(Finance) – “Representing an essential reference point for measuring progress made since December 2022, COP16 could in the future be known as the COP for implementing biodiversity”. This is what it highlights Joe Hutchins, Senior Manager – Responsible Investments at GAM Investments in an analysis published ahead of COP16 which will be held from 21 October to 1 November in Cali, Colombia. “COP16 – he underlines Hutchins – could mark a transformative chapter in the governance of global biodiversity, moving from politics to concrete action. The involvement of investors and companies will hopefully pave the way for a future where economic growth and biodiversity conservation go hand in hand, ensuring the health of our planet for generations to come.”
The race to protect the planet’s biodiversity is just as critical as the fight against climate change and presents risks and opportunities for investors. With over half of the world’s GDP dependent on nature, the implications are, indeed, profound. Although the investment community is not at the center of the COP scene, financial institutions play a key supporting role. To keep planetary boundaries livable, investors must address the protection, restoration and sustainable use of biodiversity.
“Financial operators – he states Hutchins – they are starting to address biodiversity concerns. There are a growing number of investor groups promoting the integration of biodiversity into investment strategies, such as Finance for Biodiversity, with over $21 trillion in assets under management. Additionally, more than 130 companies, collectively generating $1.1 trillion in revenue, called for stronger policies to improve incentives, legislation and regulations to drive pro-nature business action.”
To bridge the significant gap between policy and facts, the analysis reads, companies must develop biodiversity transition plans and engage in transparent reporting of their impact on biodiversity. Regulatory initiatives such as the Task Force for Nature-Related Financial Disclosures (TNFD) they can help by providing a framework for companies to assess and manage biodiversity risks.
THE regulatory, reputational and market risks highlight the importance of sustainable business practices. UK legislation on biodiversity net gain and EU policies on deforestation highlight the growing scrutiny of corporate biodiversity practices. The strengthening of legislation it also marks a move away from current voluntary approaches towards a more comprehensive plan to protect nature and reverse the degradation of ecosystems globally.
There are many opportunities for investors to engage in actions that respect and encourage biodiversity as an important factor in their portfolios. Nature-based solutions, such as restoring forests and wetlands, can help both the climate and the natural world. According to estimates, in fact, nature-based projects alone could provide 37% of climate change mitigation we need by 2030 to achieve the goals of the Paris Agreement.
“The nature-related obligations – he states Hutchins – can offer a sustainable investment and portfolio enhancement opportunity.” In detail, bonds that support investments in sectors such as sustainable agriculture and conservation offer a unique opportunity to increase the amount of capital available for projects focused on nature. They can also help create broader market interest in sustainable investing, as investors increasingly pay attention to the positive impacts nature bonds achieve beyond financial returns.
AND the demand for innovative market tools has also grown, including the World Bank “Rhino Bond”.the first wildlife conservation bond where returns are directly driven by the growth of endangered rhinos. Crucial steps like this demonstrate a change in finance, where attention to nature can achieve conservation outcomes while generating long-term returns.
To help scale private financing for nature, the following are currently being developed credits for biodiversity. Similar to carbon credits, they allow private companies to finance activities, such as forest restoration, that produce biodiversity gains. This allows companies to meet their biodiversity commitments.