‘Yes, we are actually calling for more regulation’: A look at the investor reaction to COP15

Aspiring to do for biodiversity what COP21 did for climate change with the launch of the landmark Paris Agreement, thousands of participants from around the world (virtually and in-person) convened this week for the first leg of COP15.

Originally scheduled for last October in Kunming, China, the biodiversity conference has been beset with delays due to Covid-19; and the second part of the summit is now due to take place from 25 April-8 May 2022.

It is in this second portion that the hotly-anticipated Post-2020 Global Biodiversity Framework will be launched, outlining what will be needed to meet the 2050 objective of “living in harmony with nature”.

But at this week’s event, it was made clear that – just like with climate – the financial sector will play a key role in meeting the 2050 goal. And the message has not gone unheard by investors. 

“The eyes of the world are focused on Glasgow, but many of us are watching a different COP just as closely – COP15,” says Adam Kanzer, Head of Stewardship for the Americas at BNP Paribas Asset Management. “We are mindful that the climate crisis cannot be solved without also addressing the biodiversity crisis.” 

During a plenary session on Wednesday, Jean-Jacques Barbéris, Amundi’s Head of Institutional and Corporate Clients & ESG, echoed this when he spoke on behalf of the Finance for Biodiversity Foundation. “Many financial institutions have been accelerating their efforts around climate change such as with the Net Zero Asset Managers Initiative, but the finance sector cannot forget biodiversity in the race to net zero,” he told the audience. 

Arguably the most notable moment at this week’s summit was the adoption of the Kunming Declaration – a “statement of political will”, committing the world’s governments to develop and execute on a post-2020 global biodiversity framework. This is expected to cover everything from subsidy regimes to the need to strengthen the rule of law, and protect indigeous and local communities.  

“The Kunming Declaration demonstrates ministers’ political will to address the biodiversity crisis, which is a critical first step to reverse the loss of biodiversity,” says Jan Erik Saugestad, CEO of Norway-based Storebrand Asset Management. “We’re encouraged to see that it calls for ‘urgent and integrated action’ to reflect biodiversity considerations in all sectors of the global economy and explicitly mentions the involvement of finance, which shows that governments are starting to recognize the need to make biodiversity a mainstream issue,” he tells RI.

Liudmila Strakodonskaya, an ESG Analyst at AXA Investment Managers, particularly welcomes the Declaration’s commitment to provide a “basis for restructuring of economic and financial incentives” in a bid to – as the declaration puts it – ‘align all financial flows in support of the conservation and sustainable use of biodiversity’. AXA used COP15 as an opportunity to announce yesterday that it would strengthen its investment and insurance requirements in activities that actively contribute to deforestation, and invest €1.5bn in sustainable forest management. It will also join the World Heritage Sites initiative, and introduce insurance exclusions to support the protection of key biodiversity reserves identified by UNESCO. 

Strakodonskaya is not alone in this opinion: when the draft framework was released in July, others in the investment community called for further clarity on the role of financial institutions, and an explicit reference to the recently-created Taskforce on Nature-related Financial Disclosures (TNFD).

RI asked Elizabeth Maruma Mrema, Executive Secretary of the Convention on Biological Diversity (CBD) and Co-chair of the TNFD, whether a namecheck was likely. She pointed out that the Framework will be valid until 2030, by which time the TNFD expects to have concluded its efforts. 

“From this perspective, a direct reference to TNFD as a useful supportive mechanism would probably be better placed in the accompanying COP decision as opposed to in the [framework] directly.”

Maruma Mrema is keen to see investors and financial institutions work with national environmental and financial government ministries to support robust negotiations about the future of the framework. 

Government commitments are already underway. The French government said that it is already in the process of identifying and reforming harmful subsidies and is working on nature-related financial disclosure, while South Africa confirmed its Treasury was working to incorporate biodiversity into its upcoming green taxonomy.

China’s President Xi Jinping, who is expected to absent himself from next month’s climate negotiations in Glasgow according to reports today, pledged 1.5bn yuan ($230m) in seed funding for a Kunming Biodiversity Fund to support biodiversity protection in developing countries. He invited other countries to contribute. 

Amundi’s Barbéris said in his speech that when it came to disclosure and alignment of financial flows – two of the convention’s targets – “the Global Biodiversity Framework should go further in providing clear pathways, ambitious and enforceable targets, and relevant guidance that would enable the private sector to contribute”.

“Yes, we are actually calling for more regulation,” he continued. “We strongly believe that the Global Biodiversity Framework should include an explicit expectation for businesses and private and public financial institutions to align activities and financial flows to the global biodiversity goals and targets, supported by appropriate regulatory measures and financial incentives,” he added.

Genevan private bank and wealth management firm, Union Bancaire Privée, issued a “wishlist” to governments this week, that it claims would assist the industry in producing impactful investments. In a recommendation also made by Barbéris and Saugestad, it calls for “multilateral agreements on corporate disclosure on external effects on biodiversity”. 

Last week the Joint NGFS-INSPIRE Study Group on Biodiversity and Financial Stability, set up to help central banks and financial supervisors fulfil their mandates in the face of financial risks stemming from biodiversity loss, called on regulators to consider developing biodiversity scenarios to test the resilience of the financial sector against risks arising from the loss of nature and resources. 

The topic of financial risk and biodiversity loss was explored by EY and Microsoft this week in a joint report titled Waking up to Nature – the biodiversity imperative in financial services, which estimated that the world’s largest investment banks provided $2.6trn of loans and underwriting services linked to the destruction of nature in 2019 alone, and a failure to act at pace and scale to rectify this will create a “material financial risk for the financial services industry”.

The UK’s Green Finance Institute also weighed in with a report revealing the up to £97bn investment gap needed to be filled in order to secure key nature-related outcomes in the UK. The body, which is a partnership between the City of London and the UK Government, plans to work with the country’s finance sector to identify the barriers to nature-positive investments, and develop practical solutions to support the growth of investment in nature in the UK.

Next month it plans to publish a ‘roadmap’ in partnership with non-profits the Broadway Initiative and Finance Earth for creating a framework for “investable high integrity nature markets”.

As the first leg of COP15 winds down, the working group tasked with advancing the Global Biodiversity Framework will turn their attention to the next formal negotiations, slated for January. The Framework is due to be adopted in May.