New in Biodiversity Finance: June 18 - July 1, 2022

In this issue:

• Political commitments: G7 on nature, pre COP15 negotiations, WTO agreement on fishing
• Standards and rules: EU proposed Nature Restoration Law, TNFD beta framework, PBAF biodiversity impact assessment standard for FIs
• Market Update: nature-positive commitments from Nestle, Unilever, BHP, Teck; Blue Finance and Blue Carbon; new tech potential in forestry and agribusiness

Over the last two weeks the market for biodiversity finance continued to be shaped by three forces fundamental to any market growth: political commitments, standards and rules, and private sector participation and transactions.

Political Commitments

Climate change and biodiversity loss were part of the discussions at the G7 Leaders meeting in Germany on June 26-28, 2022. G7 Leaders’ Communique recognized the “adverse effects of climate change and environmental degradation on peace, stability, and security” and stated commitment to work together with the global community to counter these impacts. G7 Leaders committed to developing clear policies and strategies to align public and private financial flows with climate and biodiversity objectives “to facilitate the transition of the whole economy toward sustainability, net-zero and nature-positive outcomes” and called on other countries to take similar action. To this end, G7 Leaders support mandatory climate-related financial disclosures and await the recommendations of the Taskforce on Nature-related Financial Disclosures.

The communique listed specific commitments in the “Environment” section, including: 

• Conservation or protection of at least 30% of land and 30% of the ocean by 2030, nationally and globally.
• Advocacy for ambitious goals and targets and effective implementation mechanisms of the Post-2020 Global Biodiversity Framework to be adopted at the COP 15.
• Achieving land degradation neutrality and ending deforestation.
• Mainstreaming, enhancing, and scaling up the implementation of Nature-based-Solutions.
• Stopping and reversing the overexploitation of natural resources.
• Combating pollution including through the sound management of chemicals and waste, including plastics.
• Increasing resource efficiency and a circular economy.
• Boosting agricultural sector’s contribution to food security and to fighting climate change and biodiversity loss through enhanced soil carbon sequestration.

Relevant to MDBs, G7 Leaders committed to ensure that their “international development assistance does no harm to nature by 2025” and called on MDBs “to increase and disclose their finance for nature, pledging concrete amounts to international biodiversity finance” ahead of biodiversity COP15.

Speaking of COP15, the UN Convention on Biological Diversity announced its decision to move it from Kunming, China, to Montreal, Canada, to be held on December 5-17, 2022. The meeting is expected to deliver the Post-2020 Global Biodiversity Framework to reverse nature loss by 2030 (aka ‘Paris Agreement for Nature’). However, intermediate negotiations held in Nairobi last week failed to achieve desired progress, leaving many of the contested issues in the draft Framework unresolved. Out of 21 originally proposed targets, there was an agreement on two: increasing urban biodiversity and enabling technology transfer and scientific cooperation. A 22nd target was added on gender. Business for Nature coalition commended discussions on what it would take to scale and speed up business action to help deliver on the Framework and momentum in favor of “mandatory requirements for business and financial institutions to assess and disclose their impacts and dependencies on nature, across operations, value chains and portfolios.”  However, there remain conflicting views and, thus, little progress on proposed targets around harmful subsidies for agriculture and fishing and pesticide and fertilizer pollution.

In the meantime, the World Trade Organization delivered an international agreement on limiting harmful fishing subsidies for “illegal, unreported and unregulated fishing, for fishing over-depleted populations and for vessels fishing on the unregulated high seas,” drawing praise. However, subsidies that encourage overfishing stayed, as well as some carve-outs for developed countries, drawing criticism form a range of organizations. 

Standards and rules

European Commission has put forward a Nature Restoration Law to reverse nature loss in EU countries which includes legally binding targets of restoring 20% of EU’s land and sea by 2030 and having all ecosystems in the state of restoration by 2050. Additional targets include reversing decline in pollinators, ending net loss of urban green spaces, and reducing pesticide use by half. It also includes €100bn for nature restoration in agriculture, forests, oceans, and urban areas. The proposed law seeks to restore degraded ecosystems particularly those with high potential for carbon sequestration. EU states would have two years to prepare national restoration plans. 

For a more in-depth read on COP15, WTO and EC developments and links to media coverage, please see Carbon Brief Cropped.

The Taskforce on Nature-related Financial Disclosures (TNFD) released the second version of the beta “The TNFD Nature-Related Risks and Opportunity Management and Disclosure Framework.” The release follows extensive feedback from market participants and stakeholder on the first beta version of the Framework which is reviewed in the Summary of the document. The new version includes the following enhancements:

• Draft architecture for metrics and targets and draft guidance on dependency and impact metrics with an illustrative set of examples.
• Proposed approach to developing more specific guidance organized into sector specific (financial and non-financial), issue specific (dependencies, impacts, risks, opportunities) and realm specific (ocean, freshwater, land, and atmosphere) guidance.
• Updated LEAP (Locate, Evaluate, Assess, and Prepare) approach for financial intermediaries, adding scoping questions to help FIs prioritize and focus efforts to assess their financial portfolios.

In addition, TNFD released a TNFD Piloting Guide to provide practical guidance for market participants interested in pilot testing the beta framework from July 1, 2022, to June 1, 2023.

