Nature provides the essentials for our survival and enhances our wellbeing, but it is being lost at an alarming rate. 75% of the Earth’s ice-free land surface has already been significantly changed and more than 85% of wetland areas have been lost.
COP15 is an opportunity to accelerate an ambitious Global Biodiversity Framework to bend the curve on nature and biodiversity loss. Financial markets have a critical role. Their exposure to nature-related risks, and their impact on nature, come almost entirely from the activities they finance or insure in the wider economy. Financial institutions must recognize that they must manage and take responsibility for the impacts of their decisions on people and the planet.
Reducing harmful financial flows and risks
For a new global biodiversity framework to be successful, finance must commit to aligning portfolios with a nature-positive future. This starts with understanding and acting on the impact of their financing on biodiversity and nature.
We know that there isn’t enough awareness of the damage that is being done to nature, and more importantly, how this might impact portfolio value. For example, nearly 9 in 10 financial services companies disclosing to CDP assess climate risks. But for their deforestation risk this drops to under half (46%), despite 44% of global GDP relying on nature.
Subsidies to industries where current methods of production harm biodiversity – such as fossil fuels, agriculture, fisheries, and forestry - need to be reduced or redirected to biodiversity conservation, restoration, or sustainable use. Innovative financing mechanisms, financial incentives for sectors with positive societal and environmental impact and factoring negative externalities as a cost should be part of the solutions that help restore nature.
Increase funding to meet biodiversity needs
No Aichi Biodiversity Targets have been achieved at global level, according to the United Nations. One of the reasons remains the lack of mobilization of financial resources globally. A broad assessment of the amount of funding needed to achieve all 20 targets agreed in 2010 by 2020 was estimated at USD 150 - 440 billion annually.
This financing gap shows an immature understanding of the materiality of biodiversity and its subsequent loss for financial institutions. Whereas biodiversity might only seem relevant to actors that rely on it in their supply chain, financial institutions must realize that continued biodiversity loss will affect them as well.
There is growing awareness among capital market actors to speed up the transition to a nature positive world. Spanish bank BBVA recently launched a new sustainability-linked loan with Europe’s second-largest electric utility, Iberdrola. The loan’s interest rate is tied to the company’s water footprint, using CDP water security scores. This same innovation is needed on biodiversity results to drive companies to invest in and prioritize the protection of biodiversity.
Follow mandatory requirements and disclose
Mandatory disclosure around nature is being discussed at COP15 in the context of a new Global Biodiversity Framework. An ambitious deal would guide a move beyond voluntary action and include mandatory requirements to assess and disclose impact and dependencies on biodiversity – as the European Union is doing through the Corporate Sustainability Reporting Directive (CSRD).
CDP has already expanded our global environmental disclosure to include biodiversity in addition to climate, water and deforestation – and we’re committed to ensuring our system supports disclosure of all relevant environmental data in line with new standards.
Looking ahead, the financial community will be required to adapt to different patterns of new regulatory frameworks developed at national and regional levels, and systematically integrate biodiversity into their investment strategies. With better data comes more responsibility to use it: financial institutions must better screen out laggards and use data on biodiversity to identify corporates doing good in need of funding.
Move from commitment to action
Nature was high on the agenda for the first time during COP last year in Glasgow, where more than 30 financial institutions committed to stop financing agricultural commodity-driven deforestation by 2025.
103 financial institutions with 15 trillion euros in assets have now signed the Finance for Biodiversity Pledge, where they have committed to protecting and restoring biodiversity through their finance activities and investments, with unfortunately no tracking.
The post-2020 Global Biodiversity Framework, which is due to be agreed on at COP15, must include concrete and bold targets to encourage all stakeholders to work towards reducing biodiversity and ecosystems loss, fostering recovery, and ensuring a nature-positive future. Disclosure is an important step in achieving this.