Why financial markets should care about Biodiversity COP15

What messages should financial institutions be taking away from last week’s United Nation Convention on Biological Diversity (COP15) in Kunming? With the financial markets focused on the upcoming United Nations Climate Change Conference (COP26) in Glasgow, it was easy to miss the biodiversity agenda. We believe there are three main takeaways that financial players should take on board:

1. Five governmental commitments;
2. Supportive announcements from corporates;
3. The scheduled follow-ups in the coming months. We deal with each in turn.

The financial relevance – five governmental commitments to involve Financial Institutions

Last week, at COP15 (Part 1) of the Convention on Biological Diversity (CBD), the final Kunming Declaration emphasised that ‘biodiversity, and the ecosystem functions and services it provides, supports all forms of life on Earth and underpins our human and planetary health and well-being, economic growth and sustainable development’. (i) Governments committed to act on halting biodiversity loss by developing strong environmental legal frameworks at different levels and eliminating harmful incentives. The declaration recognised that progress has been made in the last decade, but was ‘deeply concerned’ that the Aichi Biodiversity Targets were missed.

The Post-2020 Global Biodiversity Framework (GBF) will be the method through which the declaration is enacted. The GBF’s latest draft (“draft one”) promotes a 2050 vision of a world living in harmony with nature, where “biodiversity is valued, conserved, restored and wisely used, maintaining ecosystem services, sustaining a healthy planet and delivering benefits essential for all people”. (ii) To achieve this, it establishes 2030 milestones to assess progress towards 2050 goals.

The five commitments relating to financial institutions (FIs):
1. The financial community will be required to adapt to different patterns of new regulatory frameworks developed at national and regional levels. Governments committed “to continue to promote the integration or mainstreaming of the conservation and sustainable use of biodiversity into decision-making including through the integration of the multiple values of biodiversity into policies, regulations, planning processes, poverty reduction strategies and economic accounting, and strengthen cross sectoral co-ordinating mechanisms on biodiversity”. (Commitment 3)
2. There will be an enhancement of “the global environmental legal framework and […] environmental law at national level, and its enforcement, to protect biodiversity and to combat its illegal use […]”. This will require the financial and business communities to assess and report on their dependencies and impacts on biodiversity. This will be from local to global level and is where the TNFD framework may become increasingly relevant. (Commitment 7)
3. Governments are engaging “with ministries of finance and economy, and other relevant ministries, to reform incentive structures, eliminating, phasing out or reforming subsidies and other incentives that are harmful to biodiversity, while protecting people in vulnerable situations, to mobilize additional financial resources from all sources, and align all financial flows in support of the conservation and sustainable use of biodiversity”. (Commitment 13)
4. “Increase the provision of financial, technological and capacity building support to developing countries necessary to implement the post 2020 global biodiversity framework and in line with the provisions of the Convention”. (Commitment 14)
5. The declaration emphasises the need for a collective effort through enabling “the full and effective participation of […] the business and financial sectors, and other relevant stakeholders, and encourage them to make voluntary commitments in the context of the Sharm el Sheikh to Kunming Action Agenda for Nature and People, and to continue to build the momentum for the implementation of the post 2020 global biodiversity framework”. (Commitment 15)

All quotes sourced from the Kunming Declaration (iii)

A smattering of FI announcements
Compared to the rush of proclamations in the run-up to the Glasgow Climate Convention, there is a notable paucity of biodiversity commitments by FI management teams.

AXA was an obvious exception, using COP15 as an opportunity to announce that it would strengthen its investment and insurance requirements in activities that actively contribute to deforestation and invest EUR 1.5 billion in sustainable forest management. Other corporate announcements included BNP’s commitment to achieve EUR 3 billion in financing linked to the protection of terrestrial biodiversity by 2025 and Tikehau Capital’s aim to manage at least EUR 5 billion of AUM, dedicated exclusively to the fight against climate change, by 2025.

Announcements by FI’s on biodiversity around the Kunming Convention

Sources: Bloomberg, Refinitiv

The next 6 months
Over the coming weeks, we expect the biodiversity conversation to continue with the international community engaging in various high-level meetings. Biodiversity will be on the agenda of these meetings below and will likely affect the final outcome of COP15:

• UNFCCC COP26 in the United Kingdom, in partnership with Italy, hosting the Nature Day on Saturday 6th November 2021 and highlighting the challenges and possible solutions of the twin threats of climate change and biodiversity loss.
• World Trade Organization negotiations on fisheries subsidies (see our latest blog, Subsiding Subsidies: A Taxing Issue).
• CBD COP15 Part 2 (Kunming, China) in April 2022 with negotiations likely to ramp up into the event and hopefully culminate in the adoption of the Post-2020 Global Biodiversity Framework.

(i) https://www.cbd.int/doc/c/df35/4b94/5e86e1ee09bc8c7d4b35aaf0/kunmingdeclaration-en.pdf
(ii) First Draft of the Post-2020 Global Biodiversity Framework, target 14, CBD/WG2020/3/3
(iii) https://www.cbd.int/doc/c/df35/4b94/5e86e1ee09bc8c7d4b35aaf0/kunmingdeclaration-en.pdf