By Laxmi Aeshwarya Kumar, Project Specialist Legal Framework for Impact, UNEP FI and Dennis Fritsch, Associate Nature Lead, UNEP FI
Last month, after more than 10 years of negotiations, UN delegates reached an historic agreement concerning the protection of marine biodiversity in international waters, an area covering almost half of the Earth’s surface and 95% of the planet’s habitat by volume.
The new legal framework, also referred to as the ‘High Seas Treaty’, will be the first of its kind and a significant milestone for the protection and legal management of waters and marine organisms that lie beyond any jurisdictional confines – a common heritage of humankind. It is anticipated that the treaty will contribute to overcoming pressing global challenges such as climate change and the decline of biodiversity. Among other measures, it sets out key approaches for the establishment of marine protected areas to preserve wildlife and reach 30% of ocean protection by 2030, alongside crucial rules for equitable and fair benefit sharing from the sustainable use of the high seas’ (genetic) resources.
The sustainable use of the ocean’s resources is gaining attention globally and it is becoming clear that financial institutions need to be able to assess both their impact on the ocean and their exposure to the risk from a degrading marine environment.
To support banks, insurers and investors align their financing activities with the UN Sustainable Development Goal 14 ‘Life Below Water’, UNEP FI hosts the Sustainable Blue Economy Finance Initiative – the leading global initiative for ocean finance. The underlying principles include a commitment to support investments, activities and projects that take all possible measures to restore, protect or maintain the diversity, productivity, resilience, core functions, value and the overall health of marine ecosystems, as well as the livelihoods and communities that depend upon them.
The initiative brings together financiers across the globe to spotlight the role financial actors including investors can and should play in the protection of biodiversity and nature overall, and in the marine space in particular. Building on the momentum of these principles and its almost 90-organisation-strong community of practice, the initiative has developed a globally prominent blue finance guidance and case studies over the last two years. These practical resources provide recommendations for best practice across economic activities in ocean-linked sectors and activities which should not be financed due to their high risk and negative impact on the marine ecosystem.
Investors embarking on efforts to contribute to achieving such biodiversity and nature-related targets often come up against perceived and practical barriers to doing so effectively. Although investors increasingly recognise that long-term financial returns depend on healthy natural and social systems, many mistakenly believe that legal considerations prevent them from taking action to pursue improved sustainability outcomes. This is despite the fact that the Legal Framework for Impact research finds that a failure to do so by investors may represent a failure to discharge their fiduciary duties.
‘A Legal Framework for Impact’ (LFI) supports investors in fulfilling their existing legal duties while considering sustainability impact objectives. The joint project led by the Principles for Responsible Investment, the Generation Foundation and UNEP FI also sets out the actions policymakers should take to address barriers to investing for sustainability impact.
A ground breaking legal analysis by Freshfields Bruckhaus Deringer, commissioned by the LFI project, examined legal frameworks across 11 jurisdictions to determine to what extent investors are permitted or required to integrate such objectives into their investment decision-making, strategy and processes. The report is distinct from previous work due to its focus on the goals of an investor in comparison to simply integrating ESG-factors as part of risk management. The findings indicate that while financial return is generally regarded as the primary purpose and goal of investors, they will also likely have a legal obligation to consider pursuing sustainability impact where it can help achieve their financial objectives– and hence a failure to do so may breach an investor’s legal obligations. Yet many investors are not necessarily aware of this or fail to adequately manage their impacts on sustainability issues.
A number of subsequent jurisdiction-specific policy reports published under the LFI project outline measures policymakers could take to encourage greater pursuit of sustainability impact objectives and to counteract identified barriers. These include for example clarifying when sustainability impacts can or must be considered as part of duties of loyalty, care and prudence or by encouraging the use of stewardship to achieve sustainability impact objectives across the investment industry through integration of relevant provisions into existing legislation and policies.
Both the LFI project and the Sustainable Blue Economy Finance Initiative advocate for investors to integrate sustainability impact objectives such as those related to biodiversity and nature into their core investment activity. It is becoming clearer that a nature-inclusive approach corresponds to sector best practice and awareness of these issues is increasing as change begins to happen across the industry. Policy is changing too and the recent agreement on the ‘UN High Seas Treaty’ and the adoption of the Kunming-Montreal Global Biodiversity Framework point towards a positive trend that is likely to have subsequent policy implications for the global financial sector. Public and private sector entities are increasingly becoming aware of the need for urgent action to halt and reverse the devastating impacts decades of unsustainable consumption and production models have had on our global life-support systems including the oceans’ wildlife, carbon storage capacities and ecosystems. To achieve a truly sustainable blue economy, mainstream finance must be redirected through two complementary approaches: integrating “blue” criteria into financial and investment processes and proactively financing sustainable activities. Both will require concerted action from governments, regulators, the private sector and development partners.
If you are a financial institution interested in joining the Sustainable Blue Economy Finance Initiative, please visit www.unepfi.org/blue-finance