The overall impression of our two weeks at COP16 in Cali is that a significant and growing number of corporations has shifted from setting nature and biodiversity targets to figuring out how to implement them. Most companies are still early in the learning curve. However, they have now internalized that their impact on nature and water carries strategic risks and opportunities and are ready to step up and start the trial-and-error phase of implementation. Most companies and investors at COP16 also realize that nature and climate need an integrated response.
I was in Cali with a team of ERM experts and leaders, and these are the five takeaways from this year’s gathering.
National action plans and budgets lag behind surging interest in nature, while calls to merge nature and climate COPs grow louder
The COP16 picture was mixed. On the one hand, the number of delegates, 23,000 - more than twice the number at COP15 and including a strong showing from corporate representatives - indicates that awareness of the critical importance of nature and biodiversity is at an all-time high, continuing the upward trend since the landmark Global Biodiversity Framework (GBF) was signed during COP15 in Montreal in 2022.
However, concrete national actions to achieve the GBF goals - from protecting 30 percent of earth’s land and sea by 2030 and halving food waste to slashing harmful chemicals - the picture is less rosy. Only 15 percent of the countries that promised to submit a plan of execution before COP16, the so-called National Biodiversity Strategies and Action Plans (NBSAP), did so.
Rich countries are struggling to fulfill their promise to provide $20 billion a year up to 2030 to help developing countries protect or restore biodiversity. In 2022, contributions fell 25 percent short, and the GBF Fund created to support this ambition has only raised $250 million so far.
Delegates at COP16 see an artificial divide between nature and climate responses, with different COPs and separately negotiated approaches contributing to the problem. In reality, the biodiversity and climate crises are inextricably linked.
The Taskforce on Nature-Related Financial Disclosures (TNFD) and the Glasgow Financial Alliance for Net Zero (GFANZ) are prominent advocates of merging the climate and nature agendas. Both organizations presented consultation drafts during COP 16 on how companies can integrate nature targets in climate transition planning. Since corporate climate and biodiversity impact are two interacting sides of the same coin, fusing both themes strikes many as the logical way forward.
A growing number of companies embrace TNFD and action on nature, with insurance companies leading the charge
In a clear sign that companies are moving towards implementing nature goals, the TNFD announced that over 500 companies and financial institutions committed to TNFD-aligned risk management and financial reporting, an almost 60% jump since the start of the year. One-third of the MSCI 1500 Index companies and one in four Global Systemically Important Banks (G-SIBs) are now TNFD adopters.
Insurance companies are trailblazers when it comes to weighing nature and biodiversity impacts in their risk assessments. They are intimately familiar with how extreme weather events can impact business operations and how damage to nature caused by companies can come back to haunt the bottom line.
During discussions at COP16, insurers showed they are on the frontline of recognizing and monetizing various nature-related risks. They use increasingly sophisticated tools to assess risks and are doing fascinating work with tech start-ups focused on monitoring, reporting, and verifying nature impacts. They then plug the resulting tailored risk data straight into their underwriting process. Their innovative approaches lead to new products, like nitrogen insurance against river eutrophication from fertilizer.
Other companies can learn from insurers' approach to nature risk. They should act now and not get caught up in preparing for TNFD compliance. They should not wait to take no-regret actions for corporate investments in ecosystems that lower risks and deliver benefits quickly, such as removing risks around high-impact commodities in their supply chains.
A surge in tech-enabled nature metrics has opened the door to successful implementation of corporate nature strategies
Many companies and organizations struggle with the same problem. What are the right nature metrics to accurately measure the impact of actions on nature and biodiversity? Interactions with companies at COP16 suggest that the mood is shifting to a practical approach, where ‘good enough to inform commercial decision-making' trumps scientific perfection.
Companies are realizing that their current focus on input metrics, such as fertilizer use, doesn’t generate a realistic picture of their impact on ecosystems and holds back progress. The superior alternative is to use outcome-based metrics that measure real-world results of actions for biodiversity and ecosystem health.
The Nature Tech Alliance report launched at COP16, a collaboration between ERM, Salesforce, Planet, and Nature Metrics, underlines how a corporate shift to outcome-based metrics is essential to achieve nature-positive outcomes. However, it also points out that many companies are far from adopting outcome-based measurements.
The shift to outcome-based metrics will require companies to get comfortable with new technologies, from AI and environmental DNA (eDNA) to satellite imagery and geospatial data platforms. COP16 highlighted the surging number of nature tech tools at companies’ disposal.
