How COP15's actions on biodiversity impact infrastructure investment
Climate finance policies made remarkable wins in 2022
In August, the United States passed the country’s most progressive climate legislation ever – the Inflation Reduction Act. The Act includes USD374 billion in climate spending which could reduce gas emissions by about 1 gigaton (a billion metric tons) in 2030. This would be 10 times more climate impact than any other single piece of legislation ever enacted. Several green projects are already underway ranging from low-carbon materials, new transmission lines, and small modular nuclear reactors.
In 2020, the European Union (EU) governments overhauled the EU carbon market through the Carbon Border Adjustment Mechanism, bringing clarity, protection, and predictability to all EU carbon-intensive industries busy with implementing their transition plans.
In November 2022, the UN Climate Change Conference (COP27) in Egypt closed by agreeing to provide ‘loss and damage’ funding, meeting a decades-long demand by vulnerable nations hit hard by climate disasters.
In December 2022 I had the valuable experience of attending COP15, the 15th United Nations Biodiversity Conference, held in Montreal, Canada. At COP15, the parties further committed to pay an estimated USD30 billion per year, in particular to the least developed countries, in part through a new biodiversity fund that aims to address biodiversity loss, restore ecosystems, and protect Indigenous rights.
Other key COP26, COP27 and COP15 achievements could be signalled, and we might be looking at a breakthrough regarding how investments are being valued, despite a well-founded scepticism about the outcome of these conferences. Beyond pricing and returns, ESG (environmental, social and governance) requirements, and - more acutely - climate and biodiversity criteria may become determining drivers for investors going forward.
Private investors took a strong stand at COP15 to overcome the destruction of nature
On 19 December 2022, at the invitation of the UN Environment Programme Finance Initiative and its partners, the private financial sector delivered a bold statement to the COP15 audience.
Endorsed by 150 financial institutions representing over USD24.8 trillion in assets under management, the signatories committed to contribute directly to the protection and restoration of biodiversity and ecosystems. They also called on governments to adopt an ambitious framework that would align all economic actors, as the Paris Climate Agreement did, to:
- Halt and reverse nature loss
- Support the disclosure of nature-related impacts
- Promote the development of nature-positive projects
- Re-align financial flows accordingly.
The statement couldn’t be stronger.
For the first time, the COP15 agenda included a Finance and Biodiversity Day, where 400 participants presented tangible nature-positive measures. Among the highlights of that day, Emmanuel Faber, Chair of the International Sustainability Standards Board (ISSB), announced that the ISSB standards would be expanded beyond climate considerations to incorporate the protection of nature and business ecosystems. Faber pointed out that the baseline for companies would no longer be about ESG metrics, which companies tend to pick and choose from, but rather about measuring the impact of nature-positive value factors throughout the lifecycle of their investment. The private sector had raised the bar.
The public sector accepted the challenge to rejuvenate our ecosystems
Hours later, over a marathon session, the 196 governments present at COP15 adopted the Global Biodiversity Framework (GBF), a landmark commitment to halt and reverse biodiversity loss by 2030.
Seen as the equivalent to the Paris Agreement target, the commitment is articulated over four goals and 23 specific targets. Although far reaching, the GBF did raise concerns and was described as positive for nature but not yet nature positive, partly because no mechanism has been introduced to hold governments accountable if targets are not met.
Observers nevertheless agreed that the call voiced by the private sector was heard. A section of the agreement outlines specific tools and solutions for implementation. Targets 14, 15, 18, and 19 address the full integration of biodiversity into policies and regulations, including monitoring and disclosure frameworks. The alignment of financial flows is also captured, particularly regarding the curbing and redirection of harmful subsidies, currently estimated at USD1.8 trillion per year to fund activities like deforestation, overfishing, monocultures, and fossil fuel production. Under the GBF, these detrimental subsidies must be reduced by at least USD500 billion per year by 2030, freeing up substantial capital to finance the biodiversity gap.
Closing that biodiversity gap was extensively discussed at COP15. To reverse the decline of biodiversity by 2030, an average of USD711 billion per year would need to be spent. The status quo is not acceptable.
Various financing solutions and mechanism are detailed in the GBF. Ahead of COP15, the UK government published a 10 Point plan for financing biodiversity that outlines a sensitive approach already endorsed by 16 countries. The momentum is on, but the challenges are tall, although not insurmountable. I will discuss those challenges in part two of this article series.
Biodiversity investments – fast forward to 2030
How will these commitments to rejuvenate our ecosystem impact infrastructure investment? Simply put, it is very good news. The approach to developing sustainable infrastructure investment becomes broader and deeper. Beyond renewable energy, decarbonisation, and climate change protection, we are now conscious that everything counts, from renewable materials to recycling and re-creating life conditions. These factors are now part our infrastructure thinking. We won’t breathe very long without plant photosynthesis. Ocean acidification may bring the entire food chain to a halt. Yet, infrastructure could and should become the backbone of a healthy planet and in doing so, generate opportunities and returns.
The following fictional example intends to illustrate how infrastructure and biodiversity investments could evolve positively:
On Monday, 7 January 2030, as CEO of a large, global engineering and construction company that holds strategic investments in infrastructure assets, you are looking at your business plan for the coming year. Things have changed since COP15:
- Your nature and biodiversity services division has boomed. Pension funds invested in real assets have launched forest managements programs that translated into long-term contracts. Your ocean team has won prizes for its restoration of mangroves, especially those affected by shrimp farming, an initiative long supported by China for its natural high-carbon capture and coastal protection efficiency. Your Singapore water re-use and purification unit is in high demand as fresh water becomes scarce.
- The innovative transportation and civil works division was among the first to meet the circular economy requirements adopted by leading procurement agencies. Your group can now design, build, and maintain mass transit, and other projects with low-carbon and highly recyclable materials, including steel and cement. All your new public private partnership contracts include nature protection KPIs.
- Your Chief Financial Officer has been active on the carbon markets to monetise carbon and biodiversity credits, a recurring source of income generated by the greening of your activities, and fully disclosed under the ISSB updated reporting standards. Things are looking good.
In the next article, I will look further into financing biodiversity infrastructure investments and the scaling-up of mechanisms to mend our infrastructure and biodiversity gaps. To be notified when this article is published subscribe here.