Transcript by Kensho.


Lindsey Hall: I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Weldon, a senior writer on the Sustainable1 Thought Leadership Team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global, where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Esther Whieldon: Hey Lindsey, welcome back.

Lindsey Hall: Thanks Esther. I just returned from COP15 in Montreal. That’s the U.N.’s big biodiversity conference that took place over the course of two weeks, just wrapping up Dec. 19th with negotiators reaching a landmark agreement for biodiversity

In this episode of ESG Insider, we’re going to cover the big takeaways from the event. Today we’ll hear on the ground perspectives from: Tim Christophersen, Vice President for Climate Action at a global technology company called Salesforce, which provides customer relationship management software.

I talk to Laurence Pessez, Global Head of Corporate [Social Responsibility] for big France-based bank BNP Paribas. We sit down with Simon Zadek, Executive Director of NatureFinance, a nonprofit focused on advancing the place of nature in decision-making across financial and capital markets.  And we hear from Linda Kruger, Director of the biodiversity and infrastructure policy team at the Nature Conservancy, a global environmental nonprofit.

Esther Whieldon: If you follow the sustainability space, you know that biodiversity and nature are climbing the agenda for the private sector. For example, $44 trillion of economic value generation — that's over half of the world's total GDP — is moderately or highly dependent on nature and its services and as a result, is exposed to risks from nature loss. And that's according to a much-cited 2020 report from the World Economic Forum. And 2021 brought us the Dasgupta Review, that’s a landmark study of the economics of biodiversity. That review found that the loss of ecosystem services can create direct economic and financial losses for companies and economies. So Lindsey, can you set the stage for us, what was it like there on the ground?

Lindsey Hall: Yes. So this event took place in a massive exposition center in Montreal. The estimate I heard was more than 10,000 people attended. Each day, you file in and after you show your negative COVA test and get through security, you're just thrown into the mix. On the top floor in an absolutely massive auditorium, you have the delegates on stage representing different countries and governments. As we'll hear today, the thing that we're negotiating was the global biodiversity framework. Those negotiations went on right up until the final hours at the conference, and it was nail-biting, -- as you'll hear come through in some of my interviews, it was not at all clear what the outcome of those negotiations would be until the very end.

But ultimately, negotiators for more than 190 countries agreed to a global biodiversity framework. And this framework includes nearly 2 dozen targets. The headline commitment is known as 30x30 and it pledges to protect 30% of the Earth's land and water considered important for biodiversity by 2030.

Delegates also agreed to identify and eliminate, phase out, or reform incentives, including subsidies that are harmful to biodiversity by 2025. And importantly, the deal includes monetary targets, specifically to increase the level of financial resources to implement national biodiversity strategies and action plans by 2030 mobilizing at least US$200 billion annually.

To learn more, I talked to Tim Christophersen from Salesforce. We sat down across the street from the conference venue at COP15 in what I thought was quite a hallway, but as you might hear, was probably the busiest throughway in all of Montreal. We must have been passed by a dozen police officers, a janitorial cart, a food trolley, at one point a cute dog walked by and I completely lost my train of thought, but I think we got there in the end. So here's Tim setting the scene for us. He explains 30x30 and why cutting harmful subsidies is important.

Tim Christophersen: So on a personal note, I used to work for the conventional biological diversity Secretary that is running this cup. So for me, it's a bit like a home coming. I was on the organizer side of 3 of these biodiversity cops that happened about 10 years ago, including the one in Nagoya in Japan in 2010 that negotiated the current global biodiversity framework that the world has. That expired in 2020. And then because of COVID, the follow-up conference that we're having just now had to be postponed twice and is only happening this year.

So the purpose here is to discuss a global framework for saving and restoring nature that the world desperately needs. What I observed here is we've never seen so much business interest in this topic. When I worked on the UN side of organizing these meetings, I used to spend a lot of my time discussing and explaining to businesses, what by diversity is and why it matters to them. I think that is a totally different situation today. People have noticed that nature is essential for solving the climate crisis, but more than that nature is also essential for everything else: for our business, for our society, for our health for well-being. And that memo has now sort of circulated to everybody, I think. And we think the social tipping point of understanding that we cannot continue to just extract natural capital from Planet Earth without giving back that has now arrived, that realization, not only in the sustainability teams of companies, but in boardrooms with CEOs, with Chief Finance officers. So that's very encouraging to see.

