2023 is set to be a decisive year for nature following COP15’s call to halt and reverse biodiversity loss. Yet achieving the goals set out at last year’s conference will be far from straightforward – and solutions will likely vary between regions and sectors.
In December 2022, governments from across the globe gathered in Montreal for the COP 15 biodiversity conference. The result of this landmark conference was the establishment of the Kunming-Montreal Global Biodiversity Framework – a collection of four long-term goals to be achieved by 2050, and 23 targets for achievement by 2030. The cornerstone of this agreement is to protect 30% of the planet’s surface, and to ensure that 30% of degraded ecosystems are under restoration, by 2030.
While these targets are global, they are designed for countries and thus only partially applicable at corporate level.
Measuring biodiversity loss
In order to meet the cornerstone goals outlined in the agreement, political and societal change is crucial. In a similar way to which decarbonisation pathways have been put in place to target climate change, pathways to halt and reverse biodiversity loss have now been established. These include technological improvements in agriculture, for instance, to protect intact land; decentralized protection solutions to expand protected areas and reduce the extension of infrastructure into new areas; and consumption change aimed at encouraging customers to modify consumption habits to halt biodiversity loss.
However, unlike climate change, which can be directly attributed to atmospheric carbon dioxide (CO2) concentration, biodiversity loss is multi-faceted. Different drivers contribute to its loss – including direct exploitation, land use change and pollution – and these vary according to geography and sector. So, how can biodiversity be measured?
The mean species abundance (MSA) metric is an indicator of biodiversity intactness on a given territory based on data collected by companies regarding the way in which their activities affect nature. It is rapidly emerging as one of the most commonly used metric given it allows businesses to consolidate global objectives and local realities, and can be used by economic actors to drive biodiversity preservation efforts.
The MSA can be implemented in one of two ways. First, is to establish the number of species on a given plot of land and compare this with a completely pristine ecosystem. The latter would be rated ‘1’, with the degraded score rated between 0 and 1. Second, is to calculate an MSA based on pressure-impact relationships1. This entails the input of pressure-related numbers, such as nitrogen deposits or CO2e emissions, into a model that can convert metrics into a synthetic indicator of biodiversity integrity. This second approach is less location specific and provides a more useful overview of the impact of an entire value chain on biodiversity.
The way forward for sustainable finance
Whatever the path ahead, financing meaningful change will be key to achieving the goals outlined in the Kunming-Montreal framework2. For financial institutions, the most material of these is Target 19, which focuses on the role of sustainable finance, and how it can be used to address biodiversity loss and promote the restoration of nature. Of the possible solutions, the framework references instruments such as green bonds, biodiversity offsets and credits, and impact funds. But which are best placed to target nature preservation?
Restoring biodiversity is not necessarily capex intensive, but rather requires a more profound change of business model and practices. As such, while green bonds are currently the most commonly used sustainable finance instruments, their use-of-proceeds approach does not necessarily suit biodiversity goals. Indeed, in 2019, only 0.5-1% of green bonds’ proceeds were allocated to direct or indirect biodiversity protection measures.
Instead, sustainability-linked bonds and loans may be better suited to biodiversity goals, and many issuers have already begun integrating biodiversity-related sustainability performance targets (SPTs). According to a recent study conducted by Natixis CIB3, in a sample of 233 sustainability-linked bonds and 1273 sustainability-linked loans, around 20% set either direct or indirect biodiversity-related KPIs – a considerable step up compared to their green counterparts.
Looking ahead, halting and reversing biodiversity loss will be far from straightforward. But as countries and corporates continue to advance the goals of COP15, one thing is certain: sustainable finance will be central to ensuring success.
1 Source: The globio model, projecting terrestrial biodiversity intactness with GLOBIO 4, available HERE
2 Source: Final text of Kunming-Montreal Global Biodiversity Framework available in all languages, 2022, available HERE
3 Source: Natixis CIB newsletter Climate is dead, long live biodiversity, Feb 2023, available HERE
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