engage with major companies in key sectors that have the largest impacts and dependencies on nature, with the aim of encouraging corporate action on addressing nature loss. A final list of companies to be engaged will be unveiled later this year.

The initiative is co-chaired by non-profit Ceres and the Institutional Investors Group on Climate Change.

Meanwhile, the UN-backed Principles for Responsible Investment is developing a collaborative stewardship initiative on nature, focusing initially on forest loss and land degradation.

Frameworks take shape

One of the key challenges facing investors on biodiversity is a lack of clarity on what kinds of data they should be collecting and disclosing.

There is no silver bullet for data dilemmas in this space. Impacts on biodiversity are not easy to quantify. They are even harder to aggregate and compare in a meaningful way.
However, a major step in the right direction is expected in September, when the Taskforce for Nature-Related Financial Disclosures (TNFD) launches its final recommendations. The TNFD aims to replicate the role of the Taskforce on Climate-Related Financial Disclosures, which has been instrumental in creating a common approach to disclosing greenhouse gas emissions.

Sonya Likhtman, associate director at Federated Hermes, is optimistic that the TNFD will encourage progress. “What it will do is normalise and formalise the fact that companies and investors have to disclose on nature,” she said at the RI Europe event in London in June. But she emphasised that disclosure should not be for disclosure’s sake. “TNFD should be used as a tool to enable better decision-making,” she said.

In this report, we explore whether investors are ready for the TNFD – and we find that the answer depends on the institution. Many investors – some of whom have only just got their heads around climate reporting – are daunted by the prospect of disclosing on nature.

But while the pace of adopting TNFD reporting will vary, the direction of travel seems clear. It is time to get started on reporting nature-related risks, dependencies and impacts.

High-risk industries in the spotlight

Given their large impacts and dependencies on nature, the food and agriculture and mining industries are an obvious starting point for investors’ nature-related engagement efforts.

Snorre Gjerde, lead investment stewardship manager at Norges Bank Investment Management (NBIM), told Responsible Investor’s Gina Gambetta that the manager of Norway’s trillion-dollar sovereign wealth fund has been engaging mining companies on how they approach operations in sensitive areas, as well as how they incorporate Indigenous rights and engage said communities.

Gjerde says the majority have established policies to address their activities’ environmental impacts. A number are aligning with NBIM’s expectations on adopting international best practices, including the mitigation hierarchy approach, no net loss ambitions and commitments not to explore or develop mines in internationally recognised areas such as natural UNESCO World Heritage sites.

The leading firms have gone further by setting company-wide targets. Some companies aim to have a net-positive impact on biodiversity, and are employing new technologies to measure impact and progress.