Investors can help stop subsidies that are destroying biodiversity

New research commissioned by The B Team and supported by Business for Nature finds governments are spending $1.8 trillion every year subsidising the destruction of earth’s biodiversity. The author tells us how investors can help stop this

During the 2010 UN Convention on Biological Diversity (CBD) Conference, 190 countries committed to phasing out or reforming subsidies harmful to biodiversity by 2020.

However, a study by The B Team supported by Business for Nature, the first in over a decade to provide an estimate of the total value of environmentally harmful subsidies across key sectors, shows governments have failed to deliver.

This news comes just as industry leaders are preparing for the UN Convention on Biological Diversity Open Ended Working Group meeting, taking place in Geneva later this month.

The report calls for “the $500 billion per year target on subsidy reform in the current draft Global Biodiversity Framework (GBF) to be strengthened” to reflect their research. They want governments to commit to “redirecting, repurposing or eliminating all environmentally harmful subsidies by 2030″.

Doug Koplow, one of the report’s authors, tells Impact Investor that the purpose of this study was to identify the scale of the financial flows received by different sectors.

According to Koplow, the fossil fuel, agriculture and water industries receive more than 80% of all environmentally harmful subsidies per year “depleting natural resources, degrading global ecosystems, and perpetuating unsustainable levels of production and consumption, in addition to exacerbating global inequalities”.

Lobbying

The study argues that environmental harmful subsidies (EHS) create major risks for businesses and investors “including distorting investment patterns and industry cost structures, masking operating or accident risks, and creating competitive barriers to environmental improvements. Whilst not the only recipient of EHS, businesses are a major beneficiary of them, and frequently lobby for continued or increased government support”.

The report lays out the extent of this lobbying in the US in a useful appendix. The spend by several industries is very significant – real estate & construction ($132m), oil and gas ($112m), air transport ( $106m), and the automotive industry ($63m), all ahead of the money spent by the defence industry ($62m).

This investment in lobbying appears to pay off. The subsidy numbers revealed in the report are enormous. $640 billion a year in fossil fuels, $520 billion in agriculture, and $350 billion in water. There are also astonishingly high subsidies in many real assets sectors, including forestry ($155 billion), real estate and construction (over $90 billion) and transport (over $85 billion).

Government action is clearly the central target of this report. Koplow notes that in November 2021 the EU approved a package of agricultural subsidy reform that aims to shift money from intensive farming practices to protecting nature, and reduce the 10% of EU greenhouse gasses emitted by agriculture. “However, we are still a long way off substantial EHS reform, and we cannot say for certain where action will take place first,” he says.

What should investors do?

Kaplow believes that to successfully reform environmentally harmful subsidies, cross-sector action and collaboration from businesses and governments is needed.

But he notes that because EHS come in so many forms, from multiple levels of government, often only the business recipient knows their full scope and magnitude. “[Businesses] are not currently obliged to disclose these subsidies. This is why we need global bodies – such as the newly formed International Sustainability Standards Board (ISSB), TNFD, TCFD, GRI, CDP, the OECD and others – to urgently develop international standards and guidance to help organisations,” he says.

Koplow believes there is also a lot investors can do such as advocating for governments to reform subsidies. But they can also “raise awareness of the competitive, reputational, and investor advantages from subsidies disclosure”. This would mean supporting “the development of international standards, frameworks and guidance for mandatory disclosure”.

Koplow adds: “By setting expectations and disclosing who is and is not reporting, asset managers can have a dramatic effect on behaviour and norms on disclosure. Asset managers such as BlackRock can also convey expectations that portfolio companies install adequate emissions monitoring and publicly report emissions levels with standardised, machine readable information on insurance coverage.”