There's a couple of headline issues that will probably reverberate once there's an outcome by next week in the media. One is called the 30x30 target, having 30% of the world's aquatic and terrestrial essence under protection by 2030. We also have to consider what happens with the other 70% of the planet. It cannot be that we confine nature of diversity to 30%. We also have to reform the way we farm and produce food, probably the biggest elephant in the room here is our global food system responsible for the majority of all deforestation and for a lot of other environmental issues, including 25% of greenhouse gas emissions.

So agriculture is one of the big issues here that also needs to be discussed. Therefore, in the global biodiversity framework, we also have a discussion strand on reforming harmful subsidies. If you look at agriculture, there's about $540 billion per year that are spent of taxpayer money that are spent to subsidize farming. Of those, about 90% are harmful to either human health, biodiversity, climate or all of the above. So there's a big need to reform those subsidies. If we add fossil fuel subsidies to that, the overall number reaches towards $1.8 trillion per year of taxpayer money that is spent to basically make environmental issues worse and that has to change.

And this is one of the contentious issues that are being discussed here because obviously, that subsidy system benefits a lot of people and a lot of companies that are reluctant to reform and change. So we have to do this in a way that is socially just and allows for a transition to subsidizing regenerative agriculture, renewable energy, things that are more in line with today's global and national policy priorities.

Lindsey Hall: So Esther, it's important to note that while government delegates were upstairs negotiating on these targets, on the lower levels of the building, there was also a lot of activity. At any given moment, there were literally dozens of panel sessions, exhibitions, everything from huge plenary sessions down to small, less formal gatherings that were more like being in a classroom where you could ask questions at the panelists.

For me, it was a little bit like grown up Disneyland, just so much to see so much to do, and I didn't quite know where to turn first, I kind of wanted to take it all in. So definitely digging out a little bit at this amazing event. And there was an absolutely huge mix of stakeholders, scientists, NGOs, youth groups.

There was an area of one pavilion devoted to IPLCs, which stands for indigenous peoples and local communities. Now indigenous peoples are guardians of almost 80% of the world's remaining biodiversity, according to the Food and Agriculture Organization of the UN. And a big part of the discussion at COP15 was the important roles and contributions of indigenous peoples and local communities as custodians of biodiversity and partners in conservation, restoration and sustainable use.

As we've mentioned, the private sector was also there in force in a way that has just not happened in the past. That was a big takeaway from pretty much everyone I spoke to, the rising role of the private sector.

We also saw the UN include its first-ever finance day at one of these biodiversity focused COPs. -- the opening session for that today that I sat in on COP15 Executive Secretary, Elizabeth Mrema said inviting the financial sector really inside the tent as part of finding sustainable solutions.

It was also striking to hear the level of private sector support for mandatory disclosure. A few weeks before COP15, we saw the launch of the Make-it Mandatory Initiative. Hundreds of businesses from around the globe keep together to urge head of state to make it mandatory to disclose impacts and dependencies on nature by 2030. This is Target 15 of the Global Biodiversity Framework. To learn more I sat down with Laurence Pessez from BNP Paribas, which he's in charge of the bank's biodiversity strategy. BNP Paribas, like Salesforce was a signatory of the Make It Mandatory pledge. I ask Laurence to explain how a bank like BNP Paribas fits into discussions of biodiversity.

Laurence Pessez: For example, well, biodiversity is a very broad and complex topic. So you have to select the areas on which you really have a lever. So for us, it's a differentiation we've selected because of our geographic footprint. We are operating in Southeast Asia with a palm oil issue and also in Brazil, where we have a big subsidiary. So we have a lot of clients in the soy and beef sector. And also we financed the big international traders, cargo, et cetera. So we think that we really can move the needle on this specific topic.

So we had several conversations with our clients, producers and traders to better understand what -- where we stand on the transformation journey to more nature-friendly practices and what we could do to support them on this journey.

So we decided to ask them to comply with some mandatory criteria by 2025, which is, first, to have a full traceability of our supply chain, both direct and indirect and also to have a net zero deforestation strategy by 2025. So we agreed on periodic reviews. So we regularly sit down with our clients just to see what they're doing, if they're on track because at the end of the day, we have this 2025 deadline. So if they don't make it, and they are not in line with our standard, it means that we are not going to be able to have them as clients or to invest in those corporates anymore.

