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20-12-2022 16:21

Ability or ambition: How to speed up progress on biodiversity

There has been some progress towards addressing biodiversity risks in recent years. However, momentum behind the subject has not been consistent. We must overcome commitment fatigue and resource constraints if we are to make meaningful progress in understanding and limiting biodiversity risks, argues Nordea Sustainable Finance Advisory’s David Ray.
Aerial view of rural road in yellow and orange autumn forest

With rising levels of pollution, ecosystem degradation and habitat loss – in addition to the interlinked negative effects of climate change – it is clear that swift and meaningful action to protect and nurture biodiversity is needed. With an approximate 70% decline in global biodiversity since 1970, we are at risk of losing critical ecosystem services that support human health and cultural wellbeing, food security and global economies. As it stands today, the level of action to prevent biodiversity loss does not appear proportionate to the magnitude of the risks.

At the beginning of 2022, we outlined financial institutions’ rising awareness of the importance of biodiversity. We predicted better alignment in understanding risks and the beginning of more targeted impact mitigation. Although acknowledgement of the importance of biodiversity protection has indeed become more commonplace, with the Taskforce on Nature-related Financial Disclosures (TNFD) forum now comprising more than 600 organisations and the recent COP15 possibly being the most heavily attended and publicised UN biodiversity conference ever, much of the increased noise is yet to materialise into real action.

Overcoming barriers to progress

Despite broad acknowledgement that biodiversity and ecosystem services are of vital importance, including specific demand for nature-based solutions and even the signing of a Finance for Biodiversity Pledge, the issue of biodiversity loss has failed to maintain widespread momentum for extended periods of time.

While the multiple delays to COP15 and the lack of concrete targets may suggest a lack of ambition, a closer look suggests that resources are the bigger issue. The financial industry, along with many others, has undergone a sustainability-driven paradigm shift in recent years – facing new regulatory and client demands, as well as expanded concepts of risk, opportunity and impact. Organisations have had to deploy significant resources to internalise and meet these new sustainability-related demands. With the boom in sustainable finance happening so quickly, many organisations are stretched for resources in this area.

While it is understood that we are highly dependent on biodiversity that is under serious threat, the real-time consequences of our impacts and the risks, or even how to measure them, remains unknown due to the vast complexity of ecosystems. For resource-strained teams and organisations, this complexity can cause biodiversity to slide down the list of priorities, falling below easier-to-measure metrics and shorter-term targets, such as those related to greenhouse gas emissions or gender diversity. Commitment fatigue and resource constraints must be addressed if the financial industry is to sufficiently address biodiversity loss.

We now see momentum on the issue building again and believe that the following three developments will help to create space for more targeted action on biodiversity:

  • Understanding biodiversity’s interlinkage with other issues, including climate change
  • A clearer path to standardisation of metrics and disclosure
  • Increasing collaboration and pooling of industry knowledge
Commitment fatigue and resource constraints must be addressed if the financial industry is to sufficiently address biodiversity loss.

David Ray, Nordea Sustainable Finance Advisory

TNFD assessment shows increased understanding and appetite

At the beginning of the year, we foresaw that the greatest progress would come in the form of standardised frameworks. Set to be the most influential of these, the Taskforce on Nature-related Financial Disclosures (TNFD) has made significant progress during 2022. The taskforce has now published its third beta framework and is set to publish its final framework in September 2023. The TNFD’s financial sector market readiness assessment, published in October 2022, gives valuable insight into how financial market participants’ awareness of and approach to biodiversity risk is developing. The published outcomes are likely to guide the conversations around nature-related risks and reporting in the near future.

Many financial institutions have identified regulatory shifts as a primary driver for their interest in nature-related risks and impacts, and “early mover” institutions already acknowledge that nature is the “next big issue to address in combination with climate change,” according to the report.

The report cites four major factors that increased financial market participant action on nature-related risks:

  1. A shifting regulatory landscape, primarily driven by the European Union’s Sustainable Finance Disclosure Regulation (EU SFDR), UK climate-related financial disclosure regulation, as well as non-regulatory engagement of financial regulators via specific initiatives such as the CDP.
  2. Significant exposure of financing and investment portfolios in sectors and/or geographies with high impacts or dependencies on nature or that are already suffering from the combined consequences of ecosystem overexploitation and climate change.
  3. Recognition of business opportunities and reputational benefits related to green financial services;
  4. Growing awareness of the linkages between climate change and nature, of the importance of nature in aligning with climate targets, and of the dependence on nature-based solutions for reaching “net-zero” commitments.

Although we have arguably reached a turning point on awareness of the issues and acknowledgement of the need for action, concrete actions have so far only been taken by “early movers,” as they are called in the report. Participants in the assessment reported “commitment fatigue” as a leading cause of inaction, citing the burden of adopting the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) alongside commitments to other sustainability-related frameworks.

