COP15 & the Kunming-Montreal Framework: Implications for the financial sector
In December 2022, the United Nations met in Montreal for the UN Biodervisity Conference - COP15.
The outcome of the summit was an international agreement signed by 190 countries and a new Global Biodiversity Framework (GBF). The GBF replaces the Strategic Plan for Biodiversity from 2011-2020 and sets priorities and targets for ecosystem restoration by 2030 (or 2050). The framework consists of four overarching status goals by 2050 and 23 targets by 2030, which all 190 countries have committed to implementing in a timely manner. In addition to the goals that politicians must implement, the financial sector is particularly affected. Financial institutions are directly affected by targets 14, 15 and 19 in particular:
- In the context of the GBF, action target 15 means that governments will require all large companies and financial institutions to assess and disclose their risks, impacts and dependencies on nature in the context of their activities, supply and value chains and portfolios. The target expands the reporting practices and mechanisms of companies and is already partly covered by existing EU disclosure requirements.
- Target 14 calls on governments to create a favorable environment to align public and private financial flows with the objectives and targets of the GBF. Here too, EU legislation and standards already exist that create a positive basis for financing biodiversity conservation. For example, environmental objective 6 of the EU taxonomy also integrates the topic of ecosystems and biodiversity and thus provides a uniform definition of economic activities that benefit biodiversity.
- In order to generate the necessary funds for the protection of biodiversity, the GFR defines target 19, which primarily calls for the creation of incentives for the protection and conservation of biodiversity. In this area, too, there are already laws and standards in the EU to promote investment in biodiversity. Existing instruments such as green bonds can provide an opportunity to create incentives for sustainable and biodiversity-friendly financing.
Despite a multitude of regulations and standards, the issue of biodiversity is still far from being ubiquitous in companies' business processes. While companies strive to calculate the CO2 emissions of their operations and facilities, biodiversity and nature present a far more complicated regulatory challenge. To date, there is no standardized measurement method for biodiversity. It is inherently complex, with huge biogeographical variability between ecosystems and a multitude of elements to measure. What counts as 'loss or damage' is often defined locally. For a company with a global presence, e.g. with data centers or mining interests in different locations, understanding the operational risks, impacts and legal risks is a major challenge. This complexity makes it difficult for companies - and therefore investors and banks - to identify biodiversity-related risks and opportunities.
Conclusion: Environmental sustainability is no longer expressed solely in terms of the carbon footprint, but also includes integrated approaches such as the protection of biodiversity. A number of GBF targets also require the financial sector to integrate biodiversity into its business processes. However, a recent study by the WWF shows that financial institutions are still barely taking into account the increasing relevance of biodiversity and intact ecosystems - both in terms of risks and opportunities. The topic appears complex, and banks would do well to address it at an early stage.
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