Biodiversity is as crucial to zero emissions as climate change – and carries the same financial risk. Will COP15 send investors the right signals? asks Planet Tracker’s Robin Millington.
The Conference on Biological Diversity COP15 meeting kicked off in Montreal yesterday – but unlike the noise around climate change discussions seen as COP27 in Egypt, these negotiations focusing on nature and biodiversity loss have had much less fanfare.
Biodiversity loss – which puts $44tn, or almost half of global GDP, at risk – has received less attention on the environmental agenda in recent years, with the spotlight turned firmly on limiting the planet’s warming. Though the CBD was adopted at around the same time as its climate equivalent, the UN Framework Convention on Climate Change (UNFCCC), in the early 1990s, it has not created the same sense of momentum. Correspondingly, until now financial markets have also felt less urgency to act on it.
However, increasingly investors are recognising that no economic system will thrive if we destroy the very resources – that is, the natural capital and ecosystem services – underpinning them. Capital markets are counting on COP15 leading to a ‘Paris’ moment for nature, and delivering a concrete framework for governments and businesses to act upon.
Taking nature seriously
Despite a growing appreciation of the inextricable link between climate change and nature loss, what has been achieved on an international scale for climate in terms of legislation and financial incentives is nowhere near the levels necessary to combat biodiversity loss. Yet the private sector is realising that we need to go beyond scrutinising emissions and net zero on a standalone basis, and factor in nature-related risks too.
As the Intergovernmental Platform on Biodiversity and Ecosystem Services – the biodiversity equivalent to the Intergovernmental Panel on Climate Change – points out in a global assessment report, environmental solutions must tackle nature and climate in synergy. Action taken to reduce global warming must also help to protect biodiversity – and vice versa.
This means solutions that might replace more carbon-intensive practices but destroy natural environments in the process are no route to net zero. This would include practices such as forest bioenergy, for example. Here, trees are chopped down to create alternative energy as part of net zero strategies – but destroy the forest’s ability to regulate greenhouse gas emissions and negatively impact the climate in the long term.
Better data, fewer risks
Over the past few years, financial markets have understood to a greater degree the risks associated with dependency on natural capital. Take oceans, for example: when a company is reliant on natural capital (such as fish populations) to generate profit and there is a threat to that capital (through risks like overfishing), this can impact its ability to turn a profit.
Yet disclosure levels on nature loss lag far behind where they need to be. This is exemplified in Planet Tracker’s new Seafood Database exploring 100 seafood-exposed companies across the supply chain, which finds that only 8 per cent of companies disclose species for their portfolios. This lack of transparency extremely limits investors’ ability to assess corresponding risks.
To improve disclosure, we need better data. We have seen quantifiable data improve for climate change, with scientists able to neatly measure the amount of greenhouse gases present and being pumped into the atmosphere, or the change in degrees as temperature rises. Measuring the complex and interconnected web of ecosystems is, on the other hand, no easy feat.
Investors should therefore hope that COP15 will help overcome this challenge and equip them to assess biodiversity impacts. They will be looking out for developments in areas including an uptake of financial metrics for natural capital; a financial framework in the form of the Taskforce on Nature-related Financial Disclosures; and the announcement of the new Nature Action 100, for which Planet Tracker is co-lead of the Technical Advisory Group.
Singing from the same hymn sheet
This biodiversity COP represents an unmissable opportunity for governments to agree on global nature goals and prevent irreparable ecological, and by extension financial, damage. Biodiversity and, more broadly, nature, ecosystem services and natural capital are rising up investors’ agendas, but the private sector cannot act alone – political willingness is key. Despite a background of adverse macroeconomic and geopolitical environments, we must see policy progress in the form of a breakthrough ‘Paris’ framework for nature.
As biodiversity’s public profile grows in stature, we hope that the two meetings – the climate change COP and the biodiversity COP – are held in tandem in years to come, so that both challenges are tackled together and on an equal footing. That way, we can imagine a future economic system that is both net zero and nature-positive – and a planet which thrives again.
Robin Millington is CEO of financial think-tank Planet Tracker.