investment viewpoints
Will COP15 secure a Paris Agreement for biodiversity?
The UN Biodiversity Conference – COP15 – is underway, convening governments from around the world to agree to a new set of goals for nature over the next decade. The issue is gaining prominence, as evidenced by the Finance for Biodiversity Pledge, which has attracted 111 signatories representing over USD 16.3 trillion of assets. New policy actions will invariably generate opportunities, as well as risks, for investors. There are calls for an agreement on the scale of the Paris Agreement, which would have an enormous impact on private-capital allocation.
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A key global risk in focus
Nature loss is accelerating and projected to worsen with business-as-usual scenarios. It made the G7 agenda for the first time earlier this year, with all nations making restoration and conservation pledges. According to the World Economic Forum’s 2022 Global Risks Report, biodiversity loss is one of the top three risks in terms of likelihood and impact in the next 10 years
The main objective of COP15 is to adopt the post-2020 global biodiversity framework in a bid to halt and reverse biodiversity loss by 2030. This framework is expected to set 21 targets and 10 milestones, ranging from enabling the recovery and conservation of species to reducing pollution to safe levels, for governments to meet by the end of the decade. The International Union for Conservation of Nature and Natural Resources (IUCN) notes that meeting these objectives would likely require investment of at least USD 200 billion per year.
Nature-based solutions hold the key to one-third of the mitigation required to meet the Paris Agreement, highlighting the intrinsic link between biodiversity loss and climate change. However, while there have been a number of global pledges designed to reduce emissions in recent years, policy agreements aimed at the preservation and restoration of biodiversity, and natural capital more broadly, have so far received less attention.
COP15 is an important catalyst for the policy action required to reverse biodiversity loss. The finance sector seeks solutions, as indicated by the development of biocredits: units of measurement that track conservation actions and outcomes and can potentially improve tracking and transparency. And if governments elect to ramp up efforts to save nature, companies with sustainable business models would be poised to benefit. Investors should watch for such policy tailwinds – especially something as influential as a Paris Agreement for biodiversity.
Policy changes affect investment strategies
Policies aiming to preserve and restore natural capital either became law or were advanced this year, even as climate change continued to dominate the sustainability agenda. It is helpful to understand what progress has already been made in order to determine what is required from COP15. For example, in June 2022, the European Union (EU) proposed a Nature Restoration Law that sought to repair 80% of damaged habitats and reduce pesticide use by 50%. It is a key element of the bloc’s biodiversity strategy, and a major driver of demand for investment aligned with efforts to integrate nature in urban areas.
Three themes for nature policymakers in 2022 have been plastics, water and deforestation. We provide an overview of key developments below.
What happens next?
Key architects of the Paris Agreement have called on world leaders to deliver a global agreement for biodiversity that is as ambitious, science-based and comprehensive as the renowned commitment on climate change. A detailed pact such as the Paris Agreement provides private enterprise with a commonly agreed set of objectives with which to align capital flows. A similar commitment towards the preservation and restoration of biodiversity would provide a significant growth opportunity for solution providers in the private sector, as well as a framework to operate within.
The UN anticipates the private sector will play a significant role in curbing biodiversity loss, since it is recognised as a major operational risk. Companies and investors have the opportunity to play a central role in improving food production and consumption patterns to create sustainable, new food systems. At COP15, the private sector is likely – and rightly – to be regarded as being crucial in the formulation and implementation of the post-2020 global biodiversity framework.
COP15 has the potential to achieve a major milestone on the transition to a CLIC® model that operates within and helps restore planetary boundaries. This transition is radically altering the global economy, including how companies do business and how individuals consume, which presents risks and opportunities for investors. Companies which are aligned with this transition are set to benefit from significant competitive advantage and growth opportunities. These advantages are enhanced via policy actions such as those anticipated to stem from COP15. If the summit does bring about a Paris Agreement for biodiversity, the effect on capital allocation will be significant.
important information.
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