How does biodiversity finance feature at COP 16?
Implementing the Global Biodiversity Framework is high on the agenda in Cali
In 2019, the UK Treasury commissioned Sir Partha Dasgupta – an economist at the University of Cambridge – to explore the economics of biodiversity. It was the first commission of its kind. The Dasgupta Review introduced the notion of natural capital accounting and in so doing, it hoped to bring together the seemingly distant worlds of finance and biodiversity.
Five years down the road, the Conference of the Parties (COP) to the Convention on Biological Diversity are meeting for the 16th time. The “biodiversity COP” is being hosted by a Colombian presidency in Cali from 21 October – 1 November.
As discussions in Cali get underway, investor awareness of biodiversity risk is on the rise. In June this year, 204 investors with a collective $15trn in assets under management extended their support to the UN PRI’s biodiversity focused stewardship initiative.
“Whichever way you look at it, nature risk is climate risk”, said UN PRI chief executive David Atkin. Given its timing, investors are likely to keep an eye on what COP16 shapes up to be.
What’s on the agenda
This will be the first time governments will meet after the Kunming-Montreal Global Biodiversity Framework (GBF) was adopted at COP 15 in 2022. The GBF is considered a landmark agreement – designed to signal both intent and urgency.
The GBF lists 23 targets to be achieved by 2030 ranging from land conservation and ecosystem restoration to coastal management and waste reduction. Crucially, finance is at the heart of the GBF. It envisages at least $200 bn in biodiversity-related funding each year and calls on investors to monitor, analyse and disclose the biodiversity impact of their portfolios.
Implementing the GBF is at the core of the Cali agenda. Governments are expected to report and assess their own action plans, whilst paying close attention to the financing mechanism.
In addition, the agenda at COP16 is aimed at replicating what Dasgupta set out to achieve – mainstreaming biodiversity. By leveraging the COP platform, the Colombian presidency will aim to spread the word that investors and businesses alike are aware of why biodiversity matters.
“Several countries are already requiring large businesses and financial institutions to assess and disclosure their nature related risks, impacts and dependencies on nature. These positive examples must now be replicated globally”, reads a statement from the Business for Nature coalition, delivered at COP 16.
Biodiversity finance
Embedded in the agenda is the cross-cutting theme of biodiversity finance and the gap that characterises it. Amongst the documents up for discussion is a report on the “exploration of the biodiversity finance landscape”, commissioned by the CBD secretariat.
“The global landscape of biodiversity finance is characterized by a fragmented and diverse array of funding mechanisms that vary significantly in their purpose, scale, and size”, the report reads.
The report highlights how different financing mechanisms could contribute to biodiversity funding. Bonds have emerged as a key instrument, according to the analysis, as have biodiversity credits.
The German government for instance, has been issuing green German federal securities since 2020. Annual issuance is the range of €15 – €17 bn. A closer look at the underlying bond framework reveals that biodiversity is an eligible category for use of proceeds.
Another example of bond financing for biodiversity is the rhino bond – a five-year bond aimed at protecting the black rhino population in South Africa. Instead of a coupon payment, investors receive a success payment at maturity funded by the grant from the Global Environment Facility. So far, the instrument has raised $150 m.
“Green bonds may hold promise for biodiversity but there is a risk of over optimism”, the report finds.
Another key instrument - biodiversity credits – is becoming increasingly popular. By 2030, the market for biodiversity credits is expected to be worth $2 bn. Unlike carbon credits, biodiversity credits are not necessarily compensatory instruments, but they are equally susceptible to legitimacy and quality concerns.
“This is an emerging concept in environmental conservation and has garnered increased attention within the context of environmental finance. However, given the current size of the market for biodiversity credits, it remains a relatively niche domain”, the report concludes.
Discussions over biodiversity finance in Cali will revive the legacy of the Dasgupta review. Perhaps those gathered in Cali might recall Dasgupta’s advice – to treat nature as an asset with intrinsic value. “Once we make that extension”, Dasgupta famously wrote, “the economics of biodiversity becomes a study in portfolio management”.
