Engagement, SLBs and biodiversity credits: What’s in store for nature in 2023?

Last year saw a flurry of investor activity when it came to nature; will 2023 see it finally become a central issue?

Last year saw a flurry of investor activity when it came to nature. An area that has long played second – or even third or fourth – fiddle to other topics in ESG finally took centre stage. 

Speaking during the COP15 conference in December, which saw the landmark Kunming-Montreal Global Biodiversity Framework adopted, Andy Howard of Schroders didn’t mince words. 

“If you think that the role of our industry is to connect capital to the areas of the greatest social, economic need within the real world, there are few areas of greater need than tackling the biodiversity crisis,” he said. 

So what will investors be focusing on in the space in 2023?


Individually and collaboratively, financial institutions began to step up on nature last year. 

Most notably, the long-awaited Nature Action 100 was officially formed at COP15. Billed as the biodiversity equivalent to Climate Action 100+, the initiative aims to drive greater corporate ambition and action on tackling nature loss. 

This year is expected to see deeper dialogues with investee companies, as well as potential sanctions up to and including divestment if engagement fails to produce the desired results.

Franklin Templeton has also started screening Article 8 and 9 funds for principal adverse impacts (PAI) on biodiversity. We’re focused on eliminating companies doing material harm to biodiversity,” David Zhan, head of European fixed income and co-chair of stewardship and sustainability council, tells Responsible Investor.  

And while biodiversity has yet to feature prominently in shareholder resolutions, a proposal on deforestation received two-thirds support from shareholders of Home Depot. 

As well as putting corporations under the microscope, investors were proactively involved in the negotiations of the Kunming-Montreal Framework – so policy advocacy will likely continue this year as nations work to implement it.  

Fixed income

Investors are also increasingly looking at nature in their fixed income engagements. 

Zahn tells RI that in 2022, Franklin Templeton sent a sustainability questionnaire to 150 corporate issuers across a range of sectors. One question asked: “Do you operate near a biodiverse risk area?” Around a third of respondents said yes. 

“For 2023, we are planning a larger engagement with those companies to find out what they are doing to address it, whether that’s preventing reduction or increasing biodiversity,” says Zahn. Franklin Templeton will also look at engaging with sovereigns on nature in 2023.

Similarly, Stephen Liberatore, head of ESG/impact, global fixed income at Nuveen, says the US investor is “in the process of or expects to” engage with both corporate and sovereign issuers on a variety of nature-based issues, including species, coral reefs, forests and water-focused projects. 

Looking at the market more broadly, the Anthropocene Fixed Income Institute (AFII) is undertaking a scoping exercise to understand the relationship between bonds and nature loss. 

“A big question for 2023 surrounds what the Montreal-Kunming Agreement will mean for fixed income portfolios,” says Stéphanie Mielnik, director of research.

As she notes, the Paris Agreement inspired a wave of innovation on the product development side on how to align with it in investment strategies, including the introduction of the Paris-aligned Benchmark (PAB) label. 

“Will we see the same type of thing for nature, and/or will PABs start including nature?” she asks. 

Mielnik also highlights the expansion in 2022 of nature-related KPIs in sustainability-linked bonds. Uruguay’s debut SLB linked coupon payments to native forest cover, while Anglo American included a water-related KPI and Carrefour linked its financing costs to a reduction in the quantity of packaging used. 

This year will likely see more SLBs with nature KPIs from both sovereigns and corporates, Mielnik says. “The big questions for 2023 will be on the ambition of the SLBs and the KPIs, and how the products will be structured.” 

In a bid to help investors answer those questions, non-profit NatureFinance has created a Sustainability-linked Sovereign Debt Hub. Launched in October, the initiative aims to connect stakeholders and support the creation of standards and tools that incorporate nature and climate considerations into the sovereign bond ecosystem. 

In 2023, the hub will provide technical support to initiatives in the space, including the Sustainable Debt Coalition launched at COP27, according to Simon Zadek, executive director of NatureFinance. 

Another nature milestone in 2022 was the execution of the $150mm World Bank Wildlife Conservation Bond also known as the Rhino Bond.

“We are expecting a rapid growth in biodiversity-focused transactions based on the success of the Rhino Bond structure that will potentially fund not only other animal species conservation efforts but also activities tied to even more granular flora and fauna ecosystem outcomes,” says Nuveen’s Liberatore.

He sees a combination of sovereign and blended finance green and blue bonds as one of the key opportunities for integrating nature into debt markets.

“The entities that have authority over most nature-based issues are various forms of governmental institutions,” he points out. “I believe blended finance will play a critical role because of the technical expertise that NGOs and multinational development banks possess that will be required to create, track and measure nature-based investment opportunities.”

