Menu

May 22, 2023

The Kunming-Montreal Biodiversity Framework: Is The European Taxonomy In Line?

Author

Samia Baadj, Senior Manager, Responsible of biodiversity topics, and Mickaël Mangot, Chief Scientific Officer "Retail and Impact Investing"

Downloads
Share

The mission of the Kunming-Montreal Global Biodiversity Framework is to take urgent action to halt and reverse biodiversity loss to put nature on a path to recovery for the benefit of people and planet by conserving and sustainably using biodiversity and by ensuring the fair and equitable sharing of benefits from the use of genetic resources, while providing the necessary means of implementation.(1)

The framework includes 4 goals to reach by 2050 and 23 targets to reach by 2030.  

Target 15 notably aims at taking legal, administrative, or policy measures to ensure financial institutions regularly monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity and provide information needed to consumers to promote sustainable consumption patterns in order to progressively reduce negative impacts on biodiversity, increase positive impacts, reduce biodiversity-related risks to business and financial institutions, and promote actions to ensure sustainable patterns of production. (2) 

Moreover, Target 19 is related to the financing of the biodiversity goals. It states sources of financial resources includes leveraging private finance, promoting blended finance, implementing strategies for raising new and additional resources, and encouraging the private sector to invest in biodiversity, including through impact funds and other instruments. (3)

The European Union has already put in place a regulatory framework aiming at encouraging and regulating sustainable finance and covering biodiversity topics. The cornerstone of this framework is the Taxonomy Regulation (4). The Taxonomy Regulation entered into force on 12 July 2020, 2 years before the Kunming-Montreal Global Biodiversity Framework, it is thus fair to question the alignment between both texts. 

The EU Taxonomy sets conditions that an economic activity must meet in order to qualify as environmentally sustainable. One of these conditions is to contribute substantially to one or more of six environmental objectives – one of which relates to the protection and restoration of biodiversity and ecosystems. The European Commission is currently consulting on draft technical screening criteria for activities which substantially contribute to the protection and restoration of biodiversity (5). The drafting of this technical screening criteria represents an opportunity to align the EU Taxonomy with the Goals and Targets of the Kunming-Montreal Global Biodiversity Framework. 

Biodiversity, an objective in itself, not a mere tool for off-setting purposes 

Both the Kunming-Montreal Global Biodiversity Framework and the EU taxonomy refer to conservation activities but also to restoration activities. Both frameworks thus aim not only at halting biodiversity loss but also reversing it. However, a concern regarding offsetting has been underlined by the EU Platform on Sustainable Finance. (6) The Platform underlines that, in the draft technical screening criteria, regarding activities of conservation, including restoration, of habitats, ecosystems and species, the word “only” was introduced to change the phrase “not for off-setting” into “not only for off-setting”. According to the Platform, this opens the scope for activities which are almost entirely done for off-setting, which contradicts the very intention of the criteria. 2DII agrees with this statement and reminds protection and restoration of biodiversity is in itself an objective and should not be considered as a mere tool to serve the objective of off-setting.  

Even though the Kunming-Montreal Global Biodiversity Framework encourages stimulating biodiversity offsets as one of the available tools (7), it is clear from its general vision, mission and Goals that conservation and restoration activities should have more ambitious purposes. 

Another opportunity for improvement of the EU Taxonomy is related to taking into account links between indigenous peoples and local communities and the protection of biodiversity. 

The importance of involving and respecting the rights of indigenous peoples and local communities 

The Kunming-Montreal Global Biodiversity Framework shines a light on the relationship between indigenous peoples and local communities and protection of biodiversity. Respect for the rights of indigenous peoples and local communities is at the heart of the Framework (8). 

The Kunming-Montreal Global Biodiversity Framework also acknowledges the important role and contribution of indigenous peoples and local communities as custodians of biodiversity and as partners in its conservation, restoration and sustainable use (9). The traditional knowledge associated with biodiversity, innovations, worldviews, values and practices of indigenous people and local communities is recognized as a tool to halt and reverse biodiversity loss. 

Hence, it is surprising that the EU taxonomy (10) and the draft technical screening criteria on biodiversity (11) do not integrate indigenous peoples and local communities. The technical screening criteria on biodiversity only states that the action plan for contributing to nature conservation should include, where applicable, a description of partnership agreements with conservation management entities, local NGOs or communities to contribute to the conservation or restoration of the area to which it intends to contribute. (12) This mention is insufficient to ensure the necessary involvement of indigenous peoples and local communities, as well as the respect of their rights. 

The EU Taxonomy, in line with the Kunming-Montreal Global Biodiversity Framework, should integrate the relationship between indigenous peoples and local communities and protection of biodiversity. 

Finally, the key recommendation remains to integrate impact in the EU regulatory framework. 

