New in Biodiversity Finance: September 2023
Irina Likhachova
Global Biodiversity and Nature Finance Lead at IFC. Environmental Finance Personality of the Year, 2024 Sustainable Debt Awards.
In this issue:
September saw important developments in biodiversity finance market rules and standards and accelerated investor action on nature.
The Taskforce on Nature-related Financial Disclosures (TNFD) launched its final set of disclosure recommendations and guidance for financial institutions and corporates to report and act on nature-related dependencies, impacts, risks and opportunities.? TNFD Recommendations is the core document that provides a risk management and disclosure framework “to identify, assess, respond to, and disclose their nature-related issues.” Additional documents released provide resources to support the adoption and implementation of TNFD.
I had the privilege of attending the launch of the TNFD Recommendations at the New York Stock Exchange on September 18, 2023. As I looked across the NYSE trading floor fully packed with representatives of companies, banks, and different organizations who played a part in getting to the launch, I couldn’t help reflecting that less than three years ago TNFD was just an idea put forward by a few passionate and visionary people. Huge congratulations to the core TNFD team and many many others who contributed in so many ways along the way!!
Now the important work of adopting and operationalizing TNFD across companies and financial institutions begins in earnest.
CDP announced that it will align itself with the TNFD framework starting in 2024 to further accelerate the integration of environmental topics beyond climate change, deforestation, and water security. CDP recently expanded its scope to include biodiversity and plastic pollution. (Environmental Finance).
While TNFD is voluntary, it is expected to follow the trajectory of the Taskforce on Climate-related Financial Disclosures (TCFD) whose recommendations were integrated into the sustainability reporting standards launched by the International Sustainability Standards Board (ISSB) earlier this year. ISSB standards are mandatory and are expected to be adopted globally. ISSB is currently consulting on its priorities over the next two years; and ‘biodiversity, ecosystems, and ecosystem services’ is one of the four suggested themes. Furthermore, the existing ISSB standards’ 400 of its 1,000 metrics are already related to nature.?
In another significant market development, Central Bankers’ Network for Greening the Financial System (NGFS) published Conceptual Framework to guide action by central banks and supervisors on nature-related risks. The framework provides guidance on understanding and assessing nature-related financial risks to identify sources of physical and transition risks, assessing economic risks, and assessing risk to, from and within the financial system. NGFS plans to refine the framework and develop supplemental materials to provide additional support and guidance on its implementation. In parallel, NGFS has set up a technical group to develop an approach to nature-related scenarios to help bridge modelling and data gaps that emerge from the framework.
To provide investors practical guidance on the types of activities that contribute to improving the health of oceans and aquatic ecosystems, the International Capital Markets Association (ICMA) issued guidance on issuing Blue Bonds to finance sustainable blue economy. IFC has worked closely ICMA and other partners on this guidance, drawing on IFC’s own Guidelines for Blue Finance published in January 2022.
Carbon credit standard body VERRA launched a public consultation on its ?Nature Framework that aims to certify investment in measurable positive biodiversity outcomes. The framework outlines how projects can generate Nature Credits, which “represent one quality hectare equivalent of biodiversity uplift from a baseline as a result of project intervention.” (VERRA’s web site)
UNEP published the first draft of a new global treaty to eliminate plastic pollution by 2040. The draft directs countries to work towards “prevention, progressive reduction and elimination of plastic pollution throughout the lifecycle of plastic” with a focus on the materials most harmful to human health and biodiversity. (Eddie)
INVESTOR ACTION
One hundred and ninety institutional investors, representing $23.6 trillion in assets under management, singed on to the recently launched Nature Action 100+ initiative to “engage companies in key sectors that are deemed to be systemically important in reversing nature and biodiversity loss by 2030.” The initiative has identified 100 companies, including Amazon, BHP Group, Nestle, Unilever, Walmart, in eight key sectors for engagement. The investors have outlined six actions they expect from companies:
One hundred and seventy food and beverage companies and farmer cooperatives across the world committed to advance regenerative agricultural practices through the ‘Regenerating Together’ framework developed by the Sustainable Agriculture Initiative. (Note that many of the companies are on the Nature Action 100+ list above, meaning that they already have been thinking through how to transition their operations to nature-smart supply chains). The framework has been tested across global supply chains of 20 major companies and focuses on water, soil, biodiversity, and climate change areas of impact. The framework includes four steps: risk screening assessment; outcome selection; the adoption of principles and practices; and monitoring and assessment. (Carbon Pulse, Eddie)
Pollination surveyed 557 institutional investors in the UK, US, Australia, France, Singapore, and Japan to understand how investors are responding to nature-related themes in their operations. Forty six percent indicated that they are primarily focused on risks posed by dependency on nature across their portfolios, while 37% are primarily focused on opportunities, including direct investments in nature improvements, nature markets or nature solutions, and 18% considered both risks and opportunities. In terms of where investors see opportunities, 50% highlighted nature-based solutions and nature markets, 38% in technology solutions, 34% in real assets with nature co-benefits, and 32% in responsible mining. Investors from Singapore and the US are among some of the most active on nature (61% and 45% respectively). Read full Nature Finance Focus report.
MARKET TRANSACTIONS
IDB launched the Biodiversity and Climate-Linked Mechanism for Ambition (IDB CLIMA) to incentivize national, subnational entities and financial institutions to achieve nature and climate objectives with a discount of 5% of the loan’s principal. The program in pilot stage with a total of up to $1 billion in loans for up to 10 projects coupled with grant-based advisory assistance. (IDB Press Release) ??
