New in Biodiversity Finance: April, 2023

In this issue:

• G7 commitments on biodiversity, climate, pollution and policy implications
• BloombergNEF's Biodiversity Finance Factbook and other reports
• New biodiversity-related funds and new tech to kill weeds and mine for lithium

At the political stratosphere level, G7 ministers of Climate, Energy and Environment met in Japan on April 15-16, 2023, to discuss “unprecedented triple global crisis of climate change, biodiversity loss and pollution that are mutually reinforcing and intrinsically linked.” They agreed to work towards achieving “net-zero, resilient, circular and nature positive economies.” This extends beyond the boundaries of G7 economies. One of the overarching key commitments in the final communique with important policy implications within and outside G7 is to transform “global value chains towards net-zero, climate-resilient, pollution-free, more circular and nature positive ones.”

The ministers’ communique is packed with commitments to implement the Kunming-Montreal Global Biodiversity Framework and other global frameworks that seek to protect and restore forests and marine and coastal ecosystems, prevent land degradation, contain agricultural expansion, scale nature-based solutions, including in urban areas, address pollution, and accelerate resource efficiency and circular economy. The communique emphasizes the importance of inclusion, equity and just transition and pledges financial and non-financial support to other countries to work towards these global goals and emphasizes the importance of mobilization of domestic finance.

If you are following the developments around EU’s new deforestation law, CarbonBrief has put out a detailed explainer on what it is, which products it targets, how the law will be implemented and enforced, and the impact is likely to have on emerging markets.

MARKET UPDATE

Funds

Apple launched the Restore Fund which will commit up to $200 million for high-impact, scalable, nature-based carbon removal projects such as sustainably managed farming operations and conservation and restoration of ecosystems. The fund will be managed by the Climate Asset Management. (Environmental Finance).

L'Oreal’s $55 million Fund for Nature Regeneration, managed by Mirova, invested into French NetZero that turns agri residue into biochar, Brazilian forestry project ReforesTerra, and mangrove restoration initiative in South Asia Mangroves.Now. (Environmental Finance).  

Mirova’s investments in natural capital – projects in sustainable land use, blue economy, and carbon credits -- reached $739 million as of end of February 2023. The fund manager targets to invest €1 billion by 2024. (Environmental Finance).

Schroders Capital launched Climate+ long-term asset fund, designed to help UK pension fund investors support net zero transition. The fund will invest across four themes: climate mitigation, climate adaptation, biodiversity and natural capital, and social vulnerabilities. (Environmental Finance).  

Dutch Convent Capital came €50 million short for its sustainable food and agriculture impact fund – AgriFood Growth Fund -- which sought to raise €150 million. The fund has invested in companies that focus on livestock feed additives, sustainable chemicals, and precision pollination. (Environmental Finance).  

US Development Finance Corporation is considering a $50 million investment into BTG Pactual Timberland Investment Group's (TIG)'s reforestation strategy focused on Latin America. The fund seeks to raise $1 billion by 2026 to conserve nearly 300,000 hectares of trees in deforested landscapes in Brazil, Uruguay, and Chile and sequester 35 million tons of carbon over 15 years. (Environmental Finance)

Agri

The program to provide low interest finance to soy farmers in exchange for them not to clear land they are legally allowed to convert for soy production is expected to grow to $250 million in 2024 and $1 billion in 2025. The initial $11 million pilot – Responsible Commodities Facility – has been implemented in Cerrado region of Brazil since 2022 as a proof of concept. The pilot program was funded through innovative approach using US dollar-denominated green bonds to finance Certificates of Receivables from Agribusiness to provide low-interest loans to farmers. (Environmental Finance).

On the issue of cropland expansion, CarbonBrief covered a recent study that found 58-fold rate of expansion of cropland into protected areas between 2000 and 2019.

Circular economy

Companies can now report on their plastics production and use through CDP. This reporting is voluntary at this stage. Those companies which choose to report, will need to split their plastics use for packaging, polymers and durable plastics categories. (Eddie).

Apple has pledged to only use recycled cobalt in Apple-designed batteries by 2025 and 100% of recycled tin soldering and gold plating in Apple-designed circuit boards. (Eddie).

New tech

Canadian startup Precision AI designed drones that can identify and kill weeds in a targeted application of herbicide instead of traditional way of drenching entire big-acre crops (like corn and wheat) in chemicals. This approach can decrease the amount herbicide application by 90% with clear biodiversity co-benefits as well as financial benefits for farmers by slashing the bill for expensive herbicides. (Bloomberg).

An early-stage ‘direct lithium extraction’ technology has potential to significantly reduce lithium mining footprint and water use – both are important to reduce the key drivers of biodiversity loss. Direct lithium extraction uses relatively small and modular machines that suck lithium rich brine from the ground to filter out the metal. This technology is far less destructive than traditional mining as it operates on a smaller scale and does not require carbon-heavy evaporation ponds. In addition, there is a lot lithium rich brine in the old oil fields, which could further help contain the expansion of lithium mining into undisturbed areas (Bloomberg).

In parallel, there has been progress in developing sodium-ion cells as a safer and less environmentally damaging alternative to lithium-ion batteries. Chinese automaker JAC produced a test electric car running on sodium-ion cells. (Bloomberg).

REPORTS

There were several papers and reports put out in April. If you have time to read one, I suggest BloombergNEF’s “Biodiversity Finance Factbook.” It provides the most comprehensive overview I have seen of finance flows to biodiversity from different sources – public and private. It looks at how green financial products such as green bonds and carbon credits and offsets have been deployed to address key drivers of biodiversity loss. Finally, the paper provides a framework to identify investment priorities based on identifying locations where biodiversity is plentiful, providing value, and at risk.

“Unboxing Nature-Related Risks: Insights from UNEP FI-led TNFD Piloting Programme” summarizes results of applying TNFD framework by over 40 financial institutions.

This report by Pollination and Taskforce on Nature Markets looks at the role of law, regulation, and policy in creating high integrity biodiversity credit markets to finance real gains for biodiversity that are not linked to negative impacts in another location – a key differentiator from biodiversity offsets that are used to compensate for damage.

“More for Less ” report by Nature Finance looks at sustainability-linked sovereign debt as an innovative financial solution to help countries to restore debt sustainability, mobilize funding for climate and nature goals, and build resilience against future shocks. Following two successful issuances of sustainability-linked sovereign bonds by Chile and Uruguay, the report estimates that issuances could reach $250-400 billion by 2030 in emerging markets and outlines seven pathways to achieve scale. One these pathways is connecting to the nature market that can both expand the range of KPIs and targets and tap into nature-based revenues.

In its Special Report “Biodiversity – Can You Save the Planet and Make Money?” Morningstar speaks to how investors can pursue strategies to protect biodiversity and provides an overview of existing funds and ETFs with biodiversity strategies.

A longish read “The illusion of a trillion trees” from the FT highlights the challenges of relying on tree planting to address climate and biodiversity loss crises and highlights protection of intact ecosystems as a priority solution.  While this Bloomberg piece covers a scientific paper that advocates rewilding as a climate solution – it looks at how the presence of the right animals in an ecosystem can boost its carbon sequestration by up to five times.

Finance for Biodiversity Foundation’s analysis identified the food, beverage and tobacco sector to have the highest potential negative impact on biodiversity. The analysis was part of preparatory work for the investor initiative Nature Action 100 to proactively engage companies with the most damaging biodiversity footprint. (Environmental Finance).

Thank you for reading!