Five takeaways on the state of biodiversity finance

Welcome back. Investors seeking to understand nature-related risks often cite a lack of data as a key obstacle. Today, they’re getting a little bit of good news from CDP, the non-profit that collects environmental disclosures from more than 23,000 companies around the world.

Nature-related disclosures are on the rise, CDP says. About 1,800 companies are now reporting the impact their value chains have on biodiversity. And companies worth a third of the global stock market are now disclosing water data to CDP.

While that might look like progress, the global economy is still doing more harm than good to nature, as I highlight in our first item below. Addressing that is the key focus of the COP16 biodiversity summit, where I’m based for the next 10 days.

Also today, Patrick considers how solar power investors should be thinking about the US presidential election, which is now less than two weeks away. — Simon Mundy

biodiversity

COP16: Five things to know about biodiversity finance

If you’re feeling befuddled by all the talk of biodiversity finance surrounding COP16 this week, you could do worse than check out a handy new report just published by Hugh Bromley, who leads food, agriculture and nature coverage at research group BloombergNEF. It’s a useful primer on the state of play as we get going on these two weeks of talks. Here are five of the key takeaways:

1. Biodiversity-related finance is inching higher

BNEF found that “biodiversity finance” — which it defines broadly as financial flows towards the preservation and restoration of nature — now stands at about $208bn a year, up from $166bn three years ago. That’s a significant number — indeed, it surpasses the 2030 biodiversity funding target of $200bn that was set by governments at COP15 in Montreal two years ago.

That surplus may reflect differences between the methodology used to produce the COP15 target and the one used by BNEF. But even if the $200bn target has been reached, the new report suggests that it is badly insufficient. It is a tiny fraction of the $7tn a year invested in “nature-negative” activities, according to the UN Environment Programme. BNEF says the target for biodiversity finance should be more than $1.15tn, citing a 2020 report from the Paulson Institute, the Nature Conservancy and the Cornell Atkinson Center for Sustainability.

2. International public flows are still modest

Governments at present account for $173bn of global biodiversity finance — five-sixths of the overall total. The vast bulk of this is deployed domestically rather than abroad — international flows of biodiversity-linked aid stood at $10.2bn as of 2022. But wealthier governments have been supporting cash-poor, nature-rich nations through the booming space of debt-for-nature swaps. An unprecedented $2.3bn of debt was written off in 2023 in exchange for nature conservation pledges, and BNEF reckons a further record could be set this year — despite warnings from some critics about risks of moral hazard and greenwashing.

3. Credit markets are struggling badly

Other areas of nature-related financial innovation are looking weaker. Companies are showing less interest in nature-based carbon credits — which are linked to carbon emissions avoided by protecting threatened ecosystems — amid concerns about the market’s integrity. BNEF estimates that global issuance of nature-based carbon credits fell 53 per cent between 2021 and 2023. The nascent sister market of biodiversity credits, meanwhile, is barely a market at all: BNEF estimates that a total of less than $1mn of these credits have been sold to date. “A lack of consistency between schemes” is holding the new market back, BNEF says.

4. Nature-related business risks can prove serious for businesses

For those wondering how to assess this area of risk, the report has a gruesome table outlining the expensive consequences faced by companies that mismanaged nature-related dangers, from chemicals group 3M to power company PG&E. The report was particularly stark in its criticism of major banks. Its analysis of the 200 biggest lenders to “at-risk” sectors, such as mining and agriculture, found that the overwhelming majority had “very weak or non-existent policies” in at least one key area of biodiversity risk.

5. A rough global picture — with some bright spots

Despite the modest rise in funding for conservation, biodiversity is still shrinking faster than at any point in history, according to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services — partly as a function of economic and industrial growth in nature-rich developing nations.

BNEF recommends that international biodiversity finance be directed to countries where ecosystems are both unusually rich and badly threatened — including Brazil, Colombia and the Democratic Republic of Congo.

It also highlights a few countries that have managed to reverse the general trajectory of nature loss — notably South Africa, Namibia and Botswana, where huge areas have been set aside for wildlife reserves to attract tourists eager to spot the region’s elephants, lions and leopards. (Simon Mundy)

solar energy

Will the sun shine on solar after election day?

As the US presidential campaign barrels towards its November 5 climax, Wall Street is on pins and needles when it comes to renewable energy companies.

Wild swings in stock prices are expected, and in this tense environment, every data point matters. Citigroup on Tuesday upgraded First Solar to a buy, sending its shares up 2 per cent. They’re now 33 per cent higher than this time last year.

First Solar has benefited from a US tax credit, introduced under President Joe Biden, for solar components made domestically. This tax credit provides a direct production subsidy to manufacturers like First Solar. In a sign of how lucrative this federal subsidy can be, First Solar sold $700mn worth of these tax credits in a single deal late last year.

Election uncertainty has prompted some First Solar customers to pause orders, Morgan Stanley said in a report earlier this month.

But if Trump wins, the solar industry could get a different sort of boost from the Maga White House — in the form of tariffs on solar imports from foreign rivals.

“To me, the most beautiful word in the dictionary is tariff,” Trump said earlier this month. During his first term, Trump launched trade wars with China as well as US allies. Trump’s proposal for a second term includes increasing tariffs by up to 20 per cent on all US trading partners and up to 60 per cent on Chinese imports, according to ISI Evercore, an investment bank.

“Tariffs are positive for First Solar, the clear leader of US solar domestic manufacturing,” ISI said in an October 16 report.

Vice-president and Democratic presidential candidate Kamala Harris, meanwhile, has promised huge support through tax credits for US manufacturing industries, including in clean energy.

Despite all the polarisation around global warming in the US, domestic solar manufacturing looks set to be a bipartisan winner after the election. (Patrick Temple-West)

Smart read

Transition trouble What does “transition finance” really mean — and do we want to set up “a huge bureaucratic edifice to determine which assets qualify”, asks Tom Gosling.

Verra defends record The chief executive of carbon credit registry Verra has defended its policies on conflicts of interest after a former board director and client was charged with fraud.

Too much training Audit and consulting firm EY has fired dozens of staff for attending more than one online training course at the same time.