COP16: Finance Progress Thwarted by North-South Divide
Negotiations remain open-ended as investors and companies look to governments to provide greater leadership on nature action.
Although headway was made at COP16 on the mechanisms needed to realise the goals of the Global Biodiversity Framework (GBF), friction between industrialised and developing nations has thrown a spanner in the works.
Progress included the establishment of a permanent body to ensure Indigenous groups are included at every level of GBF-related decision-making and moves toward financial compensation for the commercial use of genetic information.
However, the size, sources and supporting structures of the funding needed to reverse biodiversity loss and nature degradation remain a source of contention between wealthy and less wealthy countries.
Parties were at a stalemate on the need for a new global biodiversity fund accessible to the countries most at risk, when several delegations were forced to leave the negotiating table to catch flights home. The resulting lack of quorum meant a temporary suspension and no final agreement on resource mobilisation.
“They [governments] weren’t able to agree a way forward or stump up the right amount of cash by agreeing a funding mechanism,” Karen Ellis, Chief Economist at World Wide Fund for Nature (WWF) UK, told ESG Investor.
“This deadlock has discouraged a needed focus on better mobilising private finance, and could be seen as an excuse by governments to get away with not providing the public finance that’s needed to [catalyse] private investment in nature solutions.”
For richer or poorer
Developing countries have long called for a new nature fund governed by the UN Convention on Biological Diversity (CBD) – a demand which was left unresolved in Montreal at COP15 with the establishment of the Global Biodiversity Framework Fund (GBFF), hosted under the Global Environment Facility (GEF).
In the two years following, the GBFF has received less than US$250 million from developed countries – falling short of their US$20 billion funding commitment by 2025 and a mere drop in the ocean when considering the US$700 billion biodiversity funding gap.
A Campaign for Nature report released ahead of COP16 confirmed that most rich nations are contributing less than half of their “fair share” of biodiversity finance.
An additional report published in October noted that the countries most exposed to nature degradation are increasingly having to borrow to finance adaptation and disaster mitigation measures. This is an unsustainable solution for low- and middle-income countries, the report said – yet most of the funding coming from developed countries like France is given in the form of loans.
While developing countries have long argued the GBFF is too burdensome to access and overly controlled by wealthy nations, developed countries have insisted a new fund would fragment the funding landscape and wouldn’t necessarily raise new money.
“The dynamic of these multilateral party negotiations is wrong, as they’re trying to get the maximum benefits for their individual country at a minimum cost,” said WWF-UK’s Ellis.
“But this the wrong mindset, as everyone has collective interest in solving the nature crisis.”
The suspension in negotiations – which are expected to resume within the next few months – has also delayed the finalisation of a comprehensive Strategy for Resource Mobilisation.
Anita de Horde, Co-founding Executive Director of the Finance for Biodiversity Foundation (FfB), sat on the resource mobilisation advisory committee at COP16, which prepared the strategy to help secure US$200 billion annually from all sources to support biodiversity initiatives worldwide and redirect US$500 billion of harmful subsidies per year.
“It’s inefficient to only focus on mobilising resources from the Global North or the private finance sector – more is needed, including alignment of public and private flows and subsidy reform,” de Horde said.
“This is reflected in the language of the strategy [we put together] – but it hasn’t yet been adopted as not enough people were there. We expect the strategy to be adopted at a later time.”
Share your profits
Before COP16’s closing plenary was abandoned, participating governments did manage to sign-off on the details of the Cali fund, a mechanism that will require companies to pay a share of the profits they make from exploitation of genetic resources.
According to Pavan Sukhdev, CEO of GIST Impact, the deal is an important step toward recognising the many hitherto invisible and unaccounted for benefits and impacts arising from the private sector’s use of natural resources.
“The UN CBD has set a beautiful precedent, which is that the companies must pay for some of the value that they receive from nature,” said Sukhdev. “But what about when they inflict damage on nature? Shouldn’t they pay for that as well?”
