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September 6, 2022

Investors begin to question companies over biodiversity ahead of COP15

COP15 in Montreal this December should see the signing of the global biodiversity framework, while new research notes growth in investors’ interest in environmental factors beyond climate.

Biodiversity’s status as the poor relation to climate change has been underlined by a paper from global bank HSBC, which reported that the “general awareness of biodiversity is far below that of climate change and there is a lack of obvious investment options available”. 

While almost three-fifths of respondents to a recent survey the bank conducted were not actively looking at biodiversity as an investment, “anecdotally, we are receiving many more client questions on biodiversity,” it said. “Companies are increasingly being asked how they consider biodiversity in business operations; disclosure is on the agenda; progressive investors are beginning to engage.” 

The bank surveyed 340 financial services professionals globally from firms representing $8tn in assets under management. The study was conducted in June and its findings included in a research note released on Monday.

Furthermore, HSBC said the financial requirements to implement the UN’s post-2020 global biodiversity framework (GBF) are high, with some estimates putting the figure at $700bn annually. As chair of the 15th Conference of Parties to the UN Convention on Biological Diversity, or COP15, China has announced a $232mn biodiversity fund, which the HSBC report described as “a start but an order of magnitude away from estimates of what is needed”.

Nick Robins, professor in practice at the London School of Economics Grantham Research Institute on Climate Change, said it is vitally important that financial system reform is a key building block of the GBF, to ensure the value of nature is finally incorporated by capital markets and that institutions are accountable for their impacts and dependencies on nature. 

And, in implementing the COP15 outcomes, central banks and supervisors will need to play a critical role to ensure the financial system is managing nature-related risks effectively, and channelling extra capital to conservation solutions, he added.

Robins acknowledged, however, that the current global situation makes this a challenge. “The key test of whether COP15 is a success will be how it [deals with] the agenda of building a nature-positive economy at a time of mounting economic, food and energy crises. This will mean showing how restoring biodiversity can help with job creation, curbing inflation and boosting resilience to environmental shocks,” he said.

December’s COP15 conference in Montreal, Canada, will conclude an extended series of meetings chaired by China. The UN has said that approval on the GBR – which it has hailed as a landmark global agreement to safeguard nature – is “expected”, but it is unclear if efforts to mandate biodiversity disclosures will be successful.

The Taskforce on Nature-related Financial Disclosures has recently created a disclosure framework to grant the same importance to preserving natural assets, such as land, water and living things, as is now being given to tackling climate change.

Robins said: “What the GBF needs to signal is government agreement on the need for business and finance to disclose their impacts and dependencies. Getting a leadership group of countries to signal that they will make this mandatory – most likely via the TNFD – would be a great start.”

The TNFD was modelled closely on the widely adopted Task Force on Climate-related Financial Disclosures framework that several countries, including the UK, are making mandatory. The first version of the nature-related risk management and disclosure framework was published in March, with a second iteration in June. The final TNFD recommendations are due in September next year.

 

A service from the Financial Times