Urgent action by world leaders to halt environmental degradation and biodiversity loss is needed. The WWF Living Planet Report, released just a few weeks ahead of the COP15 Summit, estimated a 69 percent average decline in wildlife populations since 1970 . This continued loss of nature across the world is known to have a significant impact on the global economy: It is estimated that roughly half of the world’s GDP is at least directly or moderately dependent on nature, with some arguing that this figure is even higher.
The Kunming-Montreal Global Biodiversity Framework (GBF) signed by 196 nations on 19 December to “take urgent action to halt and reverse biodiversity loss” by 2030 and to protect 30 percent of land and sea area by 2030, was unexpectedly encompassing, and provides hopes for building a new relationship between people, the economy and nature.
The role of finance in both sustaining and finding solutions that address biodiversity loss is becoming clearer. In this article we examine what the new Global Biodiversity Framework (GBF) means for the financial sector, providing some tangible examples of sustainable finance policy and regulation necessary to accelerate action on nature and biodiversity.
The Global Biodiversity Framework (GBF): A new era of action for nature
The GBF is not a legally binding agreement, but the governments who have signed commit to demonstrating progress towards meeting targets, and updating their National Biodiversity Strategy and Action Plans (NBSAPs) accordingly.
NBSAPs are similar to the nationally determined contributions under the Paris Climate Agreement, but for this framework, all countries must comply with all of the goals and targets. All NBSAPs will be accompanied by a biodiversity financing plan that includes opportunities for private finance mobilization. This presents a clear call to action for policymakers and regulators to put in place measures at jurisdiction level to accelerate change.
What are the likely implications of the Kunming-Montreal Global Biodiversity Framework for financial policy and regulation?
As a result of the GBF, the financial sector may expect the following five actions by policymakers and regulators. These would have direct implications for all financial actors.
1. Mandatory nature-related disclosure & data
It is expected that nature-related disclosures will become a core part of every corporate’s annual reporting, including financial institutions.
Examples of this already exist, such as in France with the government’s 2021 decree extending annual reporting by financial investors to include biodiversity information and their individual biodiversity footprint . The Taskforce on Nature-related Financial Disclosures (TNFD) launched in 2021 has already begun to develop a framework for businesses and other entities to report on nature-related risks.
2. Increasing nature-positive financial flows, aided by harmonized taxonomies and standards
Fleshing out science-based performance indicators for reversing biodiversity loss will be a key element of sustainable finance taxonomies.
Work is already under way to develop such taxonomies, for example the EU Taxonomy Regulation already includes the protection of healthy ecosystems as one of its six environmental objectives and is currently developing science-based thresholds for biodiversity.
3. Biodiversity targets and due diligence obligations to form a mandatory part of companies’ governance
Nature loss and nature positive targets will need to be embedded as part of directors’ duties and due diligence processes, including for financial institutions.
For example, environmental risk considerations are already being included in the emerging EU Corporate Sustainability Due Diligence Directive, obliging in-scope entities to perform an assessment of potential adverse impacts in their supply chains.
4. Clarification of supervisory expectations and guidance on biodiversity risk management
Central banks and supervisors will need to address the physical and transition risks stemming from nature loss as a core part of their mandates, supervisory expectations and rules.
Some have already begun to release guidance on how financial institutions should manage environmental risks beyond climate, and it can be expected for this to expand and become a core part of their mandate.
5. Further international alignment in policy concerning nature-based sustainable finance
The numerous and sometimes overlapping standards, methodologies and expectations hinder efficient and speedy implementation in the market.
The GBF will enable international alignment: Policy makers are encouraged to make use of multilateral forums such as the Network for Greening the Financial System, the IFRS International Sustainability Standards Board (ISSB), the International Platform on Sustainable Finance (IPSF), G7 and G20 as relevant, and others to coordinate their regulatory responses.
Looking forward, with the support of UNEP FI
The GBF will accelerate the development of sustainable finance policy and regulation in nature and biodiversity. Action is already being taken, but increased disclosure, standardization of metrics and taxonomies, and further mandatory action by financial regulators and supervisors is vital if the targets and ambitions of the GBF are to be realized.
UNEP FI is at the forefront of action, working with financial institutions, policymakers and leading research to ensure the financial sector is fulfilling its important role in protecting and preserving nature.
UNEP FI will continue to unpack the implications of the GBF for our member groups – banking, insurance and investment – and in concert with the finance supervisors, regulators and related associations.
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