What financial institutions need to know before the UN Biodiversity (COP16)

Not to be confused with the United Nations Climate Change Conference (COP29) in Azerbaijan later this year, the 16^th meeting of the Conference of the Parties to the Convention on Biological Diversity (CBD COP16) starts in Colombia on 21^st October. Earlier this year, the host nation and CBD identified three main priorities: translate biodiversity plans into national action;ⁱ ensure adequate means of implementation; and accelerate access and benefit sharing (ABS).ⁱⁱ The global financial sector is directly involved in two of these. For implementation, finance is crucial to closing the USD 700 billion annual biodiversity financing gap and aligning financial flows with the Global Biodiversity Framework (GBF). And as environmental risks and opportunities become key drivers for financial strategies, financial institutions (FIs) are being called upon to align their activities with global biodiversity goals. On the ABS priority, discussions for an equitable sharing of benefits from genetic resources are progressing, which includes payments to a global fund. This article explores the critical role of financial markets in achieving success at COP16.

The background: what was achieved at COP15?

The COP15 meeting on biodiversity in 2022 marked a significant milestone in establishing global goals for biodiversity protection. With the adoption of the Global Biodiversity Framework, several targets were set, including:

• Protecting 30% of land and sea by 2030.
• Reducing harmful pollution, such as from pesticides and plastics.
• Aligning financial flows to biodiversity.
• Disclosing impacts and dependencies of companies on biodiversity.
• Cutting US$500 billion in harmful subsidies per year by 2030.
• Mobilising at least US$200 billion annually for biodiversity conservation.

These goals present both challenges and opportunities for financial institutions. On the one hand, they highlight the increasing risks posed by environmental degradation. On the other hand, they provide investment opportunities.

Financial institutions aligning with biodiversity goals

The urgency to align finance with biodiversity goals is driven by three main factors:

1. Environmental risks: Financial institutions face risks from biodiversity loss, including ecosystem collapse and the impact on climate change.
2. Regulatory pressure: Governments and regulatory bodies, particularly in the European Union, are demanding greater transparency and accountability in how financial institutions manage biodiversity risks.
3. Reputational and litigation risks: Consumers and investors are increasingly aware of biodiversity issues, which may result in reputational damage or litigation for companies failing to address their impact.

The key frameworks and tools available for biodiversity integration

As a first step, financial institutions need to assess their nature-related dependencies, impacts, risks and opportunities. Once this is understood financial institutions will be able to realign financial flows away from nature-negative outcomes and toward nature-positive ones, in turn, becoming aligned with the Global Biodiversity Framework.

There are currently several frameworks already available to financial institutions when assessing their biodiversity exposure. The Taskforce on Nature-related Financial Disclosures (TNFD) was established to provide organisations with the tools to act on evolving nature-related issues. It enables business and finance to assess, report and act on their nature-related dependencies, impacts, risks and opportunities.ⁱⁱⁱ The Natural Capital Protocol developed a framework to help businesses and financial institutions assess and value their dependencies on natural capital, including biodiversity. By quantifying biodiversity risks, institutions can make informed decisions and embed these considerations into their financial strategies.Business for Nature provides a framework for corporates and financial institutions to follow in an assess, commit, transform and disclose (ACT-D) process.^iv It also provides sector pathways.^v

Other plans and frameworks are provided by organisations such as Science Based Targets Network (SBTN),^vi which offers target-setting guidance, and the World Business Council for Sustainable Development (WBCSD)^vii which has roadmaps to become nature-positive. For a fuller list of organisations providing nature and biodiversity frameworks, we strongly recommend the Finance for Biodiversity Foundation which, among others, published a paper on “Finance and Biodiversity Overview of Initiatives for Financial Institutions”.^viii

While the above are non-mandatory, there are emerging regulatory requirements, such as the EU Sustainable Finance Disclosure Regulation (SFDR).^ix This European regulatory framework mandates financial institutions to disclose how sustainability risks, including biodiversity risks, are integrated into their investment decisions. Along with the SFDR, the EU Taxonomy for Sustainable Activities provides a definition of sustainable economic activities, helping institutions align their portfolios with biodiversity goals. Financial institutions should anticipate rising regulation for biodiversity disclosure worldwide, if governments implement Target 15 of the GBF.^x The “Make it Mandatory” campaign which gained momentum at COP15, advocated for nature-related financial disclosures to become compulsory.^xi By supporting this campaign, financial institutions aim to reduce biodiversity-related risks and improve transparency, helping to address potential data gaps and prevent greenwashing.