Mastering these new technologies will not be enough. Companies must also deal with fragmented data sets throughout their supply chain to successfully leverage an outcome-based approach for managing nature-related risks and opportunities. Integrating localized datasets with other data sources - from across supply chains, portfolios, use cases, and geographies - remains a major hurdle.
Tech-enabled nature metrics could also help boost the nascent market for biodiversity credits, which drew considerable attention at COP16. The International Advisory Panel on Biodiversity Credits (IAPB) released its framework for high-integrity biodiversity credits. However, serious doubts exist about how accurately we can measure the impact of biodiversity credits today.
The fates of water and forests are inseparable, while growing digitization and decarbonization make water strategies a top priority for companies
Water was a constant topic at COP16. During the Forest and Water Day, speakers emphasized that preserving forests and biodiversity and conserving water, from estuaries and glaciers to wetlands and mangroves, can’t be separated. Participants also stressed the imperative of involving Indigenous Peoples and local communities (IPLC) and using their traditional knowledge and methods to craft a successful combined approach.
The appeal to governments of 140 organizations - led by Wetlands International and World Wildlife Fund - to prioritize wetlands in implementing the Global Biodiversity Framework emphasized the unique role of wetlands in the interconnectedness of land and water ecosystems.
A new report on future water resilience by J.P. Morgan and ERM launched during COP16 highlights digitization and decarbonization as growing sources of water stress that require an urgent strategic response from companies.
The rising demand for green energy also pushes up the demand for water since many renewable technologies, such as nuclear, geothermal, and biofuels, need a lot of it. Lithium extraction, vital for the EV revolution, is also a notorious water hog: each metric ton of lithium produced requires 2 million liters of water.
Although companies are responding by setting water efficiency targets, the J.P. Morgan – ERM report finds most still don’t see water as a central strategic issue that must be considered in all phases of the planning process. Companies need to urgently elevate water management to the board level to avoid unnecessary risk exposure.
A nature funding gap looms, but momentum for blended finance and redirecting fossil fuel subsidies is building
COP16 made clear that financing global action to preserve and restore nature and biodiversity remains a momentous task. The Global Biodiversity Framework earmarks two sources for the extra $700 billion a year it will take: $500 billion should come from redirecting existing subsidies harmful to biodiversity, like subsidies for fossil fuels and industrial framing, and $200 billion from additional public or private finance or a combination of the two.
Raising more public/private money has been difficult. Besides the fact that rich countries keep missing the $20 billion dollar-a-year mark they committed to for helping developing countries, a heated discussion broke out at COP16 about how the money will be distributed. Several nations, like Brazil, India, and South Africa, want more influence to ensure equitable funding decisions.
Another hotly debated finance mechanism is the potential sharing of revenues generated by using the Digital Sequence Information (DSI) of genetic resources – which are vital for plant and animal breeding and the development of new drugs - with biodiversity-rich countries. South America and the Caribbean, where 60% of all known plant and animal species reside, would be the largest beneficiaries. Negotiators reached a draft agreement in August, but many details remain unresolved, such as the revenue percentage companies should pay into the mechanism.
Blended finance focused on biodiversity, on the other hand, is making better progress. Blended finance uses some public or philanthropic money to reduce the risk for private investors. The World Bank’s recent $225 million Amazon Reforestation-Linked Bond is a good example. This 9-year principal-protected bond includes a fixed guaranteed component, and a variable component linked to the generation of carbon removal units (CRUs) from reforestation projects in the Amazon rainforest.
Lastly, on redirecting $500 billion in subsidies, a broad consensus emerged at COP16, led by the World Bank, IMF, and philanthropic funds like the Bezos Earth Fund, that the world needs to get serious about repurposing harmful subsidies for biodiversity investments. Still, nobody believes it will be easy, although $500 billion is only a third of the total annual harmful subsidies countries currently provide.
It's time to step up
Our time in Cali has left us inspired by the insightful discussions, the commitment of delegates from all stripes, and the genuine progress in creating tools to implement corporate nature strategies effectively. However, the inspiration is tempered by the reality of accelerating ecosystem erosion and alarming rates of species extinction. This is not only bad for the planet but also creates a host of urgent commercial risks for companies. So, after a promising start, companies must now push themselves through the implementation learning curve quickly. It’s time to step up.
