Biodiversity: COP16 and Evolving Investors' Expectations

Biodiversity risks differ across industries, with sectors like agriculture, forestry, mining, real estate, and energy being the most exposed and therefore may also face more scrutiny from investors who are becoming increasingly aware of the financial risks associated with biodiversity loss. These industries significantly impact biodiversity through activities like deforestation, land degradation, and pollution.

Achieving climate targets requires tackling climate and biodiversity challenges together, as addressing these interconnected risks is essential for regulatory compliance, building investor trust, and ensuring long-term business sustainability. 

COP16: Shaping the Future of Biodiversity

The 16th Conference of the Parties to the UN Convention on Biological Diversity (“COP16”), the world’s largest biodiversity summit, occurred from October 21 to November 1, 2024, in Cali, Colombia. Over 12 days, 170 delegations discussed key issues, according to Colombia's Ministry of Environment and Sustainable Development. The Convention, adopted by 196 countries, aims to promote global efforts for a sustainable future (Source).

COP16's emphasis on biodiversity has demanded businesses to take practical measures towards protecting biodiversity. Companies are expected to:

• Set Measurable Targets: Establish clear goals for biodiversity and climate impacts. ‘The first corporate Science-Based Targets for Nature (“SBTN”)  calls on companies to assess and prioritize their environmental impact, and to prepare to set science-based targets for nature – starting with freshwater and land (Source). Target validation is expected by companies by late 2024, with current targets being validated only as part of a pilot program (Source).
• Transparent Reporting: Following COP16, the importance for companies to give frequent, thorough updates on their progress was emphasised. It was highlighted that transparency is a basis of accountability and trust, allowing stakeholders to monitor efforts and outcomes effectively. As noted at the COP16, "Transparency is crucial to move from ambition to action," companies are urged to align their reporting with frameworks like the Global Reporting Initiative (“GRI”) to ensure clear communication and comparability of data (Source).
• Align with Frameworks: Use global frameworks like the Kunming-Montreal Global Biodiversity Framework agreed by countries and Taskforce on Nature-related Financial Disclosures (“TNFD”) for companies to use to ensure alignment with global standards (Source, Source).

Investor Interpretation of COP16 

The outcomes of COP16 continue to influence how investors view biodiversity and its impact on how they evaluate portfolio companies:

• Robeco: Robeco underscores that COP16 yielded results in “three important areas: (1) Implementing the Kunming-Montreal framework, (2) Financing Nature, and (3) Growing Momentum in Business.” It encourages companies to align with these objectives by setting measurable biodiversity targets and utilising frameworks like TNFD to integrate biodiversity into their decision-making processes (Source).

• Degroof Petercam Asset Management (“DPAM”): DPAM highlights the financial significance of biodiversity and the need for alignment with global goals such as the Kunming-Montreal Framework. It also points to initiatives introduced at COP16, including “the first-ever validated science-based targets for nature, a roadmap for the Nature Data Public Facility, and nature transition plans under TNFD.” Despite these advancements, challenges persist, including a $700 billion annual financing gap to meet the framework’s targets, with only $163 million in additional funding pledged at COP16. “Progress on monitoring frameworks also lagged. Of the 196 parties, only 44 submitted updated National Biodiversity Strategies and Action Plans” (Source).

Investor Expectations

Using the AQTION Platform, we highlight the below expectations communicated from investors on biodiversity:

1. Nordea Asset Management ("NAM")

In its recent White paper on Biodiversity and Nature, NAM highlights that one of the main challenges it faces is the lack of quality data on individual investments.
NAM encourages companies to assess their direct and indirect dependencies and impact on biodiversity and to act on these assessments. NAM expects strong governance of these risks as well as mitigation commitments from the companies, including a strategy and to set short-, medium- and long-term targets in relation to their mitigation efforts.
Lastly, NAM expects companies to improve transparency and start reporting on their biodiversity risks, preferably through reporting initiatives (e.g. TNFD, CDP, or GRI Biodiversity Standard).
(Source)

2. Union Investments ("UI")

In its 2024 Biodiversity Guidelines, UI highlights that “as a manager of a portfolio that is diversified across various sectors and markets, we also have investments in companies from sectors that heavily rely on intact biodiversity”.

UI expects the following from companies whose business models potentially have a negative impact on or are highly dependent on biodiversity aspects – particularly in the oil and gas, consumer goods, metals and mining, utilities, agriculture, and real estate sectors:

• Strategy & Targets: (1) Build up expertise and implement action plans to address material risks to and reduce impacts on biodiversity; (2) Set ambitious and clear goals and targets.
• Risk Management: Implement procedures and metrics to identify, assess, and reduce risks and dependencies related to biodiversity in companies’ own operations and throughout the supply chain
• Governance and Disclosure: (1) Management Oversight; (2) Adopt a biodiversity policy that covers material business areas; (3) Annual reporting on progress in implementing the company's commitments; (4) Disclosure to the CDP Forests and Water programs; and (5) Adopt the TNFD and SBTN.

UI also indicates they would support shareholder proposals calling on companies to assess, report on, and reduce key impacts and dependencies on nature in high-impact sectors as well as vote for shareholder proposals urging companies not to operate in or use materials sourced from protected areas, areas of high biodiversity or areas considered environmentally sensitive (Source).

Conclusion

Investors are clear: corporates must integrate biodiversity into their strategies, address risks transparently, and align with global frameworks. To prepare, companies should prioritise setting clear biodiversity goals, adopting recognised and reporting standards like TNFD, and ensuring progress is communicated effectively to stakeholders.

Given the inherent complexity of the nature and biodiversity agenda that requires examining multiple aspects that need to be understood in a local context and the limited data available, investors will also use engagement with companies to gather insights at a local level and bridge existing data gaps.

For more information on investor expectations on biodiversity, please get in touch with enquiries@aqtion-platform.com.