So it's in both parties' interest to make it happen. And we've already seen we have an impact because at least 4 of the big traders have moved their zero deforestation target from 2030 to 2025. But it's still a journey and some external stakeholders say, we're not going to make it. We keep financing corporates, which are not in line with the standards. But we knew that this from the start and the idea is to engage the clients and to, well, incentivize them in a way to speed up and be in line with our standards in 2025.

Lindsey Hall: I asked Laurence to characterize the conversation she was having throughout COP15.

Laurence Pessez: Talks are very focused around data because we're missing data. So far, there is no broad disclosure of data from corporate clients.

For example, BNP Paribas, we have decided to assess all our corporate clients on 5 dimensions, including biodiversity across sectors with specific questionnaire adapted to the materiality of the topic according to the different sectors, of course. And the idea is to get a clear view of the dependency of our corporate clients on nature, the negative impacts they have, and more important, what's their strategy to mitigate their impact and to transform our business model towards something more sustainable.

So far, we don't have — to be honest — we don't have a precise idea, not even a broad idea of the level of dependency of the corporate clients we finance to nature. There are some kind of figures, for example, in France, the Banque de France said that more than 40% of all the assets of the financial, French financial institutions are invested in corporates, which highly or moderately rely on nature. So of course, if biodiversity loss increases, it's going to turn into credit risk, market risk, et cetera.

So that's why disclosure and data are so important because first, we need to have a baseline in order to measure our progress and to adapt our strategy depending on the target, which will be set, hopefully, before end of the week. So it's a question of data, of scenario, we don't have so far clear scenario as a net zero scenario. Also, we don't have one metric to measure like CO2. It's going to be multiple metrics depending on the topic, water management, pollution, deforestation, et cetera.

Lindsey Hall: Laurence said these challenges with data are one of the reasons BNP Paribas signed on to the Make It Mandatory initiative. You'll hear her mention TCFD. That's the Task Force on Climate-related Financial Disclosures, and the TNFD. That's the Task Force on Nature-related Financial Disclosures.

Laurence Pessez: First, we need data, then we need methodologies. We need a reporting framework, but there is a TNFD, which is here for that, and we sit on the TNFD, and the front draft has been released in October. It's currently under review, and it's very promising. It's going to be the equivalent of the TCFD. So a commonly agreed reporting framework. So there are bits and pieces. And it's exactly the reverse from what happened in Paris in 2015 in Paris. In Paris, first the goal was set and and after people sat down and said, "Well, now how are we going to do it?” There were no methodologies on the shelf, whereas on biodiversity, we've learned from climate and a lot of things have been anticipated already.

Lindsey Hall: Those challenges of data and measurement are a theme that came up repeatedly during the conference, and that makes sense since measuring biodiversity is no simple feet. But the overarching theme I also heard was that as with climate, we can't wait to act. We can't let perfect be the enemy of good. And that's partly because, like we mentioned earlier, so much of the economy is dependent on nature. To explore this idea further, let's turn now to my interview with Simon Zadek of NatureFinance.

Simon Zadek: 100% of GDP is 100% dependent on nature, that we are in nature. It's a truism. So rather than thinking, well, I don't do agriculture, so nature is not so important for me. Actually, everything around us, everything to do with our global economy ultimately is sourced in different aspects of nature. So nature related risks and opportunities are part of the bigger picture.

Now climate is part of nature, not the other way around. We're seeing both within the financial economy and the real economy nature being increasingly identified specifically, valorized, and monetized and traded, whether that's through a financial market risk lens, whether it's through a central banking, financial stability view, whether it's through a certification model associated with carbon and biodiversity or biodiversity credit -- these are all examples of where nature as an item, if you like, is having a financial value put on it and in some sense, it's being traded.

Lindsey Hall: I ask Simon his take on how well the financial and business community actually understands the importance of biodiversity. A couple of notes. You'll hear him mention CapEx, that's capital expenditure, KPIs, those are key performance indicators and vertical farming. That's exactly what it sounds like, growing crops in vertical stacks, typically in a controlled environment like a building or a greenhouse that can increase crop yield and use less land. And as you'll hear, Simon and I were sitting in this big exhibition hall surrounded by giant photos of animals and nature.

