Cornelia Neumann 

Hello. We are here today to talk about a new and very exciting topic, which is biodiversity and nature.  I am Cornelia Neumann. I am a partner in our Amsterdam office and a member of our climate sustainability practice. I am joined here today by two of my colleagues who both working very intensively on this topic. First, we have Rob Bailey here, who is a partner in our insurance practice and has been working on the topic of climate and nature for almost 20 years. 

And then the third member in this distinguished group is Johnny Ayoub, who leads our climate and sustainability platform in IMEA. Maybe the first question to you, Johnny. Obviously, we are saying, or we are thinking that nature and biodiversity are new and hot topics. What do you see in the market? 

Johnny Ayoub 

They're actually old topics. The first treaties and conventions on that topic, date from the late seventies, and early eighties, and then not much happened on that front in terms of progress. I think lately, five or six years ago there has been more traction, which we have seen in 2022 with setting the objectives of 30% by 2030 in terms of land degradation, reduction, and basically overall marine ecosystem reductions.

And since then, companies have been a bit more involved in that topic and taking it more seriously.

Robert Bailey

And I think when you look at what is happening in the market, it feels a bit like it did with climate change, maybe three or four years ago. Instead of the TCFD, we now have the TNFD, the Taskforce on Nature-related Financial Disclosures. So, there is this new agenda now in the market to increase transparency and promote disclosures by businesses around the nature-related risks, impacts, and dependencies that they have on their balance sheets and in their operations.

We are starting to see now an emerging agenda around nature-related target setting. There is this new expression, nature positive by 2030, the idea is that this could be something like the net zero equivalent. And we are seeing frameworks appearing now to help companies work out how they want to set these targets.

The science-based targets network is working on this agenda now, and we would expect to see the targets coming through within the next year or so. And then there is the global biodiversity framework. This international agreement was agreed at the end of last year. The idea is that this will be the equivalent of the Paris Agreement.

So, a whole set of goals and targets that governments are going to have to adopt at the national level and put into their policies and regulations. And that will change the game for businesses because it will actually increase the regulatory burden that they will need to meet around things like land use change, pollution, and restoration of nature.

All in all, there's a whole alphabet soup of frameworks, policies, and regulations coming down the line on nature, and businesses are going to have to get to grips with that fairly quickly.

Johnny 

Maturity is different by region, where Europe is much more advanced. In Europe, they are planning to issue nature-related regulations that would apply to some companies and that will come into effect in 2025. The Middle East is a bit behind, but at least they're setting the foundations for that; environmental strategies are being set, environmental laws and environmental regulations (which are helping on that front). But I think the disclosures and reporting, which Europe is now pushing for, will all come to the Middle East in time.

Robert 

And the interesting thing in Europe is this Corporate Sustainability Reporting Directive (CSRD). That will make it a requirement for companies to disclose their nature-related impacts and dependencies. Most interesting, is that it will make that a requirement, not just for European companies, but for large international companies earning a relatively small amount of revenue in Europe. It could become a de facto international disclosure standard.

Johnny  

Meaning it will apply to any big company working in the Middle East or Asia with operations in Europe.

Cornelia 

It definitely sounds like good news for nature and for the planet. We already talked a little bit about how different companies are adapting, because obviously, our clients have the climate agenda to deal with. Now we are adding something that is very complex and not very well understood by many companies on top of their agenda and asking them to also think about nature. 

Maybe we can talk a little bit about the specific challenges of clients that we are working with and that we are supporting. And in this context, Rob, I wondered whether you wanted to say a little bit about our support of the WEF on the Nature agenda. 

Robert 

Sure. So, I guess there are a number of pieces of work that we are working on. The first one is that we are working with the World Economic Forum's Nature champions and the nature agenda to look at what a nature positive transition looks like for a set of corporate sectors, and really trying to identify what the impacts and dependencies are that these sectors are going to have to get to grips with.

What are the nature-related opportunities that they can actually realize, and create value for them as they go through a nature positive transition? And what are the contours of a nature positive transition for these sectors? Like, if you are CEO of one of these companies, and you are hearing that you need to think about a nature positive target, what does that actually look like?

What are the absolute imperative things that you are going to need to make sure that your company is doing? What are you going to need to ask your executive management team to deal with and make sure is designed? We are looking at those examples together with the World Economic Forum.

Cornelia, maybe it is worth you reflecting a bit on the work that we have been doing with financial institutions, piloting the Taskforce on nature-related Financial Disclosures (TNFD). Because we have really been working with risk managers and risk functions and sustainability functions that already wrestling with a climate change agenda and then now trying to integrate a nature-related agenda into that.

Cornelia  

I think that is a really good example of how companies want to make progress and are aware that nature is an important topic, but they face two challenges. First, a lack of expertise, understanding, and data on the topic. Second, insufficient resourcing, especially for the climate agenda. So, what we did in this project was to support a group of six financial institutions located all over Africa and help them pilot an emerging TNFD framework.

