Key findings
- COP16 ended abruptly with a mixed outcome: progress on indigenous populations’ rights and use of genetic data from nature but stagnation on financing mechanisms.
- At the same time, the conference emphasized the need for funding from both public and private sources, creating opportunities for financial products focused on biodiversity, such as green bonds, biodiversity credits and conservation finance.
- COP 16 also highlighted increasing expectations for corporates and financial institutions to measure and report biodiversity-related risks and impacts, which could lead to stricter regulations.
The 16th Conference of the Parties (COP) to the UN Convention on Biological Diversity (CBD) came to a close last weekend. For two weeks, more than 23,000 delegates gathered in Cali, Colombia to discuss progress made since COP15 two years ago, when a landmark agreement was reached in Montreal, Canada. The Kunming-Montreal Global Biodiversity Framework (GBF) set ambitious goals such as reversing nature loss, protecting 30% of the planet’s land and water area by 2030 and mobilizing USD 200 billion per year from public and private sources to protect nature. In Colombia, it was time to agree on how to implement those commitments. MSCI was present on the ground, alongside other financial-market participants.
Businesses and investors acknowledge biodiversity risks
While climate COPs have long been a business concern, COP15 was the first UN biodiversity conference to have attracted significant business attention. Despite the relative remoteness of Cali from mainstream business centers, COP16 managed to confirm this trend. Investors and companies have become much more aware that biodiversity and nature loss also present an existential threat to the economy and investment returns — and society more generally. Indeed, nature underpins the global economy. The World Economic Forum estimates that more than half the world’s economic output depends either highly or moderately on intact ecosystems and their benefits such as clean water, fertile soils and food.[1] Global biodiversity is in decline, however, with monitored wildlife populations shrinking by 73% in the past 50 years according to the 2024 WWF Living Planet report.[2]
Pre-COP expectations were mixed since only a few governments had submitted their National Biodiversity Strategies and Action Plans (equivalent to the Paris Agreement’s Nationally Determined Contributions), which translated the COP15 goals into actionable strategies at national levels.
Biodiversity Jenga, created by Benjamin Von Wong, was a six-meter-tall installation at COP16 and highlights that biodiversity is like Jenga — interconnected, with each piece contributing to the whole’s stability.
So, what were the outcomes of Cali?
Governments understood the need to bring both business and finance to the table to scale support for the GBF. Cali hosted a large number of events where business leaders showcased solutions and commitments, such as the new cohort of “early supporters” of the Taskforce on Nature-Related Financial Disclosures (TNFD). On Finance Day, delegates debated how to support the alignment of financial flows with the goals of the GBF.
Governments also reached consensus on two relevant issues that had been controversially debated for years:
- Companies that generate revenues with products based on genetic data from nature must now pay a levy which will flow into a biodiversity conservation fund.
- Indigenous communities have now been formally included in the official decision-making and policy-creation process. This involvement gives them more power to influence decisions that impact their crucial role when it comes to protecting their way of life that often promotes the stewardship of nature. The TNFD framework also takes indigenous populations into account and indeed its main conference gave the opening word to an indigenous leader from the Minas Gerais region in Brazil. She eloquently and powerfully set the tone for the urgency of the topic for all: No matter where we are from or what we do, all life depends on nature.
That said, COP16 failed to reach consensus on biodiversity funding. Countries of the “Global South” criticized the scope and structure of the current biodiversity fund and demanded a new fund.[3] As the conference went into overtime, lost quorum and closed abruptly, no consensus was found on new instruments to finance biodiversity protection and how to monitor progress on the 2030 biodiversity targets. As Kirsten Schuijt, director general of WWF International, put it, “We are now veering dangerously off track. This outcome jeopardizes the implementation of the GBF.” Others criticized the decision to leave vital issues such as resource mobilization to the final hour. Logistics matter too — delegates from many developing countries had to leave the summit on Friday evening because they could not afford to change flights, resulting in lost quorum on the overtime sessions on Saturday morning.
Those shortcomings should not overshadow the effort delegates put into trying to achieve agreements despite divergent interests. Multilateral diplomacy is thankless and often disappointing but it’s the only way to manage our “global commons.”
And what does Cali mean for investors?
- Increased regulatory pressure: COP16 stressed the relevance that corporates and financial institutions should measure and report their biodiversity-related risks and impacts. The European Union has already moved ahead with integrating biodiversity considerations into regulations such as the Sustainable Finance Disclosure Regulation (SFDR), EU Taxonomy or the Corporate Sustainability Reporting Directive (CSRD). Other regulators could follow and implement more stringent rules.
- Increased demand for biodiversity-related investments: COP16 highlighted the need for funding from both public and private sources. This creates demand for financial products with a focus on biodiversity such as green bonds, biodiversity credits and conservation finance. Companies that provide solutions such as nature restoration, reforestation, sustainable agriculture or pollution prevention, might see an influx of capital creating new opportunities for investors. As of today, nature opportunities in the listed space remain rather limited, as our second exhibit below shows.
