Nature and biodiversity: What COP16 means for investors

Increasing focus on nature

Nature and biodiversity, along with climate, are among the most frequently discussed sustainability topics. The Dasgupta Review, an independent review on the economics of biodiversity commissioned by the UK Treasury and published in 2021, highlighted the macro-level connection between nature and economics, and brought these issues to the forefront. Since then, significant events such as the fines imposed on chemical manufacturer 3M for water pollution linked to ‘forever chemicals’ have emphasised the importance of nature and biodiversity. The introduction of various regulations, including those related to plastic packaging and waste regulation, as well as the European Union deforestation regulation, have further heightened the materiality of nature and biodiversity.

According to our analysis of data from environmental reporting organisation CDP (formerly the Carbon Disclosure Project), 2025 is set to be a critical milestone for corporate sustainability targets, with nearly 40% of close to 1,000 targets analysed committed to setting specific goals for next year. While a signal of encouraging momentum, it brings to light the potential risks involved in measuring companies’ performance in meeting these targets, and the extent to which failures would undermine collective efforts to protect nature and biodiversity at a global scale.

COP16 – a turning point?

The 16th meeting of the Conference of the Parties (COP) to the Convention on Biological Diversity (CBD) took place recently in Cali, Colombia, a location known for its rich biodiversity. The conference continued the momentum from the previous biodiversity COP in 2022, which underlined the need to preserve biodiversity following the implementation of the Kunming-Montreal Global Biodiversity Framework (GBF), a set of international goals which aim to halt and reverse nature loss.

One of the target headlines set through the GBF was the ‘30 by 30’ initiative, a conservation target calling for 30% of the earth’s land and water to be conserved by 2030 through the establishment of protected areas and other area-based conservation measures. A key aim of COP16 was to turn these ambitions into action by outlining the necessary steps for countries and establishing a framework for monitoring progress.

Priority areas for COP16 included achieving financial commitments for conservation, addressing concerns around biopiracy (the exploitation of biological resources by corporations and researchers), and ensuring the involvement of indigenous communities in decision-making processes.

COP16 highlighted several pivotal discussions for investors as biodiversity becomes increasingly integral to sustainable finance and regulatory landscapes:

• Resource mobilisation and financing gap: There is estimated to be a $700bn financing gap – the amount required to restore nature – which underscores a major opportunity and obligation for private sector engagement in biodiversity.² While some private pledges have been made, the scale of financing required indicates that current efforts are insufficient.
• Leadership and policy stability: The divide between developed and developing countries on financing and governance approaches will affect the regulatory backdrop for biodiversity investments. A lack of decisive leadership may delay the establishment of consistent standards and frameworks, which are critical for investor confidence. There is a range of investor standards which evolve in parallel, such as the Science-Based Targets for Nature, the Taskforce on Nature-related Financial Disclosures (TNFD), and the International Sustainability Standards Board research consultation. These emphasise the connection between nature and climate, with the two often being described as ‘two sides of the same coin’, and companies will need to organise their integration efforts across both fronts.
• Mandatory reporting and corporate engagement: A key focus of COP16 was the need for governments to provide more clarity on how they will implement their targets, and countries were expected to submit updates to their National Biodiversity Strategies and Action Plans (NBSAPs). These plans may directly affect private and public capital allocation, as governments continue to address the material risks of biodiversity loss. Investors should watch for how these NBSAPs evolve, as they may lead to reporting requirements like climate disclosures, such as those of the TNFD. As NBSAPs are implemented, businesses will increasingly be expected to understand their impacts and dependencies on biodiversity and incorporate considerations into their operations, which will require additional expertise and supply-chain adjustments, with potential changes to capital-expenditure decisions.
• Market and product innovation: As discussions about biodiversity credits and other nature finance mechanisms continue, investors can look forward to the development of new financial products and instruments. These innovations could provide alternative returns while supporting environmental objectives, similar to carbon credits, but specifically tailored for biodiversity outcomes.

The discussions at COP16 mark a pivotal moment that could see the shift in biodiversity finance from a niche interest to a mainstream investment priority. However, although billed as the ‘implementation COP’, COP16 has fallen short of expectations. While notable progress was made on key issues like benefit sharing from genetic resource use, critical agreements on resource mobilisation and monitoring frameworks were not reached. This gap casts doubt on the feasibility of achieving the ambitious 2030 biodiversity targets unless significant strides are made at the upcoming interim meeting in Bangkok next year, ahead of COP17 in Armenia in 2026.