So, we guided them through the first couple of steps on the risk and opportunity assessment, on the business opportunities, and tried to help them shape an agenda for how they could incorporate nature and the TNFD recommendations into their doing. I think it is fair to say there was a lot of enthusiasm and passion from the people we worked with, but it also just clearly illustrated how long this journey is going to be and how many real obstacles companies face in order to make a positive contribution.

Johnny 

The topic is actually much more complex than climate. First, it is location specific, which is not the case for climate. Second, it is sector specific. Third, you need more data. Nature is a broad topic. I think there are over 3,000 KPIs that you could actually track. So, choosing the right ones and the ones that you can measure is really complex. 

If you look at the taxonomy today, we get those questions a lot. People are still struggling to understand what nature positive is. What is an ecosystem service? What is the impact of ecosystem degradation? Etcetera. I think it is a bit more complex than nature, and those frameworks are going to help.

Robert 

And if it is complicated for a corporate with one supply chain, imagine how complicated it is for a financial institution, with a fully diversified portfolio across sectors and across geographies. You have location specificity all over the place. You've got multiple different sectors, and different nature-related impacts. It is a challenging agenda for financial services in particular. 

And what we have seen from the work that we do with CDP, where every year we analyze all the disclosures the financial institutions and businesses make to CDP on climate and nature, is that generally speaking, you can see quite clearly that financial institutions are much further ahead on integrating climate change into their risk management, portfolio management, and client engagement processes than they are with nature. Where there are a lot further behind.

Now, I think they will catch up and these frameworks will help. But we really do need to see the financial services sector kind of step up on this agenda because what we have seen with climate change of course, is that once the banks, the insurers, and the investors start pushing this agenda and engaging with their clients on this agenda, that is when you really start to see things shift in the real economy. 

Johnny 

I think 75% of companies are actually disclosing on climate using SBTi. But then if you look water, it is around 30. If you look at forests and biodiversity, it is less. And if you look at all three, it is just 5%. Meaning nature is behind. 

Cornelia 

Now one of the findings from a recent CDP report was that around 40% of companies we analyzed said they had a biodiversity commitment. So that sounds like good news. 

Robert 

However, what the nature of that commitment is, is another question for debate. 

Cornelia 

I agree. So, in your daily work, in your experience, how do you think companies can contribute to a nature positive agenda, and do so in a commercially smart way? 

Johnny 

I think as Rob mentioned, it all starts with understanding the risks and opportunities for them. I think they would not be incentivized to act on the topic unless they quantify what that would mean to their business’s bottom line, and then they would take action to mitigate those risks.

What I am seeing. I work a lot also in agriculture. Is that regenerative agriculture is a big topic. The same goes for future foods, which are also more nature friendly and climate friendly. These are emerging topics that clients, particularly investment companies, can invest in and can promote going forward. 

Robert 

In the sector that I work with, which is insurance, we are already seeing companies actually moving to capture nature-related opportunities. So, we are seeing some really interesting innovations from the likes of AXA XL, Swiss Re, and Munich Re, looking at developing insurance products to protect and restore nature. So, nature-based solutions. There is a lot of interest in the insurance sector on how natural infrastructure, like mangroves, coral reefs, salt marshes, or forests can create disaster reduction benefits and therefore increase resilience to climate change. 

But I think for financial institutions in general, what they need to understand is what the nature-related risks are that different sectors are facing. They need to understand what nature-related risks the extractives industries are facing, and therefore what the financial products are that we can develop to help them manage those risks. 

So, they need to be able to undertake that analysis at a portfolio level and then think about what that means for the products that they will need to develop. 

Cornelia

And sometimes I feel like a lot of the opportunities that will be part of the transition, we need to help our clients to see them. So, one conversation in recent days that stuck with me was around circular economy. Now, a lot of manufacturing clients are rethinking the use of resources, trying to rely more on recycled materials, and trying to prolong the lifespan of their products, which should be commercially smart, if you do it right. Also makes your supply chains more resilient in the end. This is one of the other areas that I think is emerging very quickly, but our clients still need a bit of help. 

Johnny 

So, clarity on the opportunities is important. And I think the financial sector, but also governments have a big role to play in driving the change similar to climate. I think in the Middle East agendas usually are driven by policies and regulations at the government level. Then you have champions which are for example sovereign wealth funds and other big players in the sector and economy that would adopt those principles. And then it is cascaded down to the rest. So, a bit more action is actually required in some countries at the top level. Then the financial institutions and the private sector will be more incentivized. 

Robert 

There is a huge policy and regulatory agenda attached to all of this that will need to happen if the transformation is going to take place. Because, I mean, we go back 20-odd years to the last time the international community developed a set of biodiversity related goals. Not many of them actually made their way into policy and regulation. 

And as a result, not a lot happened. So, if you actually want businesses and financial markets to kind of price in nature-related risks, shift capital, and protect high value nature-related areas where there is no real cash flow associated with doing so, you are going to have policies and regulations that actually drive that change. 

Cornelia

Well, let's hope that we can continue to support our clients on this really important topic. So, thank you very much for joining me today. And thank you very much for watching.