Key Points
- The fifteenth United Nations Biodiversity Conference (COP 15) of the Convention on Biological Diversity (CBD), completed in December 2022, set out targets for global biodiversity conservation through 2030.
- The pursuit of these conservation targets will help companies, investors, and regulators manage nature-related financial risks. This process will also present companies with transition, regulatory, and stranded asset risks.
- Investor engagement on companies’ management of risks related to biodiversity loss will likely respond to the private sector-facing targets in the text agreed on at COP 15.
Introduction
The societal benefits of healthy, biodiverse ecosystems are profound: research by the World Economic Forum suggests that up to half of global GDP is moderately or highly dependent on biodiversity and ecosystem services. Currently, human activities are driving biodiversity loss at the rate of a mass extinction event, with severe implications for global environmental and economic stability. The activities that drive biodiversity loss, as well as the consequences of habitat destruction, also exacerbate the severity of other major socio-economic risks including climate change and pandemic outbreaks.
What Happened at COP 15?
Situated under the auspices of the UN Environment Programme, the Convention on Biological Diversity is an international treaty that sets rules and targets for the use and conservation of Earth’s living organisms and landscapes. The CBD’s secretariat arranges meetings (Conferences of Parties, or COPs) where the rules and implementation of the treaty are discussed and updated. Following two years of pandemic-induced scheduling delays, COP 15 was held in Montreal in December 2022. COP 15’s objective was to strike “a Paris-style deal for nature” by setting updated global conservation targets as part of a post-2020 Global Biodiversity Framework (GBF). Signatory nations, which include all UN member states except the United States and the Holy See, have historically failed to meet the conservation targets set by previous CBD COPs. The conference began amid concerns regarding the dilution of the draft GBF, and encountered negotiating deadlocks for the majority of the two-week session, before culminating in a last-minute agreement on new global targets and goals for global conservation on the final day of proceedings.
Highlights of the Global Biodiversity Framework
The GBF (the full 14-page framework here) includes four goals and twenty-three targets for policymakers and businesses to achieve by 2030. Some of the key targets adopted at COP 15 include the following:
- Global Restoration Targets (Target 2): This target commits 30% of Earth’s degraded habitat areas to restoration activities seeking to improve ecosystem health, connectivity, and their capacity to shelter threatened species and provide ecosystem services to society. Target 2 reflects the fact that species declines have continued unabated despite the growth of global protected area coverage, indicating that landscapes beyond formal protection are also a vital component of efforts to thwart biodiversity loss.
- Global Protected Area Targets (Target 3): The major headline from the conference was the adoption of signatory nations’ commitment to protect 30% of their terrestrial, freshwater, and marine ecosystems within protected areas by 2030. This goal is commonly referred to as the 30×30 initiative. Target 3 formalizes long-standing efforts to crystallize 30×30 in international law. While the United States is not signatory to the CBD, 30×30 was introduced to US domestic law in 2021 by Executive Order as part of the America the Beautiful Initiative.
- Introducing Biodiversity to the Macroeconomy (Target 14): Target 14 seeks to embed conservation considerations in all public sector decision-making. The target additionally calls for “progressively aligning all relevant public and private activities, fiscal and financial flows with the goals and targets” of the GBF. The Biden Administration has released plans to introduce natural capital accounting into US national income calculations, and, at the Conference, announced that the US and Australia will collaborate on efforts to represent nature’s contribution to economic prosperity in national accounts. Nonetheless, natural capital valuation remains controversial, with debates regarding the ethics of valuing nature and the accuracy with which it is possible continuing to animate conservation and policy circles.
- Business’ Role in Conserving Biodiversity (Target 15): Target 15 requires signatories to ensure businesses, especially large multinational firms and financial institutions, are able to assess, monitor, and disclose their risks, dependencies, and impacts on nature. The target makes clear that this disclosure requirement encompasses companies’ operational, value chain, and portfolio impacts on nature.
Additional adopted targets include language on the importance of mitigating climate change in order to better protect sensitive ocean ecosystems, phasing out subsidies that drive frontline biodiversity loss, managing invasive species populations, and special considerations for including historically marginalized and underrepresented groups in environmental policy and management decisions. The GBF additionally recognizes the nature-based solutions — activities that work with nature to respond to policy challenges ranging from defending coastal settlements from sea level rise to improving physical and mental health in cities through urban green space provision — as an emergent norm in conservation.
How the GBF Could Affect the Private Sector
Biodiversity has been treated as an emerging issue in ESG policy and risk management for several years. As its materiality to business and economic performance has become clearer, and attention afforded to companies’ impacts on the natural world by investors, regulators, conservation organizations, and the press has risen, companies are increasingly expected to clarify how they manage their nature-related risks and the impacts of their activities on nature. These developments in ESG thought and practice are mirrored by Targets 14 and 15. The Make it Mandatory Campaign, which represents 400 businesses with revenues exceeding $2 trillion, lobbied governments to adopt Target 15 as part of negotiations.
