New guidance from the Finance for Biodiversity Foundation seeks to tackle potential conflicts between climate and biodiversity investments and provides recommendations on how to minimise the trade-offs.
A report from the Finance for Biodiversity (FfB) Foundation aims to bridge the gap between climate change-led and biodiversity-led investing by institutions, offering guidance on how to maximise the benefits to both areas and avoid unnecessary trade-offs between them.
The Finance for Biodiversity Foundation was established in March 2021 to support “a call to action and collaboration among financial institutions to reverse nature loss this decade”. FfB membership totals around 70 financial institutions, including large mainly-European asset managers and insurers.
In Unlocking the biodiversity-climate nexus, authors from the FfB Foundation’s impact assessment working group for banks, insurers, asset managers and asset owners offer a series of recommendations aimed at highlighting synergies and reducing trade-offs between the two types of investing. The guide was launched at the European Commission-backed European Business and Nature Summit in Milan last week.
The authors conclude the most common trade-offs when funding agricultural solutions, alternative energy, the circular economy and nature-based solutions can already be avoided by changing the way projects are undertaken.
They make five main recommendations for financial institutions: finance synergy-generating solutions for the “biodiversity and climate nexus” and solutions minimising trade-offs; identify and prioritise sectors with a high impact on both biodiversity and climate; engage with companies on relevant themes using existing frameworks; set up sector policies, taking into account the synergies and trade-offs; and integrate biodiversity into climate targets, policy and reporting.
“It is the first time that financial institutions have collaborated to formulate a comprehensive analysis that not only identifies best practices and approaches, but also highlights the trade-offs and difficulties to be faced on the path to natural capital preservation,” said Fiona Melrose, head of group strategy and ESG at UniCredit, one of the institutions that worked on the guide.
Marie Neveu, climate analyst at Pictet Group, also an author, said the UN-backed COP15 Montreal summit on biodiversity had thrown a spotlight on the threat of biodiversity loss, but that one observable result had been the emergence of distinct action plans to reach biodiversity targets in isolation of climate targets.
“It is important to consider biodiversity and climate change’s interlinkage when deciding to take action on either, as the two can rarely be segregated. This guide aims to help financial players understand the synergies and trade-offs between these two challenges – and how to account for them in their investment process.”
Shehani Thanthrilage, senior ESG Analyst at HSBC Asset Management, gave an example from alternative energy to illustrate the need for holistic thinking if negative side-effects are to be avoided when making climate-related investments.
“For instance, the use of biofuel crops like sugarcane or palm oil can potentially damage natural habitats, contribute to soil erosion or the pollution of aquifers. This is why at HSBC AM, we strive to carry out in-depth due diligence of holistic environmental impacts related to our investment decisions,” she said.
Biodiversity investment frameworks
The FfB report adds to a growing body of research and guidance intended to contribute to a framework for biodiversity investment. In September, the Taskforce on Nature-related Financial Disclosures (TNFD) unveiled its final recommendations, providing a framework for company reporting on nature-related issues. These build on the work of the Task Force on Climate-related Financial Disclosures (TCFD).
The FfB membership is part of wider group of over 150 institutions from 24 countries with assets under management totalling over €20trn that have signed a Finance for Biodiversity Pledge, since 2020.
Those signing the pledge commit to protecting and restoring biodiversity through their finance activities and investments by collaborating and sharing knowledge, engaging with companies, assessing impact, setting targets and reporting publicly on these commitments before 2025. Institutions that have recently signed the pledge include four banks, one of which, Yapı ve Kredi Bankası, is the first Turkish-based signatory.