Strained resources and limited sustainability-related expertise within organisations play a role in commitment fatigue setting in. Expertise is required to speed up the transition from ambition to action. Organisations will have no choice but to upskill and recruit over the long-term. In the shorter-term, the increased alignment of frameworks across issues (such as biodiversity and climate change) should help.

Although we have arguably reached a turning point on awareness of the issues and acknowledgement of the need for action, concrete actions have so far only been taken by 'early movers.'

Despite some unfinished business, COP15 paves the way forward

The interlinking of issues was a central discussion point during the Biodiversity and Finance day at COP15. Addressing the attendees of the first-ever dedicated finance day at the UN biodiversity conference Mark Carney, co-chair of the Glasgow Financial Alliance for Net Zero (GFNAZ), said, “Private finance must ensure their net-zero transition plans include clear priorities on deforestation, and protecting and restoring biodiversity,” mentioning the “twin crises of nature and climate.”

Progress was also made in the alignment of frameworks and standards, with the ISSB confirming plans to further integrate natural ecosystems considerations into its climate standard. Alongside a commitment to consider the work of the TNFD and other existing nature-related standards in the ISSB’s research, the foundation’s chair, Emmanuel Faber, reiterated the aims to “change the current fragmented ESG disclosure landscape into a global common, consistent language of sustainability-related financial disclosures.”

The standout moment of COP15 was reserved for the final day – the adoption of the Kunmig-Montreal Global Biodiversity Framework (GBF). Adoption was hard-won, with talks appearing to break down at points and some decisions pushed to COP16. Despite containing fewer numerical targets than expected, the legacy of the GBF adopted at COP15 will be the mobilisation of action in the right direction. The renewed support for common standards, metrics and the integration of biodiversity risks seen more broadly at COP 15 helped to align understanding of the issues and ensure that biodiversity stays towards the top of the priority list for longer. The adoption of the GBF on the final day will further solidify biodiversity among the top priorities.

The Finance for Biodiversity foundation (FfB) at COP15 launched a guide aimed at tackling the practical side of the integration of biodiversity risks by financial institutions. The Act Now! guide on biodiversity integration provides tangible advice and processes that can be used to factor biodiversity risks into financing activities and investment decision-making. The comprehensive guidance represents an important step and clarifies what can be done now, using available data and techniques – aiming to catalyse action rather than adding to the list of what we would like to see in the future.

The more tangible material institutions have to focus and begin to act on, the faster momentum will build around the most important issues. Practical guidance helps ward off commitment fatigue, break down knowledge barriers and convert ambition into action. In order to achieve the magnitude and pace of change required, financial institutions will need to move beyond the bounds set by regulation. Practical steps, industry alignment and cooperation will be crucial in achieving this.

In order to achieve the magnitude and pace of change required, financial institutions will need to move beyond the bounds set by regulation.

Collaboration is key and on the rise

The coverage arounds COP15 shows that the appetite for collaboration on this issue goes beyond calls for alignment within standards. There appears to now be a more active call for the pooling of resources and knowledge relating to biodiversity issues. This may be either a reflection of the resource constraints faced by financial institutions or an increase in ambition for action, but is likely a reflection of both. Effective collaboration will help the industry sidestep resource constraints and related commitment fatigue and push ambition beyond what’s required by current regulation.

The three most prominent examples of industry collaboration are:

  • Nature Action 100, officially formed at COP15 after much anticipation. The collaborative initiative will follow in the footsteps of the highly successful Climate Action 100+ and will seek to engage with companies and sectors deemed to have high biodiversity impacts. Collaboration within the initiative is likely to aid the development of best practices and the communication of these expectations to corporates.
  • A joint statement, coordinated by the UN Environment Programme Finance Initiative and the FfB, futher aligns and communicates the expectations of the financial sector. The statement from signatories that represent USD24 trillion in assets calls for the adoption of a global biodiversity framework by world leaders. The statement helps solidify backing for language such as “nature-positive” and ambition for the “halting and reversing nature loss by 2030.”
  • The Finance for Biodiversity Pledge signed by Nordea Asset Management along with 125 other financial institutions, targets action and reporting on biodiversity by 2025. The pledge, consisting of 5 steps including target setting and reporting, will help drive collective transparency and disclosure standards over the short-term.

Transparency and collaboration both help increase the ability and ambition to act on biodiversity loss. While the path towards increased action on the issue has not been straightforward, recent developments have helped illuminate the way forward. Alignment on key steps, such as the definition, communication and practical implementation of risks and metrics, will be essential for sustaining the momentum behind the issue going forward.

Read more about how the World Bank is turning ambition into action with its sustainable development bond raising awareness for biodiversity.


David Ray
Nordea Sustainable Finance Advisory

Sustainable Finance Advisory

Nordea's Sustainable Finance Advisory team helps clients navigate fundamental changes in the financial markets as the global economy shifts towards becoming sustainable and low-carbon. Find out more about our sustainable product offerings and holistic advisory services.

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