Although there is a common refrain that there is a lack of frameworks or shortage of tools with which to measure nature and biodiversity, Planet Tracker disputes this. We accept that there is not a single common measure for nature (e.g. a 1.5°C global warming) and universal ‘currency’ (e.g. CO2e ppm), but there is considerable choice, allowing for specialisation. For example, the TNFD presently hosts 189 nature-related tools in their online tools catalogue. This includes ENCORE, developed by the Natural Capital Finance Alliance, which allows financial institutions to assess how environmental risks, such as biodiversity loss, affect sectors and business activities, to stress-test portfolios, and guide risk management efforts,^xii Another is the Integrated Biodiversity Assessment Tool (IBAT), a reporting device that provides integration access to three of the world’s most authoritative global biodiversity datasets.^xiii

COP16 provides an opportunity for organisations to showcase the variety of biodiversity tools and frameworks, and for financial institutions to learn more about them.

The rise of biodiversity-friendly financial products

We are witnessing the capital market continuing to develop a range of financial instruments that focus on nature and biodiversity issues. These include:

• Green Bonds and a subset of Biodiversity Bonds – debt instruments issued to raise funds for environmental and biodiversity projects
• Sustainability-linked Bonds (SLBs) – performance-based bonds where the terms (e.g., interest rates) are linked to achieving sustainability targets
• Conservation Trust Funds (CTFs) – long-term financial mechanisms that pool funds for biodiversity conservation
• Nature-based Solutions (NBS) – investments in projects that leverage natural processes to address environmental challenges while enhancing biodiversity
• Payment for Ecosystem Services (PES) – payments to landowners or local communities in exchange for managing land which provide ecological services
• Conservation Impact Investing – investments in companies or projects that generate both financial returns and environmental benefits
• Carbon Credits with Biodiversity Benefits – programmes that include biodiversity co-benefits generate revenue by selling carbon offsets from projects that also enhance biodiversity
• Biodiversity Credits – measurable units of biodiversity that can be bought by companies to measure milestones towards becoming nature positive
• Biodiversity Offsets – compensating for biodiversity loss from development projects by investing in conservation projects elsewhere
• Corporate Loans with biodiversity KPIs – loans with lower interest rates or other favourable terms to companies that commit to biodiversity-friendly practices
• Debt-for-Nature Swaps – where a portion of a country’s foreign debt is forgiven in exchange for commitments to invest in biodiversity conservation

With a particular emphasis on financing nature-related and biodiversity issues at COP16, we expect further details, and possibly new financial opportunities, to emerge. The COP16 Finance Day will be on 28 October. A Business and Biodiversity Forum will be held the day before.

COP 16 expectations

As COP16 nears, the expectations for financial institutions to step up their efforts are higher than ever. The need for established frameworks, clear direction from governments, and the mobilisation of private finance are central to the discussions. COP16 presents an opportunity to refine the role of financial institutions in the global biodiversity agenda, ensuring that private finance is not only aligned with but actively driving the conservation efforts needed to address the biodiversity crisis.

Governments are expected to submit their updated National Biodiversity Strategies and Action Plans (NBSAPs). As of the date of publication, only 25 countries (including the EU) have published their national plans compared to the 196 countries that signed the Global Biodiversity Framework.^xiv Such documents reveal the direction of policy action in mainstreaming biodiversity within and across sectors. Furthermore, parties are expected to agree on a monitoring framework which tracks progress in achieving the GBF targets including the reduction and repurposing of environmentally harmful subsidies. Finally, a significant effort to mobilise resources – the financing gap is $700 billion by 2030 of which $500 billion is from subsidies and $200 billion of new funding – and develop the appropriate financial mechanisms, is needed. Policymakers are focused on pathways for leveraging the private sector, so conversations on blended finance mechanisms, biodiversity credits and biodiversity-friendly financial products are widely expected.