Reflections on COP15.2

December 2022, after two long years of waiting, the CBD COP15.2, hosted by China and Canada took place in Montreal, and the historic ‘Kunming-Montreal biodiversity framework’ was agreed. The framework is a series of agreements with four goals and 23 targets that span across scientific and community collaboration, policy targets, financial targets and much more - it has been hailed as the first step to resetting our relationship with nature. And at the centre of this relationship, is our economy.

What was very obvious throughout, was the large and powerful presence of the private sector, actively pushing ambition (there were estimated to be around 1000 businesses in attendance). This presence will continually be felt as the momentum continues into 2023, but immediately I saw two clear impacts i) policy makers and regulators heard loud and clear that they need to level the playing field to allow the financial sector to transition towards ‘nature positive’ and ii) the broader financial system, taking note of the risks they may not be accounting for, and the opportunities that they may not want to miss.

There was a lot going on, both inside and outside the negotiations – so summarising three takeaways…

The big picture of the ‘nature finance’ agenda was painted very clearly for the financial sector at COP15. Powerful remarks from the likes of Mark Carney, Emmanuel Faber, Jo Tyndall and Pavan Sukhdev all reiterated that not only has there been a ‘tragedy of value’ in terms of putting a price on nature, but that the value currently created by companies is ‘inextricably linked’ to nature and the eco-system services it provides. Building on the Dasgupta review, published by the UK Government in 2021, many speakers discussed the externalities associated with nature that are not currently being priced, and the disproportionate focus on measuring the flow of GDP as a single metric of value, ignoring the vital importance natural, social, or human capital play in value creation. Building on this, there was a focus on demonstrating how the current price of nature in global markets is mis-representing its true value to people and the economy, on top of being overexploited –creating negative externalities and inequalities. In response, there was a big push to align markets with nature positive and equitable principles, to both manage intrinsic risk that this mis-valuation creates, and to shift the finance needed to deliver on the agreed Biodiversity Framework.

The Taskforce On Nature Markets' recent report, the 'Global Nature Markets Landscaping Study', presents the fact base for integrating nature markets into global efforts. They and many others highlighted the ‘unseen’ values of nature e.g., implicit value, missing revenue that could be supporting ecosystems and communities and, externalities relating to the impacts on nature. 

A key aspect for the finance community at COP15 was always going to be disclosures and reporting – the favoured behaviour nudging tool of a lot of policy makers. Whilst many will be disappointed that the word ‘mandatory’ does not feature in the final text, as 330 institutions from 52 countries had called for, the text does provide an unambiguous message to firms to prepare to disclose their risks, dependencies and impacts on nature –and that stronger requirements from individual jurisdictions is coming down the line, by 2030 at the latest.

Supporting this message, was the huge presence that reporting and disclosure tools such as the Taskforce for Nature Related Financial Disclosures (TNFD), Science Based Targets Network and the Natural Capital Protocol had.  The fast-paced and widely supported development of such initiatives demonstrated that ‘no regret’ actions can be taken right now to allow the finance sector to not only to assess how their business model depends on nature, but to seize the opportunities presented to them as this transition unfolds. Many organisations used COP15 to demonstrate how they are leading the pack, several major global financial institutions are participating in TNFD pilots, industry organisations are helping members conduct gap analysis and a large international banking group published its first biodiversity footprint.

Policy makers, standard setters and organisations were largely singing from the same hymn sheet, echoing support for the principles of transparency, disclosure, reporting and too for the specific tools that will allow the private sector to go further, faster. The International Sustainability Standards Board (ISSB) for example, aimed at bringing consistency across reporting systems globally, demonstrated interest in the TNFD amongst others. There was a strong sense that the maturity of the market and our understanding of how nature and climate relate to the economy demands less of only using ESG metrics and complementing this with more comprehensive and aligned reporting frameworks to account for all the resources in eco-systems that ultimately create value for capital providers. But, gathering and using biodiversity data and metrics, although possible, is still a big challenge and organisations will need help to refine their measurement and reporting processes.

And following the release of a joint statement from the Coalition of Finance Ministers for Climate and the Network for Greening the Financial System outlining the case for finance and central banks to consider and address nature related risks - there was a widespread appreciation for the fact that regulators and financial supervisors have now joined the conversation on nature.

Following a landmark integration of nature into the United Nations Framework Convention on Climate Change (UNFCCC) at the 2021 COP26 in Glasgow the synergies finally seem to be realized and the acknowledgement that in many cases, wheels don’t need to be reinvented. Categorically, net zero commitments and credible transition plans in relevant sectors (soon to be mandatory in the UK) are not possible without the restoration and protection of nature, particularly Agriculture, Forest and other Land-Use based emissions.

Not only was this recognised front and centre of the final biodiversity agreement itself and within Target 8, but key players were hammering this message home.  The ISSB announced enhancements to climate disclosures to include nature and a just transition. Mark Carney delivered a powerful opening speech to kick start finance day urging financial institutions to not only assess their risks associated with nature but to ensure net-zero transition plans included clear priorities on deforestation, protecting nature and restoring biodiversity.

Many existing members of Carney’s Glasgow Financial Alliance for Net Zero (GFANZ) were vocal on their progress in the ‘deforestation free finance’ space, including members of the 36 strong Financial Sector Deforestation Action group, who committed at COP26 to eliminate deforestation from investment and lending portfolios. Leaders in this space are starting to integrate biodiversity and nature cross over issues into their policies and operations, a global insurer launched its Biodiversity Report which covers progress across risk management, investments and underwriting. The cross over with their climate work is notable, and deforestation risk was incorporated.

So, the framework, if implemented correctly, has the potential to transform biodiversity and climate impact, create or preserve tens of millions of jobs, and hundreds of billions of dollars. The final biodiversity agreement as implemented will impact (both transition risks and opportunities) the financial sector on many fronts, i.e., in relation to the emerging global position on repurposing subsidies, the financing mechanism for the framework, the need to increase flows of capital from all sources, and the likely regulation that individual jurisdictions will put in place to deliver on the agreement.

But despite the many difficult decisions and actions that still need to be made to deliver, there has been an encouraging amount of consensus on many of the important issues. Outside of the negotiations, people found common ground on the critical importance of nature, on the need to start acting now while the system and architecture continues to mature, and on the role that finance can and should play to halt and reverse biodiversity loss.

If you would like to discuss in further detail, please get in contact.