NGOs and MDBs will also provide the education and third-party validation that investors need “in order to feel comfortable participating in this nascent space as it works toward scale”, he adds.

Framework and standards

In this area, the focus this year will be on how the Kunming-Montreal Framework is operationalised by governments. 

Goal D and targets 14 and 15 of the Framework will see particular attention from investors and the private sector more broadly. The first two centre on aligning public and private financial flows, while Target 15 covers disclosures by businesses. 

On alignment, COP15 saw the launch by Nature-Finance of an initial version of a “Nature Finance Alignment” tool designed to enable private and public financial actors to assess their degree of nature alignment and support the transition pathway towards a nature positive, net-zero future.  

Moving forward, Zadek says the NGO will work with a group of financial institutions to pilot the tool – Brazilian investor JGP Credito has already signed up – as well as governments. 

When it comes to operationalising target 15, the Taskforce for Nature-related Financial Disclosure (TNFD) is viewed as a key enabler. 

In September, it is expected to launch a risk management and disclosure framework for organisations to report and act on evolving nature-related risks and opportunities.  

As part of its work, TNFD is working with the Science Based Targets Network (SBTN), which is developing methodologies to allow firms to set science-based nature targets that are “measurable, actionable and timebound”. 

SBTN is expected to produce an initial release, which will include detailed methodologies for companies to assess and prioritize their environmental impacts, and then progress to setting targets to address freshwater use and pollution and land use and conversion this March. 

Also at COP15, the International Sustainability Standards Board (ISSB) announced plans to research “incremental enhancements” that complement the Climate-related Standard, including relating to natural ecosystems and the Just Transition.  

To deliver this, the ISSB will consider the work of the TNFD and other existing nature-related standards and disclosures where they relate to the information needs of investors. 

Biodiversity credits

Returning to the Framework, another aspect of Target 19 that is attracting attention from the financial sector is the commitment to stimulate “payment for ecosystem services… biodiversity offsets and credits”.

Biodiversity credits are a new type of instrument that seeks to finance absolute biodiversity gains. “That means they are not intended to be used to compensate for negative impacts on biodiversity in another location,” Pollination director Laura Waterford previously explained to RI. 

Although there is excitement in the market about their potential, many are cautioning that a conversation about governance architecture needs to take place before the market gains momentum. As several speakers at COP15 put it: “We saw what happened with the carbon market.” 

NatureFinance will be hosting an event at the World Economic Forum in Davos later in January on how to establish robust and effective governance for the market that secures equitable, nature positive outcomes. It will also publish a report on the topic in February. 

Central banks and regulators

Another key push towards the integration of nature in financial systems worldwide is expected to come from central banks and regulators.

In March, the NGFS launched a Nature Taskforce with a mandate to mainstream the consideration of nature-related risks across the initiative’s various workstreams.

It is working on a conceptual framework – the first version of which is due to be finalised by the end of June – to provide NGFS members with a common language that will help them understand and address nature-related risks.    

“To test the framework and facilitate the build-up of knowledge, it is anticipated that the work on the general framework will be supplemented with a few thematic deep dives,” says Saskia de Vries, head of international financial stability at the Dutch central bank and co-chair of the taskforce. “These could be on topics such as deforestation.” 

This will be followed towards the end of the year by a technical document which will provide specific recommendations on the development of nature-related scenarios, including concrete ways to overcome challenges in the sector.

Banque de France has also been a key player in the taskforce. Romain Svartzman, a research economist in its Climate Change Centre, says the bank is looking to go beyond an initial 2021 study that assessed the static impacts and dependencies of the French financial system in order to understand specific sectors with a more dynamic perspective.  

“This would enable us to better understand how specific shocks or policies can affect specific sectors (eg the agricultural sector) and specific value chains (eg how shocks in the agricultural sector can translate into higher prices of inputs for the secondary sector),” Svartzman notes. 

Nature-climate nexus 

Another key trend for 2023 is expected to be a growing awareness within financial institutions of the nexus between nature and climate.  

Major nature initiatives such as TNFD, SBTN and NA100 have been modelled on their climate predecessors, and discussions around net-zero transition plans will likely increasingly feature nature going forward. 

Preliminary signs of this were evident in 2022, when Mark Carney urged private finance to ensure transition plans include clear priorities on deforestation, protecting nature and restoring biodiversity. 

Similarly, the UK’s Transition Plan Taskforce recommended that plans for financial institutions and corporates should cover measures to address material risks to – and leverage opportunities for – the natural environment and stakeholders which arise as part of their plans.