Stakeholders are invited to pilot test and to continue to review and provide feedback on the beta framework. Learnings from the pilot testing and additional feedback will inform two more update releases of the beta framework scheduled for November 2022 and February 2023, before the Taskforce’s final recommendations are published in September 2023. 

An industry-led Partnership for Biodiversity Accounting Financials (PBAF) presented a new biodiversity impact assessment standard for financial institutions. It seeks to provide guidance to financial institutions on how to analyze their biodiversity impacts and dependencies. It is harmonized with other initiatives in the financial sector such as TNFD, the Science Based Targets Network, and the EU Align project. The document also includes thinking of what biodiversity positive investments look like.

A case to watch is a lawsuit brought forward by the Australian Conservation Foundation against Woodside Energy, reported by FT. The case argues that the emissions from the Woodside Energy’s $12 bn Scarborough gas extraction project for the sale of liquified gas to Asia will directly contribute to the destruction of the Great Barrier Reef. The case combines Australian law that prohibits offshore oil and gas projects if they are likely to cause damage to the Great Barrier Reef and the application of climate “attribution science” to prove a causal link between greenhouse gas emissions (in this case occurring 3,000 km away), rising global temperatures and the coral bleaching.

Private sector commitments

In an FT OpEd Nestle’s and Unilever’s chief executives articulated their companies’ commitments to achieve zero deforestation in their supply chains by 2025, to embrace regenerative agriculture to develop “nature-positive” supply chains, and to use technology to track, improve and report on progress. The chief executives called on governments, MBDs and DFIs to work with the private sector to help accelerate finance into nature-based solutions, including forests.

FT reported on BHP’s (world’s largest mining company) plans to tackle biodiversity loss by placing 30% of the land and water it owns, leases or manages under conservation, restoration or regenerative practices by 2030.

This announcement follows an earlier commitment from a Canadian mining company Teck to become nature positive. The company set targets to conserve or rehabilitate at least three hectares for every hectare disturbed by its operation through investments in land conservation to protect 14,000 hectares of wildlife habitats and ecosystems in Canada and Chile.

MARKET UPDATE

Blue Economy and Blue Carbon

Planet Tracker is looking to develop a new type of blue bond that would pay fisheries not to fish certain marine populations. The idea is that investors would pay companies not to fish for a period of time to allow for fish populations to recover. At the end of this recovery period investors can fund those companies to fish sustainably. According to Planet Tracker, the idea draws on the World Bank’s Rhino Bond example (Environmental Finance).

Ocean 14 Capital Fund focused on marine health and Aker BioMarine, a krill harvesting company, will invest $42 million to a plastic reduction company AION AS (Environmental Finance).

Hawaiian-based start-up Symbrosia raised $7 million to bring its SeaGraze to market. SeaGraze is specially developed seaweed strains that can be used as a livestock feed additive to reduce methane emissions from “cow burps” by over 80%. Investors include Danone Manifesto Ventures, Pacific6, HATCH, Presidio Ventures, Kamehameha Schools, and Mana Up (Environmental Finance).

Verra and Gold Standard, the world’s largest voluntary carbon credit standard setters and registries, are considering new methodologies for blue carbon generated through seascape management activities, such as seaweed farming. Verra currently has three methodologies approved for blue carbon credits from conservation or restoration of tidal wetlands ecosystems – mangroves, seagrasses and salt marshes. Gold Standard currently has a blue carbon credit methodology for mangroves and is reviewing other methodologies including those related to seaweed and for sustainable mangrove management developed by FORLIANCE, a developer of nature-based solutions (Environmental Finance).

Network of Ocean Ambassadors Headquarters – ReGeneration (NOAH ReGen) is creating a blue equivalent of the REDD+ forestry framework to provide guidance for ocean-based economic activity. The intent is to guide companies away from harmful marine activity, while promoting ocean conservation and blue solutions. NOAH ReGen pursuing its own path in terms of developing its own methodology for verifying, certifying, and registering blue carbon credits and in terms of trading them only on its own exchange. The work of NOAH ReGen is bankrolled by French billionaire Georges Cohen, who owns a 17% stake in the company (Environmental Finance).

Agri commodities and deforestation

Brazilian JPG Asset Management fund focused on preventing deforestation seeks to raise $100 million in the next few months. Launched in May, the fund is invested in 12 companies that are significantly exposed to commodity-driven deforestation to work with them to shift their practices (Environmental Finance).  

Data

Google is providing access to its Earth Engine to all government and commercial entities. The engine is one of the world’s largest and now publicly available collection of the Earth’s observation data that allow companies to know their impact on the environment (Carbon Credits).

New tech potential in nature-positive forestry and agribusiness

This essay published by BBC describes how ectomycorrhizal fungi that live on trees root systems boost trees capacity to absorb carbon and slow down the release of carbon by slowing down the decomposing process. This can have commercial applications for carbon sequestration projects. In the context of agriculture, certain types of fungi have boosted soil fertility and reduced CO2 emissions, showing strong potential to reduce the use of chemical fertilizers.  

Nature Sustainability published an article (behind paywall) documenting evidence from 30 long-term agricultural experiments from Europe and Africa on how ecological intensification of agri systems (i.e. increasing crop diversity and applying natural compost) could help boost long-term yields of staple crops. Interestingly, the success of these practices depends on nitrogen fertilizer use: low levels of fertilizer use was associated with boosted crop yields and high fertilizer use was associated with minimal or no crop yield increase.