领英推荐
Circular Economy
IFC provided a BRL 130 million sustainability-linked loan to Orizon Meio Ambiente SA, a Brazilian environmental service provider, to help promote innovative waste solutions and increase recycling capacity in Brazil. IFC investment will help finance the construction of Latin America’s largest mechanized material recovery facility in the state of Pernambuco that operates on a dirty mixed waste stream and has the capacity to process 2,000 tons of waste a day, keeping it out of landfills by increasing recycling rates. In addition, IFC financing will support the expansion of two leachate treatment plants in the state of Rio de Janeiro focusing on reusing of water from treated leachate. (IFC Press Release).
La Banque Postale launched a $1.1 billion impact infrastructure debt fund that will target circular economy among other priority areas. (Environmental Finance).
Lombard Odier Investment Managers held a first close of its Plastic Circularity Fund, attracting commitments from chemical companies Dow and LyondellBasell. The fund focuses reducing both plastic waster and GHG emissions throughout the plastics value chain. (Environmental Finance).
EU’s Critical Raw Materials Act now includes a target to recycle at least 45% of each strategic raw material contained in EU’s waste stream. (Eddie)
Coca Cola is funding research conducted at Swansea University to produce plastics using carbon captured from industrial plants to displace fossil-fueled feedstocks. (Eddie)
Forestry and Agribusiness
Just Climate launched Natural Climate Solutions Strategy to invest in agriculture, forestry, and other land use business to avoid emissions. It will also invest in businesses that sequester carbon in soil, forests, and wetlands. (Environmental Finance).
US-based venture capital investor Trailhead Capital closed a $50 million fund to invest in early-stage regenerative food and agriculture companies. (Environmental Finance).
Tikehau Capital invested €120 million in Biobest whose pollination and disease control technology reduces dependence on conventional pesticides, a key driver of biodiversity loss. This investment is part of Tikehau’s regenerative agriculture strategy launched in 2022 with a €1 billion target to reduce carbon emissions, protect water resources, and restore biodiversity. ?(Environmental Finance).
Climate Asset Management’s natural capital fund acquired a regenerative agri project in Australia to restore biodiversity and generate carbon credits. The project will turn sugar-cane farmland into a macadamia orchard and use regenerative practices to reduce water use and synthetic fertilizers. It is expected to have a positive effect on the Great Barrier Reef through limiting chemical runoff. (Environmental Finance).
INVL launched a new funding round for Sustainable Timberland and Farmland Fund II- Capital Fund, dedicated to forest and land management, targeting €200 million. Its first €90.7 million manages over 19,000 ha or forests and land. (Environmental Finance).
Dalberg in partnership with FSD Africa Investments,?African Leadership University School of Wildlife Conservation,?CreditNature, and?Xilva launched Biodiversity investments – Research and Accelerator (BIRA) initiative to help develop cost-effective approaches to biodiversity and ecosystem measurements. BIRA announced its first Biodiversity Project Accelerator in Africa to provide grants to help high quality projects become investor-ready.
REPORTS
There was significant coverage of the report on invasive alien species by the Intergovernmental Platform on Biodiversity and Ecosystem Services. A headline finding -- alien invasive species introduced by many economic activities have played a key role in 60% of global plant and animal extinctions and carry economic costs more than $423 billion per year. These costs have quadrupled every decade since 1970. The report provides governments with tools and options to achieve the global goal on preventing the introduction and stopping the spread of invasive alien species.
If you are interested in carbon markets, given the important role of nature-based solutions there, I recommend reading CarbonBrief’s weeklong series on carbon offsets and credits. The In-depth Q&A: Can carbon offsets help tackle climate change? is a comprehensive overview of concepts, terminology, and the key concerns in the market. The series also includes In-depth Q&A: What are ‘biodiversity offsets’? (as distinct from nascent biodiversity credits) that provides a good primer on the offset market and looks at whether biodiversity offsets could be a reliable and predictable source of finance.
In the series:
·?????? Analysis: How some of the world’s largest companies rely on carbon offsets to ‘reach net-zero’
A lot shorter read - Sustainable Fitch published two papers looking at biodiversity and ‘nature-positive’ emerging trends in sustainable finance. “Biodiversity in ESG: Focus on Impact Grows” looks broadly at ‘nature-positive’ investment theme increasingly gaining investors’ attention alongside climate and other ESG. The report highlights IFC’s Biodiversity Finance Reference Guide as a practical guidance to investors on accepted use of proceeds to meet criteria for biodiversity finance.
The second paper “Biodiversity in ESG: Ocean Economy a New Frontier in Sustainable Finance” looks at investor interest in the blue economy sectors that will be further spurred by regulation and new disclosure frameworks. The paper identifies a limited scope of ocean-related eligible activities in sustainable finance taxonomies as a hindrance to increased financing flows to support sustainable blue economy. To this end the IFC’s own Guidelines for Blue Finance, published in January 2022, and recently released ICMA’s guidance on issuing Blue Bonds to finance sustainable blue economy, to which IFC contributed, address this gap by providing a list of eligible investment activities.
Thank you for reading!
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World Bank Group | LinkedIn Top Voice | Ex- Clinton Foundation | Ex- Nomura Investment Strategy | Disability Advocate
1 年Such an insightful read, thank you for sharing, Irina!
Senior Managing Director
1 年Irina Likhachova Very well-written & thought-provoking.