Recognition is growing that nature protection and restoration are crucial to reaching net zero.
Last year’s COP15 proved a turning point in galvanising commitment with 188 governments signing the Global Biodiversity Pledge (GBF), whose headline mission is to halt and reverse biodiversity loss by 2030. This could be challenging to achieve, but we expect nature and net zero efforts to be increasingly tied together. The climate COP28 this year in Dubai will have a day dedicated to nature, land use and oceans and another to food systems.
Several initiatives such as Finance for Biodiversity Foundation, of which Fidelity is a member, have sprung up to help the finance sector better understand and address the implications of nature loss. Meanwhile, the Taskforce on Nature-related Financial Disclosures (based on the widely adopted TCFD) is aiming to deliver a disclosure framework later this year that helps organisations to assess, report and act on evolving nature risks and opportunities.
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Addressing nature loss is different from climate due to its location-specific characteristics and the lack of a single metric like GHG emissions. However, regulation such as the EU’s Corporate Sustainability Reporting Directive (CSRD) is bringing this area into scope relatively quickly. It is also being considered for inclusion by global standard setters such as the International Sustainability Standards Board (ISSB).
Policy work is needed
Standardising corporate reporting should make it easier for investors assess nature risks, but data alone is not a silver bullet. Policy development is also needed. This is reflected in Target 15 of the GBF which calls on countries to “take legal, administrative or policy measures to encourage and enable business…to progressively reduce negative impacts on biodiversity, increase positive impacts, reduce biodiversity-related risks to business and financial institutions, and promote actions to ensure sustainable patterns of production.”
Parties to the convention are expected to produce National Biodiversity Strategies and Action Plans that outline how each country will align with the GBF, across key themes such as deforestation, plastics recycling and removal from the oceans, water scarcity and redirecting farming subsidies towards projects that improve natural ecosystems and restore depleted soils. COP28 will present an opportunity for countries to discuss the progress made since COP15 and what lies ahead. Measures such as the EU’s Nature Restoration Law are in development but have faced opposition.
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At global level, cost and benefit sharing mechanisms are needed, such that countries who have developed in part from the depletion of their own natural capital help support projects, primarily in the global South, to protect the world’s remaining biodiversity. This may include expanding carbon markets that fund nature-based solutions, scaling up a market for biodiversity credits, and expanding debt-for-nature swaps. Solutions will need to be implemented under good governance with clear standards to be effective and avoid unintended consequences. For example, biodiversity credits require standardised measurement and must fulfil conditions such as permanency and additionality.
Closing the nature financing gap
Industry estimates suggest around $8.8trn of cumulative investments are needed in nature between now and 2050 to ensure biodiversity risk is manageable. Currently, that global annual investment number is just $146bn. That is a significant gap and a huge addressable market for companies that develop solutions to halt or reverse nature loss and mitigate risks to natural capital. Given climate change causes nature loss and vice-versa and $100trnneeds to be invested in climate solutions, nature investments may need to be even greater.
Finance will also be needed for countries to adapt to climate change and nature loss already in train. The details of the loss and damage funds agreed at COP27 are due to be worked out at COP28, while there are ambitions to create a framework for setting adaptation goals and delivering the $40bn of adaptation finance agreed at COP26.
Learning from climate
We have been engaging with companies on many of these natural capital-related issues and how they are managing risks and impacts. In some cases, there will be trade-offs between preserving natural habitats and providing resources to mitigate climate change. Companies on the journey to net zero, however, are already balancing different needs at different times, while benefiting from the upside of transition (e.g. cheaper energy costs from renewables).
Using what we have learned from addressing climate change and applying it to nature is one way we can grasp the nettle more quickly, while recognising the nuances and complexities of operating in a multi-faceted area. Not only is COP28 moving nature up the climate agenda, but Brazil is to host COP30, putting the Amazon, still one of the most pristine geographies on Earth, at the heart of the process in 2025.