Defining impact to ensure the financing of conservation and restoration of biodiversity

Target 19 of the Kunming-Montreal Global Biodiversity Framework stresses the need to encourage the private sector to invest in biodiversity, including through impact funds and other instruments. (16)

Investment in impact funds is therefore encouraged by the Kunming-Montreal Global Biodiversity Framework, however, impact funds are not defined in the EU regulatory framework. If we refer to the scientific literature on the subject, and in particular to the work of researchers from the University of Zurich (17), the impact of the investment can be defined as “a specific change to the environmental parameters, caused by the investor’s actions.”

A key message of research about impact investing is that investing in a financial product fully or partially investing in activities that contribute substantially to the conservation or restoration of biodiversity, as defined by the EU Taxonomy, does not equal having a positive real-world impact on biodiversity. If that investment does not bring any additional funding or any qualitative transformation to the contributing activity, it will likely not cause any positive real-world impact.

The work of the Impact Management Project, which was further extended by researchers from the University of Zurich, has identified the additional actions that an investor can have through a financial investment, i.e., the various mechanisms that allow an investor to generate an impact (with a higher or lower level of confidence) are the following:

  • Grow new/undersupplied capital markets,
  • Provide flexible capital (the provision of financing on advantageous terms for project promoters)
  • Engage actively
  • Provide non-financial support
  • Send market signals
  • Send non-market signals

Other products may claim to have a positive effect on biodiversity by participating in a collective action that itself generates a positive impact. Indeed, the EU Taxonomy is a tool that may lead to a collective reorientation of capital towards eligible activities. Taken together, reoriented investments by many market participants may significantly affect market prices and, consequently, influence companies’ capacities to raise new capital and grow.

Nevertheless, such a positive outcome will depend on the practical application of the EU Taxonomy made by market participants. If and only if numerous biodiversity funds emerge and apply a strict taxonomy-based screening, then capital may flow towards the most aligned companies, enhancing their capability to develop at the benefit of biodiversity. So far, the potential of the EU Taxonomy to reorient capital flows towards aligned activities remain uncertain.

 


[1] Kunming-Montreal Global Biodiversity Framework, December 2022, Section F. 2050 vision and 2030 mission

[2] Kunming-Montreal Global Biodiversity Framework, December 2022, Target 15

[3] Kunming-Montreal Global Biodiversity Framework, December 2022, Target 19 c.

[4] Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment

[5] Draft Environmental Delegated Act and amending the Disclosures Delegated, Annex IV: Protection and restoration of biodiversity and ecosystems

[6] EU Platform on Sustainable Finance, Response to the Call for feedback on the draft Taxonomy Delegated Acts, May 2023

[7] Kunming-Montreal Global Biodiversity Framework, December 2022, Target 19 d.

[8] Kunming-Montreal Global Biodiversity Framework, December 2022, notably Target 1, 3, 5, 9, 21.Indigenous peoples and local communities are mentioned 23 times in the Framework.

[9] Kunming-Montreal Global Biodiversity Framework, December 2022, Section C, a.

[10] Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment

[11] Draft Environmental Delegated Act and amending the Disclosures Delegated, Annex IV: Protection and restoration of biodiversity and ecosystems

[12] Draft Environmental Delegated Act and amending the Disclosures Delegated, Annex IV: Protection and restoration of biodiversity and ecosystems

[13] Kunming-Montreal Global Biodiversity Framework, December 2022, Target 19 c.

[14] The Investor’s Guide to Impact, by Florian Heeb and Julian Kölbel. The framework for the creation of an EU Ecolabel for financial products also refers to: JRC – Technical Report No. 4 on the development of the EU Ecolabel for financial products.

[15] IPAF Discussion paper series on investor mechanisms, mechanism 3: engage and vote, 2DII, March 2023

[16] By bringing new and needed financing.

[17]  Versus investee company impact

Author

Samia Baadj, Senior Manager, Responsible of biodiversity topics, and Mickaël Mangot, Chief Scientific Officer "Retail and Impact Investing"

Downloads
Share

2DII today announced it is transferring stewardship of the Paris Agreement Capital Transition Assessment (PACTA) to RMI, formerly Rocky Mountain Institute. PACTA measures financial portfolios' alignment with various climate scenarios, including those consistent with the Paris Agreement. Under RMI’s stewardship, PACTA will remain a free, independent, open-source methodology and tool, and will continue to provide the financial and supervisory community with forward-looking, science-based scenario analysis to help users make climate-aligned financing decisions. RMI will invest in scaling up PACTA’s usability and applicability in day-to-day investment decisions as well as reporting requirements.

Access the full press release here: https://2degrees-investing.org/2-investing-initiative-transfers-stewardship-of-pacta-to-rmi/In the coming weeks, we will update this website with additional information. For now, please note that all contact information remains unchanged.