McKenzie Fulkerson-Jones, ESG Analyst, explains the key facets of the landmark agreement that emerged from the United Nations Biodiversity Conference.
December 31, 2022
This past December, political leaders from 195 countries achieved consensus on the most far-reaching goals to preserve and protect the Earth’s biodiversity in history. The effort is seen as critical to stave off a mass extinction of plants and animals and to preserve food and water supplies for the planet. Over 700 corporations were also present, a clear indication that the effort to halt the degradation of natural systems is critical for global economic stability. This agreement—made at the United Nations Biodiversity Conference (formally referred to as the 15th meeting of the Conference of the Parties, COP 15, to the Convention on Biological Diversity) in Montreal—is being heralded as biodiversity’s equivalent to the UN’s landmark Paris Agreement on climate change. (1)
The COP 15 agreement—officially, the Kunming-Montreal Global Biodiversity Framework—includes 23 environmental targets that, as a whole, seek to: 1) conserve biodiversity, 2) sustainably use biodiversity, and 3) ensure that the use of genetic resources gives benefits that are equitably shared around the planet. This agreement is meant to serve as a guide to governments in the crafting of their national biodiversity strategies and action plans. If executed, this agreement would halt and could even begin to reverse the biodiversity crisis by 2030. The most consequential target included in the COP 15 agreement, referred to as 30x30, would place 30% of Earth’s land and seas under protection by 2030.
Currently, only about 17% of Earth’s land and approximately 8% of its oceans are protected, through restrictions on activities like fishing, farming, mining, hunting, and logging. Another key provision of the COP 15 agreement is that it will increase biodiversity financing to $200 billion, doubling current annual expenditures. (2) Thirty billion of this annual total will flow to poor countries from wealthy countries. Given that wealthier countries have historically drawn on developing nations for natural resources, the $30 billion aid provision was essential to bring developing countries on board with the ambitious new agreement.
A key difference between the COP 15 agreement and past agreements is its provisions to make targets measurable and to monitor countries’ progress. Goals from past agreements, which did not include such provisions, have gone unmet. The hope is that between the larger financial commitments and the tracking of progress against targets, the goals this time will be reached.
Importantly, the COP 15 agreement also speaks to the business community. Although the negotiators and signatories of the agreement are governments, they know that the business world is where the rubber hits the road. So, the COP 15 agreement includes a target that asks national governments to take legal, administrative, or policy measures to encourage and enable businesses (in particular, large and transnational companies and financial institutions) to “regularly monitor, assess, and transparently disclose their risks, dependencies, and impacts on biodiversity.” This target is not mandated (although a mandate approach was pushed by the 330 companies and investors of the Business for Nature corporate coalition), but the idea is that all the signatory countries will enact such a policy, leading to broad disclosure of biodiversity impact. (3)
Biodiversity refers to the variety of all forms of life on our planet, including ecosystems, species diversity, and genetic diversity. Biodiversity is the basis for human well-being as well as the basis for all life on Earth, providing food, clean water, shelter, medicine, clean air, and more.
Currently, biodiversity is declining worldwide at rates never seen before in human history. Wildlife populations have declined by an average of 69% since 1970, and an estimated one million plant and animal species are at risk of extinction by 2050—this amounts to approximately 25% of all species on Earth. By 2100, more than 50% of species are at risk of extinction. (4) The last extinction event of this magnitude occurred 65 million years ago. (5)
Also important to note is that the biodiversity crisis and climate change are inextricably linked. Forests, wetlands, and grasslands trap carbon, which means, when we develop these ecosystems, carbon is released into the atmosphere, contributing to climate change. But when we leave these ecosystems intact, or even restore and expand them, they store massive amounts of carbon, keeping global temperatures down. According to a study by The Nature Conservancy, 37% of the emissions reductions needed to stabilize global temperatures can be trapped by nature. (6)
In terms of resilience to climate change that’s already happening, nature plays a big role there too. Coral reefs, mangrove forests, dunes, wetlands, and kelp forests protect communities from storms and rising sea levels.
Which Countries Have Signed on to COP 15?