Simon Zadek: Well, let me give you the 2 versions. So although we're on audio, if you look around you, you will see pictures of nature. Yes, that looks like some sort of animal that I don't really understand, and that's probably a bird.

Lindsey Hall: You have a giant Bumble Bee on the wall behind you.

Simon Zadek: A bumblebee behind me. And in a sense, those visuals are the problem because they present nature as somehow something to be observed to be admired, but distinct largely from the dayto-day lives that we live or the jobs that we inhabit and go to in the morning and hopefully leave in the evening.

On the other hand, for Rabobank, which is one of the world's largest banks investing in agriculture, yes, nature-related risks are a major part of the story. Or if you're considering sovereign debt associated with, say, Argentina, then actually, it turns out that the quality of soil is a significant factor that should count in considering solvency risk in traditional sovereign terms because the quality of soil is a major determinant of Argentina's economy. And yet, in many instances, one doesn't have that information or investors have not taken the quality of nature and the dependency of the economic asset on nature into account adequately. That, in a sense, is what's beginning to emerge.

On the opportunity side, again, let's stick with food for a second, 8%, 9% of the global economy. So a pretty big chunk of the story. And we're at a moment in time where we see both climate change and nature degradation, increasingly putting food supply systems at risk.

Now that obviously raises red flags for many investors who are risk focused, but it also opens up an entirely new arena of possible investment opportunities. Think alternate protein and vertical farming. Why are those so important to us? Well, they're important because we're trying to reduce carbon emissions from livestock are absolutely true, partly because we're trying to reduce deforestation and other forms of nature degradation as a result of food production systems, partly because, say, particularly with vertical farming, we see that water scarcity, other nature risks and climate risks require us to think of new ways in which to reduce food and therefore, new ways in which to invest in food, vertical farming, think, vertical farming as a CapEx-intensive food production system that is more or less there I say, equivalent to clean energy system investment as it relates to climate.

So often, in fact, as one begins to engage with certainly more sophisticated investors in many parts of the investment community, either they're already without really thinking about it, taking many aspects of nature-related risks into account already, or as one begins to talk them through what some of those nature dependencies are, they begin to see the advantages of having a more effective flow of naturerelated data that they can use in their asset valuation and investment decisions of different kinds.

So actually, in many ways, it's easier to sell the case of taking nature-related risk and opportunity into account to investors than it is about climate change, because actually, so many of our economic assets that we're already investing in are so directly dependent on nature.

Now in 2015, the Task Force on Climate-related Financial Disclosure was created, TCFD, principally focused on carbon, but also gradually other aspects of the climate agenda. And of course, as most of your listeners will know that's become an important driver of the way in which climate-related risk figures in investor analysis, asset valuation, sometimes statutory disclosure requirements, certainly, reputational communication and so on.

Earlier this year, the Task Force and Nature-related Financial Disclosure began to produce the first round of work really following in the footsteps of TCFD beginning to try and figure, well, what really are investor relevant information flows on nature-related risks, what sorts of KPIs should be used, where is that data going to come from? What are the methodologies that allow us to analyze the dependency of different economic assets on different aspects of nature and the associated material risk.

So in a sense, the sale is becoming easier and the data and methodologies and standards that are beginning to emerge are beginning to create the right bridges between investors that are realizing that they need to understand nature related risks and opportunities and beginning to gather material and approaches that allows them to do that effectively and systematically.

Lindsey Hall: You heard Simon mentioned biodiversity credits. He said he was surprised by the big focus on this topic that you heard during COP15 -- here is again.

Simon Zadek: So most of the people who are listening to this podcast will know a little bit or a lot about carbon markets. That sort of come on to the horizon quite quickly and has grown in volume and visibility. And some of them will know that those that set standards in the voluntary card market area like Vera, for example, are beginning to develop new forms of credits that we could call Carbon Plus, carbon plus biodiversity. We're still the basic currency of interest is carbon, but where factors concerning the impact of carbon on biodiversity becomes relevant.

