Will COP15 secure a Paris Agreement for biodiversity?

 

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.

 

Plastics

• The UK’s Plastic Packaging Tax, applying to domestic and imported packaging with less than 30% recycled plastic, came into force in April 2021. This was five months after toxic waste, including plastic pollution, became the fifth planetary boundary to be crossed. The EU Taxonomy then released a law specifying the nature and disclosure of environmentally friendly business activities, driving greater corporate transparency.
• In February 2022, the Biodiversity Beyond National Jurisdictions Treaty was drafted, which aims to develop a global default framework to cover emerging activities in areas beyond national jurisdiction, including marine tourism, floating installations and seismic testing.
• The UN Environment Agency Plastics Accord was struck in March 2022. The landmark resolution stands to create the world's first global plastic pollution treaty.

The flow of plastic through the value chain is creating environmental costs for companies and presenting a new risk to bottom lines. The circular plastic economy is gaining momentum, assisted by legislative actions such as those above. These developments provide tailwinds for companies aligned with the rise of recycling, biomaterials, eco-design and sharing, reuse and repair.

 

Water

• In October 2022, China committed to preserving nature as part of its national development by pledging to eliminate heavy air and water pollution, and to control soil contamination. This follows the crossing of the sixth planetary boundary – freshwater overuse – in April 2021
• At COP 27, water was included for the first time in the final declaration of a climate COP. The summit’s Water and Climate Pavilion held a debate on financing climate resilience through investments in water.

Global freshwater use has increased by a factor of six over the past 100 years and continues to grow at a rate of roughly 1% per year, as it has done since the 1980s. Water solutions are essential to addressing this trend, which is exacerbated by population growth, economic development and shifting consumption patterns. Solutions come in the form of pipes, pumps, and treatment facilities, while the benefits of natural systems in slowing stormwater flows, storing water and cleansing runoff are gaining greater recognition. These natural systems complement traditional infrastructure and include wetlands, rainwater harvesting, grassed roofs and vegetated channels used to mitigate stormwater flows.

 

Deforestation

• The EU set out specific due diligence rules for companies in August 2022, to help ensure that products sold in Europe do not contribute to deforestation or forest degradation anywhere in the world.
• In the US, the FOREST Act, seeking to ban products linked to illegal deforestation and prosecute perpetrators, entered formal review in April 2022. It was introduced to Congress in October.

Deforestation diminishes one of nature’s most important carbon sinks while also releasing significant amounts of carbon. There have been mounting calls for policy action on this front in recent years, and COP26 saw delegates endorse the Glasgow Leaders Declaration on Forests and Land Use. The pledge is aimed at conserving and restoring forests and facilitating policies that promote sustainable development. Brazilian President-elect Luiz Inacio Lula da Silva spoke at COP27 and vowed to crack down on illegal deforestation in the Amazon.

Such policy action makes it clear that businesses implicated in this destructive trend are likely to be penalised. In contrast, companies embedding sustainability into their supply chains, operational management and product designs will find these policies to be tailwinds.

 

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.