Take Five: Goodnight Vienna

A selection of the major stories impacting ESG investors, in five easy pieces. 

A big step forward was taken this week by Europe to protect nature, or was it?

Viennese waltz – Sighs of relief rather than celebratory cheers greeted the formal adoption of the Nature Restoration Law (NRL) by the Council of the European Union. The NRL, which commits to restoring at least 20% of member states’ land and sea areas by 2030, had failed to secure sufficient backing from governments in March. And it only scraped through this week after Austria’s climate and environment minister defied senior coalition partners, prompting fury and threats of legal action from Chancellor Karl Nehammer. It remains possible that the NRL – which barely survived a bumpy passage through the European Parliament last year – could yet face a reverse. This would be embarrassing for Europe to say the least, and far from helpful to efforts in Colombia in October to build out the Global Biodiversity Framework, particularly given the limited progress made on setting COP16’s agenda at an interim summit in Kenya last month. Even if the NRL remains untrammelled by Austrian political strife, intergovernmental negotiations on how its objectives are met via member states’ national restoration plans will be instructive, given Europe’s recently redrawn electoral landscape.

The next big thing – It can take a long time to become an overnight success. And many other factors besides. Chipmaker Nvidia took 25 years to reach a market capitalisation of US$1 trillion, before more than trebling in value to US$3.3 trillion in 12 months, overtaking Microsoft and Apple this week to become the world’s largest company. The firm’s meteoric rise stems from its strong positioning to profit from the explosion of investment in AI, which is rapidly expanding beyond the IT sector to early adopters in fields such as finance and healthcare, and predicted use cases elsewhere. But does Nvidia deserve a place in a sustainable investment portfolio? The California-based firm’s ESG scores are impressive, which is not a given for a sector known for resource consumption, especially water. But a bigger sustainability question might be raised with regard to Nvidia’s client base, which has yet to prove it can deliver on AI’s promises reliably or ethically. Governance concerns and social risks have worried policymakers and investors increasingly, with rules being introduced in multiple jurisdictions and questions being asked at the recent

EU Approves Nature Restoration Law

Austria’s unexpected support means the flagship biodiversity legislation will pass despite opposition from farmers.

EU member states have approved the bloc’s central biodiversity policy, the Nature Restoration Law, after Austria made a surprise last-minute decision to back the legislation. As a result, EU members will now be subject to the most comprehensive set of biodiversity targets in the bloc’s history. The unexpected twist will,…

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UBS AM, Planet Tracker Seek to Mitigate Nature Risks

New report highlights problems faced by investors with the longevity of solar and wind assets, and potential impacts on habitats.

UBS Asset Management (AM) and Planet Tracker have joined their efforts to support investors providing finance for renewable energy solutions and mitigate harms to nature. In a new report, they provided a guide for industry practitioners on how best to integrate nature when looking at solutions for the energy transition…

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Fixing Capital Flows Crucial to Augment Nature Finance

The impact of biodiversity-related disclosures will be limited without the right economic incentives to stimulate private sector support ahead of COP16 this October.

The repurposing of existing finance and the creation of an enabling environment for private finance are essential to boost efforts to address biodiversity-related risks and preserve nature, attendees at the UN Convention on Biological Diversity have said. Meeting in Nairobi, Kenya, for the Fourth meeting of the Subsidiary Body on…

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Take Five: Twin Peaks

A selection of the major stories impacting ESG investors, in five easy pieces. 

Developed countries have belatedly reached a target for climate finance, only to be set a new one for nature.