The GBF reflects developments in the voluntary disclosure space in international law, and sets clear guidelines on nature conservation’s role in the green transition. The language of Target 15 mirrors descriptions of nature-related risk management used by the Taskforce on Nature-related Financial Disclosures (TNFD). TNFD and the CBD Secretariat have previously shared personnel, and the shared phrasing represents a possible convergence between the international community and the private sector on actions that can be taken to thwart global nature loss. These developments indicate that tackling nature loss is increasingly a priority for companies, and, ideally, additionally indicate that engagement with global biodiversity policy could lead to stronger corporate commitments to incorporate conservation into ESG strategies. The presence of corporations at the COP, a first for a CBD conference, further illustrates this closing of the gap between scientific knowledge creation, lawmaking, and corporate sustainability practice.
On February 10, 2023, the TNFD shared their views on how its framework relates to the outcomes of COP 15. The Taskforce splits the GBF into outcome-oriented and process-based targets. Each type of target could impact companies differently. For example, companies could demonstrate that their activities support an outcome-based target such as Target 3 by altering their production or procurement processes or by financing nature restoration activities. In contrast, adjusting company practices by disclosing nature-related financial risks through the TNFD framework represents a process that supports Target 15. These changes in corporate practice may also be required for compliance reasons: regulations such as the EU’s rule on deforestation in company supply chains point toward the likely domestic legal implications that the GBF’s adoption will impose on the private sector.
How the GBF May Affect Companies
Target 15 requires signatories to the CBD to push companies to disclose their direct, operational, value chain, and portfolio impacts on nature. Companies will additionally need to share how they are dependent on nature, as well as the risks and opportunities created by these impacts and dependencies. These disclosure channels, which are mirrored by the TNFD’s draft disclosure framework, can help companies develop and enact corporate biodiversity strategies.
In order to respond to the demands of Target 15, companies will need to demonstrate how they have taken steps to limit damage to sensitive habitats and endangered species, as well as steps they plan to take to decouple their business model from drivers of nature loss. This process, coupled with the implementation of Targets 2, 3 and 14, will expose companies to new transition risks. For instance, under the auspices of 30×30, habitat protection and the protected area unit will continue to be the cornerstone mechanism of biodiversity conservation. This may result in landscapes containing exploitable primary industry assets, such as fisheries, forests, fossil fuels, and minerals, being taken out of potential exploitation and being designated as protected areas under the 30% target. France’s and Canada’s movements to establish a moratorium on deep-sea mining demonstrate the nature of the stranded asset risks exposed by policies which proactively shield sensitive ecosystems from disturbance by human economic activities.
Simultaneously, the GBF could create opportunities for financial institutions to participate in efforts to achieve global conservation targets. The Nature Conservancy, Cornell University, and the Paulson Institute’s Financing Nature Report suggests that the biodiversity funding gap — the additional annual financing required to meet most of the GBF’s goals by 2030 — is approximately $711 billion more than what governments and private actors currently spend on nature conservation. Closing this gap will require monumental state and private action compared to historical expenditure on nature conservation and restoration. Innovations in green finance can help companies avail new value creation opportunities while closing the biodiversity funding gap.
How Companies Can Prepare to Assess Their Impacts on Nature and Nature-Related Risks
Historically, signatories to the CBD have failed to meet the conservation targets set by previous iterations of the GBF. The delivery of the current round of targets, adopted in the midst of accelerating biodiversity loss, will require the public and the private sector to contribute toward the achievement of all of the GBF’s targets. As conservation efforts will, ultimately, be judged by their impact on ecosystems of conservation concern, firms will need to demonstrate that changes to their procurement, land management, supply chain due diligence, and waste management processes do not harm nature. Pressure to demonstrate progress on these issues may simultaneously arrive from regulators adopting provisions of the GBF into domestic law as well as from large investors for whom nature loss is a material ESG risk. Companies should consequently prepare for these developments by identifying points in their operational footprint that are most likely to cause biodiversity loss, and then devise responses that can transition these activities in a nature-positive direction.
The TNFD, which introduces Target 15 to the voluntary ESG risk disclosure ecosystem, will go live in September. Its structural similarity with the well-established Taskforce on Climate-related Financial Disclosures framework aims to encourage rapid uptake and disclosure by the business community. A final beta version of the disclosure framework, along with additional technical guidance, was released on March 28, 2023. HXE Partners is preparing to help clients respond to the disclosure requirements and opportunities presented by these developments.