What's perhaps been surprising and interesting, whether I would say, good or bad yet. I think that's an open question. Is the huge discussions that are going on here around biodiversity credit markets separately from carbon markets. Now, even a year ago, at NatureFinance, when we were talking to folks in the market as to whether they felt biodiversity credit markets would emerge independently of carbon markets, I would say there was a more or less 70% to 80% view that, that was unlikely to happen. -- difficulty of measuring, who's going to buy them? What's it all about? And extraordinarily really, just a year, year and a half on from that hypothetical survey, if you like. I think the conversation in the room here is that biodiversity credit markets are going to be part of our market landscape going forward, and it's a question of how they're going to work, what the benefits are likely to be for traders, policymakers, owners of natural capital, what the role of indigenous communities are going to be in that context, which, of course, is less of a direct issue when you think of carbon markets. So I would say that's a significant surprise.

Lindsey Hall: Biodiverse credits also came up to my interview with Tim from Salesforce. Here he is explaining the concept.

Tim Christophersen: It's a concept that is in its early stages of being defined. We know what carbon credits are and there's a voluntary carbon market, of course, that many companies are participating in. There's also a compliance carbon market.

There are already in some parts of the world, compliance nature markets where companies need to invest and compensate for nature impacts, but there's no global market for biodiversity credits.

Now what we're hearing here, and this is still all relatively new, is that for some ecosystems, it is useful to have biodiversity credits which don't have a carbon component just because those ecosystems are either not eligible for carbon credits or they have low carbon. Think about desert ecosystems or ecosystems in the open ocean, where it's very difficult to measure what the carbon benefit would be or the so-called high-forest cover, low deforestation countries that are doing a lot to maintain their forest and are therefore not eligible for forest carbon credits necessarily. So in all of those contexts, it could be useful to have an additional instrument that focuses on biodiversity financing.

Esther Whieldon: Lindsey, it was helpful to get the explanation from Tim of the evolving discussion on biodiversity and to explain that term, which is something not everyone will be familiar with.

Lindsey Hall: Yes, that's a really good point. And actually another one of my key takeaways from COP15 - - that's the need for clear language, a shared Lexicon and really building knowledge and education around all of these nature and biodiversity topics. So as we talked about, there was robust private sector representation in Montreal, but many people in the business community are still kind of scratching their heads trying to understand how is biodiversity relevant to me. That knowledge needs to grow. I wrote down from a panel I attended was that even basic language is sorely lacking. This also came up in my discussion with Linda Krueger from The Nature Conservancy. Here she is.

Linda Krueger: I think for a long time, most businesses think, well, we don't use any wildlife products on our services so we're not having any impact. But almost everybody is having impact just in terms of the physical footprint. If you're a business that has any kind of infrastructure, particularly any kind of linear infrastructure that fragments natural habitat that's having a huge impact, right, on bidversity and natural ecosystems. So the footprint issue, the space issue, the -- that's a big part of what it means to have an impact on biodiversity.

But it is complicated and big companies have very complicated supply chains, and they might have impacts that they're not even aware of. So I think what this convention is calling for and what Target 15 specifically in the draft agreement now is calling for is an assessment and disclosure of business impacts and creating a level regulatory environment around the world that all governments ask businesses to assess and disclose.

So it's not even about like anything specific beyond that right now that they have to do. But getting that knowledge out there in a transparent way would be a big step towards understanding the problem and helping businesses understand the problem. And there are a lot of organizations now that are working on the metrics that we are working on the assessment methodologies. So we have tools now to do it. That didn't exist just a few years ago, which is kind of exciting.

Lindsey Hall: So as you could hear user, several big goals were agreed in this new global biodiversity framework and several themes came through during COP15: the increasing understanding of the link between nature and climate, the rising private sector engagement with this topic of biodiversity and also growing support for mandatory disclosure, the challenges of financing around nature and biodiverse and also the growing interest in Biodiverse credits, the ongoing challenges of data and measurement and, of course, the need for education, knowledge, building and clear language, which is something we'll continue to strive toward on this podcast.

Esther Whieldon: Based on what you said, Lindsey, it sounds like there's still a lot of work to be done, but it's an encouraging note to end the year with this global biodiversity framework being achieved.

So this is our final episode of 2022, and we just want to say thank you again to all of our guests and listeners. We hope you will join us again in the new year as we continue to track biodiversity and other trends. Happy holidays, Lindsey.

Lindsey Hall: Happy holidays.

Thanks so much for listening to this episode of ESG Insider and a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcast and sign up for our weekly newsletter, ESG Insider. See you next time. Copyright © 2022 by S&P Global

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