The rise of natural capital is fueling Australian biodiversity markets – Knowledge

At the United Nations Biodiversity Conference (COP 15) in December 2022, more than 190 countries accepted the Kunming-Montreal Global Biodiversity Framework (FGB). Historic in its ambition to commit nations to protecting 30% of the earth by 2030 (30×30), the COP15 agreement is also significant for companies.

More than half of the world’s GDP – approximately $44 trillion in economic value – is moderately or highly dependent on nature, and the 23 voluntary targets within the GBF include targets aimed at stemming the risks that Biodiversity loss strains the global financial system.

Reflecting this, Finance Day at COP 15 was the first time the private sector participated en masse in a UN Biodiversity Conference with 850 companies and investors in attendance.

When the discussion turned to GBF Goal 15, which requires countries to require companies in their jurisdiction to disclose nature impacts in their corporate reports, more than 330 companies and investors asked that this objective is mandatory rather than optional.

Corporate support for mandatory disclosure of their impact on nature is not only altruistic. Companies want a level playing field for nature-based reporting requirements and need to mitigate the financial and legal risks of continuing biodiversity loss. It also reflects the financial opportunities for first movers.

There is enormous upside potential in a nascent market that is already driving significant demand for instruments such as biodiversity credits, which are measurable, traceable and tradable units that enable companies to invest in the conservation and restoration of long-term nature.

A new market

Although still modest compared to the carbon market, the creation of new markets for voluntary and compulsory credits for biodiversity is predicted by many conservation finance experts grow rapidly.

Among the national risk factors in this regard, a recent report by EY commissioned by the Australian Council of Superannuation Investors estimates that the Australian economy could lose up to $20 billion a year from the loss of nature. by 2050. The introduction of emissions regulations on the import of goods and services into foreign markets, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM), could also prove to be a powerful driver for businesses in the future.

However, the real game changer will be the new working group on nature-related financial disclosures (TNFD) framewhich is due for release in September 2023. It will provide businesses, financial institutions, asset managers and owners with a way to assess and disclose their impact on the natural world as they have done with climate change in framework of the working group on climate- Related financial information (TCFD).

The TNFD aims to level the playing field for companies to measure and mitigate their impact on nature by providing clear guidelines that include guidance on recommended disclosures, establishing an assessment framework and consistent language. The TNFD is not the only biodiversity disclosure framework and others such as the Nature Science Goals will also have an important role.

Once these companies are able to assess their impacts on nature and their dependencies, the intention is that they will then need to take action to avoid or reduce where possible, or restore and regenerate, and that is where emerging biodiversity markets could help.

For those who take early and vigorous action to restore, regenerate and protect nature, the opportunities could be significant. THE The United NationsOECD and World Economic Forum all recognize that governments and philanthropic investments alone cannot solve the biodiversity crisis. Substantial private sector involvement will be needed if the world is to close the gap. Annual global financing gap from $598 billion to $824 billion in the funds estimated to be needed to stem nature’s risks over the next decade.

This confluence of risks and opportunities has led some specialists predict that the global market for biodiversity credits could eventually rival that for carbon credits. In Australia alone, PwC estimates that a biodiversity market could be worth $137 billion in financial flows by 2050.

A market of this size will enable businesses to mitigate nature-related risks and reduce transaction costs of investing in positive biodiversity outcomes. The Australian federal government has been a world leader in offering a nature repair market alongside the carbon credit market, where a biodiversity certificate can be generated and traded. However, there have been concerns about liquidity and secondary market growth if only one certificate per project is generated.

While questions of fungibility, additionality and liquidity have yet to be resolved, it is clear that markets that can demonstrate high integrity for their tradable credits are likely to thrive.

Verified co-benefits

The potential impact goes beyond simple market growth. The co-benefits of biodiversity credits – measurable improvements in social, environmental or economic factors that directly result from an improvement in biodiversity – can be substantial. The added value of the Yarra Yarra Biodiversity Corridor, a biodiverse reforestation project financed by carbon credits, is estimated between 82 and 148 dollars per carbon credit alone.

Nevertheless, there are legitimate concerns that the rapid growth of biodiversity credits could lead to greenwashing, in the same way that the Australian government’s own carbon-neutral certification scheme, Climate Active, has recently been criticized for his Carbon credit projects in PNG. But the United Nations Development Program And The World Economic Forum argue that participants in biodiversity credit markets can learn from some of the mistakes that have plagued carbon credits.

That’s a sentiment shared by GreenCollar, an Australian company that recently launched NaturePlus Biodiversity Credits, each representing one hectare of biodiversity enhancement through projects aimed at improving the condition of ecosystems, habitats and species. threatened, such as koalas. These credits will be verified by environmental accountants Nature Accounting and the first broadcast – scheduled for early 2023 – has already attracted global demand.

Nerida Bradley, Director of Impact at GreenCollar, says global measurement and independent verification is key to building confidence that biodiversity credits provide reliable measures of impact and co- profits. This heightened awareness of integrity in credit markets is driving buyer demand for new biodiversity credits that represent real, verified enhancement of nature, rather than investments in activities in the hope that a improvement will occur.

“You can’t invest in biodiversity and natural capital unless you have strong and explicit ways to demonstrate that the environmental assets have been improved, measured and verified,” she explains.