The Cali fund builds on agreement at COP15 to establish a mechanism for more equitable sharing of the benefits of genetic information – known as digital sequence information or DSI – from plants and animals.
The intent is to correct a financial imbalance between the nature-rich developing countries in which most source plants and animals reside, and the developed markets in which products derived from the DSI – including drugs, cosmetics, chemicals and foods – are largely developed, marketed and sold.
COP16 moved the deal closer to reality with agreement that firms exploiting DSI – including those in the pharmaceutical, cosmetics, agribusiness, nutraceutical and technology sectors – should contribute 1% of their profits or 0.1% of their revenue to the Cali fund.
This stops short of being legally binding, despite the efforts of African and Latin American countries in the run-up to COP16. It also only covers signatories to COP16, which do not include the US – a country home to many of the world’s largest pharmaceutical and technology firms.
At least half the benefits from the fund must be used to support the “self-identified” needs of Indigenous Peoples, albeit with some regard to “national circumstances”, with countries also potentially receiving “direct allocations”.
Right and wrong signals
Despite the disappointment felt following the collapse of country-level negotiations, those interacting on the sidelines of COP16 came away from Cali feeling far more hopeful and armed with new ideas.
Attendees noted a high level of engagement among private sector companies and financial institutions on the ground, reflecting an increased recognition of the systemic risks posed by biodiversity loss and nature degradation.
“When the private sector gets a hold of something, they have the ability to pivot quite quickly and innovate to unlock resources in the right places,” said Libby Sandbrook, Director of Business and Nature at NGO Fauna and Flora.
Announcements on COP16’s Finance Day included proposals by the Task Force on Nature-related Financial Disclosures (TNFD) and Glasgow Financial Alliance for Net Zero (GFANZ) to define and shape what a nature-focused transition plan should look like for companies and financial institutions.
Nonetheless, to drive progress at scale the private sector requires clarity and cohesion from governments.
Clear signposting was anticipated via countries’ promised national biodiversity strategies and action plans (NBSAPs), which are expected to outline how governments will implement the goals and targets of the GBF.
By the end of the summit, just 44 of 196 participating countries (22%) had formally submitted their NBSAPs.
The first generation of NBSAPs are insufficiently comprehensive to address the private sector’s direct and indirect negative externalities on nature, said Sukhdev, pointing to widespread failure to implement the GBF’s Target 15, which calls for corporate disclosure of risks, impacts and dependencies.
“Only the EU has made a step in that direction through the Corporate Sustainability Reporting Directive,” he added. “Target 15 is step one in the direction that needs to be taken toward asking the private sector to be accountable for and to pay for its externalities.”
Sukhdev also called for greater recognition of the indirect impacts of the private sector on biodiversity loss, noting that climate change is one of the five key drivers identified by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services.
According to a 2023 report from the International Monetary Fund, total fossil fuel subsidies amounted to US$7 trillion in 2022, with explicit subsidies accounting for 18%, while implicit subsidies – undercharging for environmental costs and forgone consumption taxes – accounted for the remaining 82%.
Countries not in a position to submit NBSAPs were required to submit national targets which disclosed their broad biodiversity goals. By the end of the conference, 119 parties had produced such targets.
“It’s unacceptable that more countries haven’t submitted their NBSAPs,” said FfB’s de Horde.
“It’s sending the wrong signal to financial institutions [and companies] – who have asked for clear regulation and policies – that it’s okay to delay. Governments have an obligation to speed up, because 2030 is around the corner and we need to see good and credible action plans in place that are integrated with finance plans. We don’t have the luxury of time to debate this.”
The private sector also wants to see governments agree on global-level solutions to achieve the goals of the GBF which are consistent across countries, rather than separate policy frameworks that firms will have to get to grips with on a country-by-country basis, Ellis added.
“It’s pivotal that they encourage policymakers to come together to agree joint solutions and processes,” she said.
During negotiations in Cali, it was decided that COP17 will be hosted by Armenia in 2026.
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