Ten years after – It might have taken them a little more than a decade, but at last they got there. Developed nations mobilised US$115.9 billion of climate finance for developing countries in 2022, it was revealed this week, exceeding for the first time the US$100 billion annual level set in Copenhagen in 2009. According to the Organisation for Economic Co-operation and Development (OECD), last year saw a record 30% annual rise in climate finance, meaning the target – originally unveiled at COP 15 – was reached two years late. The total includes more than US$20 billion in attributable private finance, as well as bilateral and multilateral public sector funding, plus export credits. Importantly, adaptation finance accounted for US$32.4 billion of the total – three times the 2016 level. Discussions on a New Collective Quantified Goal (NCQG) on climate finance for the post-2025 period, which made little progress at COP28, should progress next week’s Bonn Climate Conference, where the agenda will also include carbon credits, adaptation finance and the Global Stocktake, ahead of COP29. In anticipation of the NCQG, the OECD released an analysis recommending use of public sector interventions to directly or indirectly finance climate action. But measures to support the goals of the Paris Agreement must now sit alongside those needed to realise the objectives of the Global Biodiversity Framework (GBF). At a Nairobi summit that concluded yesterday, the UN Convention on Biological Diversity called for investments of at least US$200 billion a year from all sources, and for reform of US$500 billion in harmful subsidies to achieve the GBF’s Goal D: invest and collaborate for nature. These and other recommendations will be discussed at COP16 in Colombia in October.

Gap analysis – A lack of progress on gender equality in the workplace has been underlined by the International Labour Organization (ILO) in a report reflecting fewer jobs and lower pay for women, especially in low-income countries. According to an update to the ILO’s annual World Employment and Social Outlook, the ‘jobs gap’ – which measures the number of persons without a job but who want to work – stands at 22.8% for women in low-income countries, versus 15.3% for men. This contrasts with a gap

TNFD Agrifood Guidance Offers Data Boost

Quantitative metrics provide investors with further tools for engagement efforts.

The industry has welcomed increased nature data for the agrifood sector provided by the Taskforce on Nature-related Financial Disclosures (TNFD), as it prepares to align with final guidance next month. The TNFD released final recommendations for nature-related risk management and disclosures last September. Those were meant to serve as a…

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Take Five: Bound by Destiny

A selection of the major stories impacting ESG investors, in five easy pieces. 

Public and private sector coordination provides the theme – and events of Nairobi, London and Rio de Janeiro the backdrop – for this week’s digest.

Natural allies – Just ahead of this year’s UN International Day for Biological Diversity, delegates gathered in Kenya for the first review of the implementation of the Global Biodiversity Framework (GBF) since its adoption at COP15 in December 2022. A key task during the nine-day summit is to assess how well parties’ national biodiversity strategies and action plans (NBSAPs) support the 23 targets of the GBF. For the record, just nine countries, plus the European Union, have submitted updated NBSAPs since all 196 parties committed to the framework in Montreal. “The challenge is to ensure that the global aims are translated into nationally relevant targets that consider the context and the biophysical realities of each country,” said David Cooper, Acting Executive Secretary of the UN Convention on Biological Diversity. Delegates will also discuss the means of implementing the GBF, including capacity-building, technical and scientific cooperation, and resource mobilisation – the last of these being the trickiest given an estimated annual biodiversity finance gap of US$700 billion. Investors will be paying close attention to progress on the GBF’s fourth over-arching goal, the alignment of financial flows. According to a recent blog by Emine Isciel, Co-chair of the Finance for Biodiversity Foundation, a critical factor will be reducing existing harmful financial flows. As well as robust private-sector disclosures, via standards such as those outlined by the Taskforce on Nature-related Financial Disclosures, this requires public policy reforms to redirect US$542 billion in annual agricultural, fishing and forestry subsidies that damage nature, while also misdirecting private investment. “By fostering innovations, aligning incentives and setting clear boundaries, [finance ministers] can steer sectoral pathways towards reducing negative impacts, increasing positive impacts and catalysing private finance at scale,” she said.

Two figs – Alignment of finance flows with nature goals was also front of mind at the City Week event in London, with Karen Ellis, Chief Economist of the World Wide Fund for Nature UK, flagging two areas of opportunity. To avoid the nascent market for biodiversity credits making the same mistakes as the voluntary carbon markets, she said, governments could grasp the chance to create compliance markets. These could link the supply of financial incentives to the private

Carbon Markets can Move the Needle

Improvements in technology and measurement are showing that forest conservation projects do work – and should be accelerated, says Antoine Rostand, Co-founder of Kayrros.