- Increased demand for nature-based climate solutions: COP16 emphasized the climate change-biodiversity nexus and the demand for intact nature to meet climate goals. Consequently, the demand for nature-based solutions could grow further. For instance, COP16 drew attention to the role of oceans as carbon sinks. Mangroves, seagrasses and salt marshes can capture large amounts of carbon, providing opportunities for combining carbon and biodiversity credits. MSCI Carbon Markets is an active player in this space and recently highlighted the role that the carbon market could play in solving the biodiversity crisis.
Capital raises and commitments for nature-based carbon projects
Source: MSCI Carbon Markets
Implications for selected industries:
- Pharmaceutical and related companies: Pharmaceutical, biotech, cosmetics and agricultural companies frequently use the rich gene pool of certain ecosystems to develop new products. COP16 now puts a levy on companies using genetic data from nature for their own needs. Going forward, they would need to pay 1% of their profits, or 0.1% of their revenues, into a conservation fund. Investors exposed to these industries might expect lower returns from increased operational and compliance costs their investee companies could face.
- Agriculture and food: COP16’s outcomes promote sustainable agriculture, benefiting companies in organic farming, regenerative practices and alternative protein sources.
- Mining and fossil fuels: There is likely to be increased scrutiny on industries that directly impact ecosystems. Investors might consider that companies operating in mining or fossil-fuel extraction industries may face greater reputational and regulatory risks.
- Demand for monitoring technology: There is a need for improved technology and data to monitor progress. Solutions such as including satellite imaging and AI-based biodiversity may provide opportunities for investors.
Nature solution companies are few and far between
Data as of Nov. 4, 2024. Source: MSCI ESG Research
What we heard and saw on the ground
Hiro Mizuno, special advisor to the MSCI CEO, and Lisa Eichler, head of physical risk and nature solutions, were part of an MSCI delegation at COP16 to discuss with stakeholders how financial markets and data providers can play a role in reaching the global biodiversity targets. Here’s what we heard:
- We are now (partly) beyond concepts: Cali meetings focused on practicalities, and measurement generated the most interest.
- A focus on nature will be mandatory faster than a focus on climate was. As Tony Goldner, the TNFD’s executive director, said, “TNFD adoption is faster than climate because we are building from climate. Even if data is not perfect, there is no reason to delay action and start building over climate.”
- It’s all about location. Nature risks and impacts are felt at the local level. This increasingly requires complex corporate asset location data to enable nature impact and risk assessment at the location level.
- Nature positive is a widely discussed concept. The WWF roadmap for a nature-positive economy outlines a strategy including actionable steps on how to halt and reverse nature loss.
- Further work is needed to shape transition plans for nature, as well as to see how nature can fit into climate transition plans. A recent paper from the Glasgow Financial Alliance for Net Zero (GFANZ) on integrating nature in climate transition plans provides guidance on this matter, while a TNFD discussion paper could help corporates and financial institutions to develop a transition plan to align with the 2030 biodiversity targets.[4]
- Biodiversity footprinting is an increasingly popular approach to translate various pressures on biodiversity, such as land use or water consumption, into an aggregate quantifiable signal which enables investors to understand which regions, sectors or issuers are most impactful. See our recent analysis of various key indexes.
- There were many appeals to make restoration projects more attractive to investors. There is growing demand for nature funds and other financial innovation such as biodiversity bonds and nature swaps.
- Isolated projects and single restoration efforts aren't enough, we need a full transition.
- Nature accounting is not just about reporting but also strategy making. We need to start incorporating natural capital into balance sheets. Not out of good feelings but for accounting purposes. However, while a nature framework should remain consistent, project valuation can differ.
- The prevailing nature-data approach to date is to go top-down for screening and portfolio / product construction, but bottom-up when analyzing specific companies and their operating locations for engagement, due diligence and other more in-depth assessments. Both reported and modeled data is required.
Don’t take nature for granted
Finally, despite a number of positives at Cali, there were equal measures of disappointment, with key finance agreements delayed. All market participants need to now reflect on this situation. The nature crisis will impact the global economy and investors. Nature has value, and this is why it is used. But it works for free, which is why its services are overused and ultimately why we are losing nature. As the indigenous leader from Minas Gerais explained, everyone will lose if we lose nature. Delay and inaction are not an option.
Footnote
1. “Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy,” World Economic Forum and PwC, 2020.
2. “Living Planet Report 2024 – A System in Peril,” WWF, 2024.
3. Global North and Global South are terms that denote a method of grouping countries based on their defining characteristics with regard to socioeconomics and politics. While there is no strict definition, the Global South broadly comprises Africa, Asia (excluding Japan and South Korea), Latin America and the Caribbean, the Middle East (excluding Israel) and Oceania (excluding Australia and New Zealand).
4. “Nature in Net-zero Transition Plans,” GFANZ, October 2024, and “Discussion paper on Nature transition plans,” TNFD, October 2024.