The discussions at COP16 mark a pivotal moment that could see the shift in biodiversity finance from a niche interest to a mainstream investment priority.

Despite these challenges, the evolving regulatory landscape presents investors with the opportunity to position themselves at the forefront of this growing sector. By recognising and acting on these developments, investors can contribute to and benefit from the transition towards sustainable biodiversity finance.

Linking nature to investments

Given the increased complexity of nature, we have established a dedicated working group to better understand the topic and to develop our approach. This enables us to focus on our understanding of the risks and opportunities related to nature,³ by assessing the impacts and dependencies as part of our investment research process. It also informs other responsible-investment-related thematic research,⁴ and we hope that in the future it can be used to meet specific client demands and expectations on nature, including considering real-world outcomes.

Impacts on nature are not fungible like emissions. For example, the loss of one species cannot be offset by conservation gains made in another, and polluting water sources in two different regions can have completely different impacts on the biodiversity in those areas. This means that geospatial and location-based aspects are important to consider.

We think that it is important to break down nature impacts into components using the direct drivers outlined by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, a leading authority on the science of biodiversity and public policy responses. Unlike climate, we cannot focus on only one measure. Although aggregate measures such as the potentially disappeared fraction of species and mean species abundance exist, we believe these mask the underlying crucial details that provide investment insight, such as materiality and how companies are managing risks.

We believe in a materiality-driven approach; we want to be able to identify and analyse companies with material impacts and dependencies, and understand how robustly they are managing and reducing risks. Given that the entire economic system is based on using natural resources and ecosystems, there can be differences in the extent and type of materiality, but it is extremely difficult to take an exclusionary approach to this.

We believe in a materiality-driven approach; we want to be able to identify and analyse companies with material impacts and dependencies, and understand how robustly they are managing and reducing risks.

Where clients may specifically look to achieve outcomes related to nature, we think that taking into account materiality and using this to assess companies’ practices is the best way to seek these outcomes in listed markets. Solutions providers are typically private or small components of larger conglomerates; however, investors can engage with companies which have a material impact on nature and invest in those doing the most to mitigate this.

Assessing companies on nature

Using this approach, we are building a nature assessment framework⁵ to connect materiality to the management of companies. To determine materiality, we use revenue data, which allows us to have a more granular focus than if we were to use sector or industry mappings.

Building on this, we can assess companies to identify those with the most robust practices by breaking nature down into its tangible components, such as water scarcity, water quality and deforestation. This requires a deep understanding of each of these components, which is where it provides the most investment insight relevant to decision-making, research and engagement.

We consider that our analytics capability is a differentiator as it allows us to build an understanding of how to use unstructured and inconsistently disclosed data in a way that can be meaningful to investments. This approach has been built to evolve as our understanding does.

1. Newton manages a variety of investment strategies. How ESG analysis is integrated into Newton’s strategies depends on the asset classes and/or the particular strategy involved. Newton does not currently view certain types of investments as presenting ESG risks and opportunities and believes it is not practicable to evaluate such risks and opportunities for certain other investments. Where ESG is considered, other attributes of an investment may outweigh ESG considerations when making investment decisions.
2. Source: Biodiversity Finance Trends Dashboard 2024, Department for Environment Food & Rural Affairs, GOV.UK: https://www.gov.uk/government/publications/biodiversity-finance-trends-2024/biodiversity-finance-trends-dashboard-2024-accessible-version
3. Newton manages a variety of investment strategies. How ESG analysis is integrated into Newton’s strategies depends on the asset classes and/or the particular strategy involved. Newton does not currently view certain types of investments as presenting ESG risks and opportunities and believes it is not practicable to evaluate such risks and opportunities for certain other investments. Where ESG is considered, other attributes of an investment may outweigh ESG considerations when making investment decisions.
4. Analysis of themes may vary depending on the type of security, investment rationale and investment strategy. Newton will make investment decisions that are not based on themes and may conclude that other attributes of an investment outweigh the thematic structure the security has been assigned to.
5. Scores are only produced where sufficient data is available and may not be available for all equity investments. Where this is the case, the nature analysis will rely predominantly on qualitative research completed by Newton’s responsible investment team.

Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.

Authors

Rebecca White

Global ESG integration lead

Nicholas Harris

Sustainable investment analyst