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By Laura Kunstler-Brooks
Many countries have agreed to halt biodiversity loss by conserving 30% of the world’s lands and oceans by 2030 – which may have broad implications for investors.
Biodiversity broadly refers to the variety of life on Earth. It underpins natural capital, which is the stock of the earth’s resources, including trees, water, air, soil, and animals. These natural capital assets provide ecosystem services, such as filtration and pollination, and enable economic activity. The World Economic Forum estimates that a monumental $44T – close to half of global GDP – is generated in industries dependent on nature, led by construction, agriculture, and food. The World Bank estimates that the collapse of select ecosystems could result in a decline in global GDP of $2.7T annually by 2030.
At COP15, the UN Biodiversity Conference, almost 200 countries signed the Kunming-Montreal Global Biodiversity Framework (or GBF), which is widely getting hailed as a ‘Paris Agreement for nature’. The U.S. was notably absent. Nonetheless, the GBF represents a positive step in getting biodiversity onto the global agenda.
The most significant part of the agreement is the “30 by 30”, a commitment to protect 30% of the world’s lands and ocean by 2030, an increase from the current state in which only 17% of terrestrial and 10% of marine areas are protected. Developed countries also pledged to provide $30B in nature financing per year by 2030, though no formal mechanism has been determined. Other key elements included:
- A quantified goal of repurposing $500B annually of subsidies currently going to industries that are harmful to nature
- Targets on reducing food waste
- Strong indigenous rights protections
However, a few critical items were missing – there was no call for mandatory corporate disclosures, and no coherence around a single target to become “nature positive”. All of this paints a complicated picture for investors.
Increased attendance from corporates and financial institutions at COP15 indicates that they are becoming aware of how biodiversity is intricately linked to production in many sectors and that capital allocation could accelerate into biodiversity-themed investments as a result. We’ve also seen innovative financing mechanisms such as debt-for-nature swaps, bio-credits, and natural capital funds starting to emerge, though many have been criticized for lacking a clear impact thesis. For investors to start taking meaningful action, increased disclosure is essential to enable them to price in financially material biodiversity risks. We’ll be closely watching the work of the International Sustainability Standards Board (ISSB) and Taskforce for Nature-related Financial Disclosures (TNFD) on disclosure, and the EU’s Corporate Sustainability Reporting Directive (CSRD) and pending Nature Restoration Law on the policy front.
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