COP15 Implementing the Global Biodiversity Framework: Challenges and Solutions for Investors

Looking back on 2022, it was a busy year with mixed outcomes for sustainable finance. Despite a gain of regulatory momentum, the year was also marked by a rather disappointing COP27 and a massive downgrade of so-called “sustainable funds” since the introduction of the SFDR regulation. 2022 ended on a high note with the agreements made at the closing of the COP15 on biodiversity. Suppose we are serious about fulfilling climate and nature-related ambitions, our world’s leaders, industry, and investors must accelerate the current pace of collaborations and start aligning their agendas to respond to a growing system of oversight and reporting requirements. The good news is that the most recent treaty on high seas protection agreed upon by UN member states has heightened the world’s attention to biodiversity, which is crucial for enforcing the pledges made at COP15. While the world celebrates these breakthroughs, data providers and investors must brace themselves for the slew of new challenges that await them in biodiversity reporting.

COP15 was arguably one of the most positive achievements of 2022 for sustainable finance, which resulted in a landmark agreement to guide global action on biodiversity through to 2030, and the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF). impak, as a member of the TNFD Forum by the Taskforce on Nature-related Financial Disclosures, attended a series of side events led by the private sector called the TNFD Nature Data Labs, which took place in parallel to the COP15 talks amongst participating countries. A deep dive into the challenges and opportunities in specific sectors regarding biodiversity allowed us to better grasp the unique complexity of measuring biodiversity impacts, not to mention that climate change and biodiversity loss are inextricably linked. As such, if the world wants to achieve tangible results for nature and climate, we must embed biodiversity considerations into existing reporting frameworks and systems, something we’ve only begun to do recently. This article attempts to provide the information essential to understanding, from an investor’s point of view, the most pressing challenges imposed by a global biodiversity framework and potential solutions to best align one’s portfolio with it. 

As the event’s name suggests, “data” was at the heart of the TNFD Nature Data Labs. Each event focused on one specific sector’s challenges and opportunities presented by the increasing regulatory oversight and corporate sustainability reporting requirements. Regardless of sector, the common denominator for all companies regarding the reporting of biodiversity impacts is the availability of accurate and actionable data. Now, data is not exactly unavailable, but making the data actionable is the end goal of many processes we have yet to implement and refine and requires much collaboration between various stakeholders. These include field ecologists, data scientists, data providers to the financial sector, and finally, investors, which could act as a catalyst to biodiversity restoration should funds start to flow in this direction. In an ideal world, domestic regulations could very much bolster the effectiveness of existing frameworks by imposing regulations for disclosing biodiversity impacts. However, regulators have been rather slow to take meaningful action in that regard despite numerous calls to action from the private sector, which is not at all opposed to more regulations on the matter. This reluctance to act is highlighted by the removal of the term “nature-positive” from the final agreement of COP15. Nonetheless, the private sector has been taking the lead in laying the groundwork for biodiversity reporting and creating stronger market incentives, which is still reason for optimism.

While data appears to be a general challenge, industries and sectors face different challenges regarding data availability and accuracy. Given the unprecedented nature of the alterations caused to biodiversity since the industrial era, there are considerable gaps in our understanding of diverse ecosystems and how they are affected, for example, oceans and marine ecosystems. Meanwhile, extractive sectors, such as mining and energy, as well as agriculture and farming, may have large amounts of biodiversity data regarding their scope of activity. Yet, the data can be outdated, patchy, or not reliable enough for use. An additional layer of difficulty arises from the need to balance localized field data with standardized metrics for scalability and comparability across projects for companies and investor portfolios. Naturally, companies within the same sector or geography should collaborate to develop more harmonized metrics and standards, but this should not be the responsibility of the private sector alone. In fact, at a larger scale, much remains to be done to harmonize and further define nature-related metrics to allow for comparisons across companies and countries, which again requires much rigorous collaboration between different stakeholders. Not to mention, local consultation mechanisms with indigenous groups and field data collection expertise and tools must continue to be developed and deployed to improve data accuracy. Traditional knowledge of indigenous groups is particularly relevant for understanding nature as it can complement the generally fragmented and scientific approach of industry experts by providing another perspective. 

Now, much remains to be seen in this space as we await the adoption of the TNFD framework in the third quarter of 2023, which will hopefully provide much-needed clarity and guidance on biodiversity reporting. There was further support for the push for tougher standards when the International Sustainability Standards Board (ISSB) announced it would incorporate nature in its disclosure standards when released next year.

Biodiversity data should be easily understood and ready for use by all stakeholders. Still, first, they need to be more readily available to those requiring it, which begs the question: Should biodiversity data be shared on open-source platforms, or should they be paid for? This debate remains to be resolved amongst the community of standard setters, data providers, and investors. 

All the above-mentioned areas for improvement are seen as major barriers to investment into biodiversity by money managers. But this has not stopped the increasing interest in deploying capital into biodiversity-related projects in areas previously neglected by corporate interest, according to financial intermediaries and investment advisory firms. Corporate interest in biodiversity protection is mostly driven by CSR pledges and reputational risk mitigation, which are ultimately tied to companies’ cost of capital and bottom lines. With the right market incentives, whether or not biodiversity pledges come from the goodness of the heart is secondary to the overarching societal shift that could very much tip the balance in favour of nature.