The Convention on Biological Diversity (CBD) is a multilateral treaty that was signed in 1992 at the Earth Summit in Rio de Janeiro and launched the following year. Only parties to CBD may sign onto its agreements, such as the recently ratified COP 15 agreement.
CBD’s current 196 parties include the national governments of all the world’s major countries and the European Union. The only two notable national governments that are not parties to CBD are the United States and the Vatican. The U.S. is not a party to CBD because Congress has continually blocked the signing of the treaty to protect U.S. sovereign and commercial interests.
As a result, the U.S. was not at the table at COP 15 in Montreal and was unable to sign the agreement. Instead, the American delegation participated from the sidelines, and President Biden signed a series of executive orders aimed at alignment with COP 15’s goals. Most notably, an executive order placed 30% of U.S. land and waters under protection. It is highly unlikely, however, that the current makeup of the House of Representatives will provide legislative support for these efforts. This leaves U.S. compliance with COP 15 muddied, just as it has been with the Paris Agreement on climate.
Implications for Investors
Even without the U.S. signed on, the COP 15 agreement has the potential for a huge positive impact on the planet as well as on the people, plants, and animals that call it home. And the new agreement is already looking like it will have global ramifications on business and finance, whether it’s fully implemented or not. Like the Paris Agreement did for climate, the COP 15 agreement is putting biodiversity on the radar of corporations and investors.
Between 700 and 1,000 companies attended COP 15. This is the first time a large group of corporations have attended a Biodiversity COP. And with good reason. Going into the conference, companies were aware of the COP 15 agreement’s proposed provision that would compel signatory countries to ask companies to disclose their nature impacts in their corporate reporting.
The participation of business in COP 15 was and is critical. Not only does nature need business to be on board to survive, business needs nature. The World Economic Forum estimates that more than half of the world’s GDP ($44 trillion of economic value generation) is either moderately or highly reliant on nature’s services. (7) According to the World Bank, collapsing ecosystems could take 2.3%, or about $2.7 trillion, off global GDP in 2030. (8) Others estimate that tens of billions of dollars in assets could be at risk of stranding over the next five to 10 years if companies continue to produce deforestation-linked commodities.
Take the pharmaceutical industry for example – many prominent prescription drugs are derived from plants and microbes found in tropical forests and coral reefs. When these ecosystems are gone, so are the drugs that rely on them.
“Wall Street has realized that it’s been pricing a natural asset for the last 150 years at zero,” said David Craig, co-chair of the Taskforce on Nature-related Financial Disclosures. “That doesn’t work anymore. You can price something at zero when it’s a commodity and it’s plentiful. But when it starts running out, it starts getting expensive.”
If business learns to harmonize with nature, business can benefit greatly from it. Estimates by the World Economic Forum suggest that protecting nature and increasing biodiversity could generate business opportunities worth $10 trillion a year and create nearly 395 million new jobs by 2030. (9) Some companies have caught onto this idea already. At COP 15, Kering and L’Occitane launched the Climate Fund for Nature. The Fund will mobilize resources from the fashion and beauty industries to protect and restore nature. The Fund launched with $300 million and is open to new partner companies to grow the fund and its impact. (10) Investors are getting on board as well. A group of institutional investors—with a combined $3 trillion in assets—announced a new campaign from the COP 15 main stage: Nature Action 100. (11) The campaign will seek to bring the business world into alignment with the COP 15 agreement by driving greater corporate ambition and action on tackling nature loss and biodiversity decline. Nature Action 100 will use a model resembling that of the climate campaign by a similar name, Climate Action 100+, seeking to catalyze corporate action via investor-company engagements.
Some investors are even getting out ahead of this biodiversity boom by beginning to incorporate biodiversity into their investment strategies. Although biodiversity and nature-focused strategies are vastly outnumbered by those focused on climate (roughly 1,100 funds holding over $350 billion in global assets, Morningstar estimates), signs point toward biodiversity-focused funds following suit. (12) And, as noted above, biodiversity decline and climate change are inextricably linked, so it seems likely that fund strategies may be grouped as well.
The COP 15 agreement is a signal the financial community cannot ignore. It is critical for the sake of business and nature alike.