The voluntary carbon market continues to divide opinion. Just recently, the Science Based Targets initiative (SBTi) provoked a backlash – including from within the organisation itself – when it revised its Corporate Net Zero Standard to let companies use environmental attribute certificates, including carbon offsetting schemes. A group that claimed to speak for the “overwhelming majority” of SBTi staff said they were “deeply concerned’ by the move”. SBTi later appeared to backtrack, saying that there were “no changes” to its standards and a formal draft of rules on carbon offsetting would be presented in July.

The strength of the reaction shows how polarised – a now-familiar term – the conversation has become. This does no one any good: we’re all conscripts in the battle to prevent the climate crisis spiralling out of control. Taking swipes at each other merely wastes precious time. We need to find a way to direct the flow of money from those who have a lot of it to those who have much less, and who are, by virtue of where they live, charged with protecting resources on which we all depend.

The climate finance gap – the difference between the amount of funding allocated for climate-related activities and the amount actually needed to effectively address climate change – stood, as of late 2022, at US$2.61 trillion a year. According to BloombergNEF’s ‘Long-Term Carbon Offsets Outlook 2024’ report, carbon credits could reach US$238 per tonne in 2050, and the market could be worth US$1.1 trillion annually by the same year.

Support for the green transition

The world cannot afford the green transition without the carbon market. This is the hard truth of the matter. The good news is that, despite the scepticism and the bad press, the carbon market does, in fact, work. In June last year, we used our Forest Carbon Monitor to assess more than 90% of the Amazon, which is the world’s largest rainforest and one of the world’s largest carbon sinks. Our analysis, which we ran by processing terabytes of satellite data with AI, showed that of 75 reviewed conservation and emissions-reduction projects funded by the carbon market, just five showed the same static deforestation rates. In other words, 96% were working.

More recent analyses have yielded similar

Nature Loss Risk Ramps up

Recovery blueprint highlights opportunity to capitalise on renewable assets to bolster agriculture and food demand. Nature restoration is essential to addressing biodiversity and climate-related risks to finance, ecosystems and human health, research by investment manager Foresight has highlighted. Released last week, the Nature Recovery Blueprint offers practical guidance to land…

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Property Possibilities are Running Wild

Farrer & Co Senior Associate Rebecca Standing considers the options for investors and developers facing the UK’s biodiversity net gain rules.

The requirement to provide 10% biodiversity net gain (BNG) became mandatory in England when Part 6 of the Environment Act 2021 (2021 Act) came into force on 12 February 2024, or 2 April 2024 for small sites – developments with nine houses or fewer on a site of less than one hectare. From this date, all planning permissions issued in England are subject to a deemed condition that the development for which permission is sought must meet the BNG objective.

The UK government guidance describes the aim of the BNG objective as “habitats for wildlife are left in a measurably better state than they were before the development” – which translates into a requirement that the post-development site achieves a net increase in biodiversity of at least 10%, compared to the biodiversity value of the site pre-development. The associated habitat creation or enhancements must then be maintained for 30 years.

BNG metrics and methods

In order to ensure that the biodiversity value of a site is calculated in a standardised way, Natural England has published the statutory biodiversity metric. This is a calculation tool which, with the help of an ecologist, enables developers to calculate the present and projected future biodiversity value of a site, before and after development. It can also predict how much biodiversity value certain habitat creation or enhancement works will create and, as such, is a helpful planning tool.

Examples of BNG delivery are diverse and can include both larger-scale elements – including the creation of dedicated habitat areas, such as wildflower meadows, wetlands, and orchards – and smaller scale elements, such as bird boxes, bee bricks and hedgehog highways. BNG delivery can also be achieved in the construction of the built environment itself, through the inclusion of infrastructure like solar slate, green walls, ground source heat pumps, and rainwater collection.

The required 10% gain can be achieved in one of three ways, or a combination of them, by:

carrying out habitat creation or enhancement works on the development site itself – i.e. onsite creating or enhancing habitats in offsite locations buying statutory credits Offsite or onsite?

When considering which of the three methods to use, it should be noted that the government has made it clear that statutory credits are to be