Five takeaways on the state of biodiversity financing

Glad to see you again. Investors seeking to understand nature-related risks often cite a lack of data as a major obstacle. Today, they receive good news from CDP, the nonprofit organization that collects environmental information from more than 23,000 companies around the world.

Nature-related disclosures are increasing, according to the CDP. Around 1,800 companies now report the impact of their value chains on biodiversity. And companies representing a third of the global stock market now disclose their water data to CDP.

While this may sound like progress, the global economy continues to do more harm than good to nature, as I highlight in our first point below. Addressing this problem is the main objective of the COP16 biodiversity summit, where I am based for the next 10 days.

Also today, Patrick reflects on how solar investors should think about the U.S. presidential election, which is less than two weeks away. -Simon Mundy

biodiversity

COP16: Five things to know about financing biodiversity

If you’re feeling confused by all the talk about biodiversity funding around COP16 this week, you could do worse than consult a new practical report just published by Hugh Bromley, head of food, farming and nature coverage at the BloombergNEF research group. This is a useful overview of the state of affairs as we enter these two weeks of negotiations. Here are five of the key takeaways:

1. Biodiversity-related funding is on the rise

BNEF found that “biodiversity financing” – which it broadly defines as financial flows intended for the preservation and restoration of nature – now amounts to around $208 billion per year, compared to 166 billion dollars three years ago. This is a significant figure – indeed, it exceeds the biodiversity funding target of $200 billion for 2030, set by governments at COP15 in Montreal two years ago.

This surplus may reflect differences between the methodology used to produce the COP15 target and that used by BNEF. But even if the $200 billion target was met, the new report suggests it is woefully insufficient. This is only a tiny fraction of the $7 trillion invested each year in “nature-negative” activities. according to the United Nations Environment Program. BNEF says biodiversity funding target should be above $1.15 trillion, citing a 2020 Report the Paulson Institute, the Nature Conservancy and the Cornell Atkinson Center for Sustainability.

2. International public flows remain modest

Governments currently account for $173 billion of global biodiversity funding, five-sixths of the global total. The vast majority of this aid is deployed domestically rather than abroad – international flows of biodiversity-related aid stood at $10.2 billion in 2022. But the richest governments have supported cash-poor and nature-rich nations across the burgeoning debt-for-nature exchange space. An unprecedented $2.3 billion in debt was canceled in 2023 in exchange for pledges to nature conservation, and BNEF believes a new record could be set this year – despite warnings from some critiques on the risks of moral hazard and greenwashing.

3. Credit markets are in deep trouble

Other areas of nature-related financial innovation appear weaker. Companies are showing less interest in naturally occurring carbon credits – which are linked to carbon emissions avoided through the protection of threatened ecosystems – due to concerns about market integrity. BNEF estimates that global issuance of nature-based carbon credits fell by 53% between 2021 and 2023. The nascent sister market for biodiversity credits, meanwhile, is hardly a market: BNEF estimates that a total of less than $1 million of these credits have been sold to date. “A lack of consistency between the systems” is holding back the new market, estimates BNEF.

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

For those wondering how to assess this area of ​​risk, the report offers a dire picture outlining the costly consequences faced by companies that have mishandled nature-related hazards, from chemical company 3M to power company PG&E. The report was particularly harsh in its criticism of big banks. Its analysis of the 200 largest lenders to “risky” 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 ​​risk for the biodiversity.

5. An overall overview – with some positives

Despite modest increases in funding for conservation, biodiversity continues to decline faster than at any time in history, according to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services – partly as a function of growth economic and industrial in nature-rich developing countries. .

BNEF recommends that international biodiversity funding be directed to countries where ecosystems are both exceptionally rich and seriously threatened, including Brazil, Colombia and the Democratic Republic of Congo.

It also highlights a few countries that have managed to reverse the overall trend of nature loss, including South Africa, Namibia and Botswana, where large areas have been set aside for wildlife reserves to attract wildlife. tourists eager to observe 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 approaches its climax on November 5, Wall Street is in trouble when it comes to renewable energy companies.

Sharp swings in stock prices are expected, and in this tense environment, every bit of data counts. Citigroup upgraded First Solar to a buy on Tuesday, sending its shares up 2 percent. They are now 33 percent higher than this time last year.

First Solar benefited from a U.S. tax credit, introduced under President Joe Biden, for domestically manufactured solar components. 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 $700 million worth of these tax credits in a single transaction 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 kind of boost from the Maga White House — in the form of tariffs on solar imports from its foreign rivals.

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

“The tariffs are positive for First Solar, the undisputed leader in domestic solar manufacturing in the United States,” the ISI said in an Oct. 16 report.

Vice President and Democratic presidential candidate Kamala Harris said: promised huge support thanks to tax credits for American manufacturing industries, particularly in the area of ​​clean energy.

For all the polarization around global warming in the United States, domestic solar manufacturing appears to be a bipartisan winner after the election. (Patrick Temple-West)

Smart reading

Transition problem What does “transition financing” really mean – and do we want to put in place “a huge bureaucratic edifice to determine which assets are eligible”? asks Tom Gosling.

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Too much training Auditing and consulting firm EY has fired dozens of employees for completing multiple online training courses at the same time.