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Despite recent buzz and high hopes for actionable biodiversity progress, COP15 promises remained vague from financial firms. For investment teams at insurance companies, this means potential scrutiny in the coming months and added difficulty for net zero transition plans.
Insurers have long made lofty promises on biodiversity, however, actual details have been hard to come by, and Insurance Investor could not source a single insurance company representative to comment on the record in specific terms on the topic.
Many insurers released statements and analyses online, though there have been few subsequent releases or addendums on concrete progress. However, UK giant Aviva seems to be leading the pack, with a clear 2040 net zero goal announced in March 2021. This transparency will aid the company in communicating their ESG strategy, boosting credibility, and mitigating against reputation risk whilst others falter.
COP15 is the 15th meeting of the Conference of the Parties to the UN Convention on Biological Diversity – a two-week summit taking place in Montreal from 7-19 December. As in November, biodiversity has been a buzzword in recent months, gaining steam ahead of December’s conference.
Biodiversity – or the varied presence of animal and plant life in any given environment – is a key ingredient to any insurance investor’s ESG strategy, net zero transition plan, and balance sheet, and has for several years been mentioned by insurance companies keen to expand their environmental credentials beyond climate change.
Aims for this COP include the global adoption of the Post-2020 Biodiversity Framework, which will outline what countries need to do to stop and redress damage to plants, animals, and wider ecosystems before 2050.
“There is growing consensus that biodiversity loss and climate change
are two sides of the same coin.”
While biodiversity has long been the forgotten younger sibling of climate change, for insurance investors it remains an integral element to the net-zero equation. A statement on COP 15 from Zurich Insurance Group said that, “there is growing consensus that biodiversity loss and climate change are two sides of the same coin.”
For insurance investors, this means recognising that biodiversity loss exacerbates climate change by hindering nature’s ability to store carbon and will require more effort in highly expensive mitigation and adaptation efforts in the coming decades. When defining transition plans to meet industry standards, insurance investors will need to recognise that without biodiversity, they will suffer a loss in their balance sheet.
The separation of the COPs to drive engagement on biodiversity is purposeful. Biodiversity COPs are distinct from climate COPs. While COP27 – short for the 27th Convention on Climate Change – and focused on climate change initiatives, COP15 aims to set out and ratify a global framework for “living in harmony with nature”.
Investment industry leaders will be present – including insurers – alongside environment ministers and politicians. A ‘higher-level’ session of the conference will run from 15-17 December, likely attended by government officials, while the earlier days will be crowded with investors, business leaders, scientists, activists, journalists, and others.
The Post-2020 Global Biodiversity Framework aims to implement practical
measures to restore and conserve ecosystems by 2050.
Adoption of the new global agenda, called the Post-2020 Global Biodiversity Framework, was first released on 12 July 2021, and has since been updated at summer 2022 meetings in Kenya. It aims to implement practical measures to restore and conserve ecosystems by 2050. This is an ambitious goal, so far supported by insurance investors in all but action.
As of early this week, many of the world’s largest asset managers have signed on to the Framework, including AXA Group, Legal & General Investment Management, Storebrand Asset Management, Manulife Financial Corporation, Fidelity International, USB Bank, amongst others. Insurers have yet to follow suit.
On 11 December, however, a group of institutional investors – including AXA Investment Managers, Columbia Threadneedle Investments, BNP Paribas Asset Management, Federated Hermes Limited, Robeco, and Storebrand Asset Management – announced the formation of Nature Action 100, “a new global engagement initiative [that] focuses on mobilising investors to drive urgent action on the nature-related risks and dependencies in the companies they own.”
Nature Action 100 will “mobilise investors through a signatory letter and
common high-level agenda".
As stated in their press release, Nature Action 100 will “mobilise investors through a signatory letter and establish a common high-level agenda for company engagements to achieve clear corporate commitments and actions to reduce nature loss and accelerate the adoption of nature-smart practices and public policies.”
It remains to be seen what exactly these practices and policies will entail.
Seeking to address this challenge is the Taskforce on Nature-related Financial Disclosures (TNFD), which was created in July 2020, with an initial phase running from September 2020 to June 2021.
The TNFD consists of 40 individual Taskforce Members who represent financial institutions, corporate businesses, and service providers with a combined total of over $20 trillion AUM, and aims to “develop and deliver a risk management and disclosure framework for organisations to report and act on evolving nature-related risks, [ultimately] supporting a shift in global financial flows away from nature-negative outcomes”.
Because financial organisations often don’t have the adequate information that they need to fully understand how nature impact their immediate financial performance, it is imperative that better information frameworks are developed and championed, said TNFD in their mission statement.
Without these clear reporting guidelines, the threat of greenwashing looms large.
“The lack of precision in regulations and industry standards contributes
to involuntary greenwashing: not doing what you said you would do.”
AXA Group Chief Economist Gilles Moëc recently said at Clear Path Analysis’s ESG Investment Leader 2022 conference that these fears are a pressing concern. He added that “the rules of the game are getting clearer. [But] the lack of precision in regulations and industry standards contributes to involuntary greenwashing: not doing what you said you would do.”
Insurance investors should be wary of the financial risk if they do not eventually get on board and produce visible results. Involuntary greenwashing poses another – reputational – risk, but one that investors should keep on their radars. When cheery statements and vague platitudes run amok without tangible evidence, they hinder real progress on biodiversity initiatives and beyond.
