COP16 Insights: How Latin America can help the private sector address climate change and biodiversity loss

Blog
S&P Global Sustainable1
18 Nov, 2024

Highlights

In late October the private sector gathered in Cali, Colombia, for the UN’s COP16 biodiversity conference — including several events hosted by S&P Global Sustainable1 that explored the integration of biodiversity and climate in corporate decision-making.

Nature-based climate solutions are not merely aspirational; companies across Latin America are implementing them at scale, demonstrating viable options for considering biodiversity in energy transition and climate resilience.

Latin America has emerged as a leader in sustainable finance, with sustainable debt reaching 28% of total debt issued in the region in 2023 and expected to exceed 30% in 2024, according to S&P Global Ratings research.

The UN’s biodiversity-focused COP16 gathering in Cali, Colombia, wrapped up in early November. Alongside the official government negotiations, the private sector had a strong presence at COP16 as companies come to grips with their nature risks and dependencies and increasingly understand the links between biodiversity loss and climate change. Below, we outline key takeaways from the roundtables and panel discussions S&P Global Sustainable1 hosted in Cali with a diverse group of stakeholders, including Latin American and multinational investors, banks, corporates, nonprofits and standard setters.

Innovative financial solutions for biodiversity

The growing sustainable debt market was a critical area of focus for our conversations with the private sector. Globally, the sustainable debt ecosystem involves three key stakeholder groups: investors; issuers, such as corporates and sovereigns; and underwriters, supported by second-party opinions. We heard during COP16 how investors are showing increased interest in nature and biodiversity-linked products, particularly in the EU, where deforestation regulations are being phased in. Issuers are recognizing the financial value that sustainability can bring. We heard during COP16 that transparency about climate and biodiversity goals can differentiate issuer offerings in a competitive market. Underwriters also conveyed that their clients are looking for financial instruments that link to sustainability goals. However, challenges remain in baseline assessments and setting achievable targets over the lifespan of bonds.

We learned how the sustainable debt market is evolving in Latin America. In 2023, sustainable debt constituted 28% of total debt in the region, according to S&P Global Ratings research, with countries like Mexico, Chile and Brazil leading issuance. This growth can be attributed to the growing demand for sustainable bonds that focus on climate impacts, though specific attention to biodiversity has been less represented and often as an afterthought to climate goals.

New taxonomies in countries such as Mexico and Colombia are supporting this growth trend by providing clearer frameworks for sustainable finance. We heard that investors are now more inclined to assess the sustainability credentials of their investments, demanding transparency and accountability in how funds are used to address environmental issues.

The discussions also explored innovative financial products designed to incentivize nature-positive actions. Examples included sustainability-linked loans and outcome bonds that tie interest rates to biodiversity performance indicators. These financial instruments aim to align economic incentives with environmental outcomes, creating a potential win-win scenario for investors and nature.

And we heard the insurance sector highlighted as playing a critical role in assessing nature-related risks and translating them into financial terms. For example, the insurance industry can support the transition to regenerative agriculture by supplying investors and companies with forward price curves comparing the expected future cost of insuring agriculture assets that integrate regenerative, water efficient, climate risk-resilient adaptations to business-as-usual models.

The role of standards and regulations in sustainable practices that consider biodiversity

Discussions in Cali also highlighted several challenges that the private sector faces. While there are clear upsides to nature commitments, such as improved risk management and enhanced stakeholder engagement, we heard that financial constraints, devoting resources to responding to regulation, and managing multiple sustainability challenges simultaneously can impact progress.

The regulatory landscape surrounding sustainable finance is complex and varies significantly across countries. Latin America has taken proactive measures in this regard, often setting higher standards than those seen in other regions. We also heard that multinational companies are navigating the challenge of EU and domestic regulations.

Frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) also have a role to play. Launched in 2021, the TNFD aims to provide a framework for businesses to manage and disclose nature-related risks and dependencies. With over 500 companies committing to adopt the TNFD framework, there is a growing recognition of the importance of integrating natural capital into private sector decisions.

Panelists discussed the voluntary nature of the TNFD and its market-based approach, and concerns about the potential for greenwashing and desire for private sector action focused on outcomes rather than disclosure. The panelists emphasized the importance of a multi-stakeholder approach to supporting biodiversity that includes collaboration with Indigenous peoples and local communities.

Looking Ahead to COP30: Food, fuels and forests in Brazil

Many of the discussions at COP16 focused on the importance of addressing nature loss and climate change in tandem — and some COP16 attendees even suggested that the UN’s climate and biodiversity focused COPs should be combined. As we look ahead to the UN’s climate-focused COP29 that began Nov. 11 in Baku, Azerbaijan, we expect to hear continued acknowledgment of the ties between these two environmental crises.

A COP16 panel that S&P Global Sustainable1 hosted on nature-based decarbonization was an opportunity to reflect on Brazil's unique position in the global agriculture and energy markets. Three panelists shared examples of how companies are integrating biodiversity concerns through regenerative agriculture in industries related to producing food, fuels and pulp/paper in Brazil. They discussed the role of biofuels derived from crops like corn or soybeans in the energy transition and the implications for biodiversity of models that rely on second or third harvest feedstocks. The discussion emphasized the need for sustainable biofuel production that does not compromise food security or lead to deforestation. We learned about Brazil’s approach to balancing biofuel production and sustainability by utilizing existing agricultural lands. The country practices crop rotation with food crops to enhance soil health and uses agricultural waste from these crops as feedstock for biofuels. We also heard how most of the country’s vehicles integrate flex-fuel technology, allowing them to run on a mix of gasoline and ethanol derived from various feedstocks, including sugarcane, corn and soybeans.

The "Fuels of the Future" law in Brazil may be a significant step toward enhancing biofuels in aviation and increasing their overall penetration in the energy mix. This legislation includes measures to mitigate the risk of encroaching on forested areas. We also heard about “RenovaBio,” a Brazilian policy aimed at promoting the production and use of biofuels, particularly ethanol, to reduce greenhouse gas (GHG) emissions and enhance energy security in Brazil. To qualify, producers must ensure that their feedstock does not contribute to deforestation or degradation of native ecosystems. One panelist shared that 77% of ethanol and biodiesel produced in Brazil are certified as compliant with Renovabio, highlighting the country's efforts to balance energy demand, carbon reduction and biodiversity protection.

Such approaches have the potential to reduce GHG emissions from the transportation sector and diversify Brazil's energy sources, making this Latin American country a leader in biofuels and in addressing the impact of transport and energy on biodiversity.

As we look further ahead, we expect to hear continued focus on the role of Latin America in combating climate change and biodiversity loss in the run-up to the UN’s 2025 climate conference, COP30, which is scheduled to take place in Brazil.