COP16: What are our policy priorities?

The strong attendance at 2022’s COP15 by investors sent a significant message to policymakers that we understand the scale of the issue of protecting nature and its impact across portfolios. It showed we are engaged and have important views that must be considered during negotiations. Below (and further to our blog in April) we outline what we will – and are – actively engaging policymakers on as we look to October’s COP16 in Colombia.

Our policy priorities: Shaping a policy environment that supports nature

• Role of investors – Policymakers are keenly focused on ways to leverage the private sector in resource mobilisation plans. There is, of course, a lot to explore here. For example, how investors can work to ensure blended finance mechanisms are operable and effective in mobilising private and public capital towards protecting nature, as well as helping establish a robust biodiversity credits market. In 2023, LGIM was the largest cornerstone investor with $250 million of marine-conservation linked loans to finance Ecuador's $656 million debt-for-nature swap – the largest-ever debt-for-nature transaction to date. A significant part of the loan is ring-fenced for marine conservation in the Galápagos Islands over the next 18-and-a-half years. In order to get the scale we need (the Global Biodiversity Framework’s – or GBF – target is $200 billion per year by 2030, while the financing gap is $700 billion) we need to approach it from broader angles. This is why our points below on embedding nature through mandated regulation and aligning the multilateral and domestic policy and regulatory environments are key. In the absence of mature private financing mechanisms, investors can – and indeed are – playing  an important role in engaging corporates across value chains and on a market-wide policy level. Collaborative initiatives like Nature Action 100, the Investor Policy Dialogue on Deforestation, As You Sow Plastics Alliance, Planet Tracker’s petrochemical initiative, and the Ceres Valuing Water Finance Initiative are good examples.

• Recognise the value of nature – Our relationship with nature is linear and unsustainable. Natural capital is treated as a disposable commodity that has no value. As a result, our natural world is in crisis. This lack of a price on natural resources and ecosystem services, or mispricing, means nature is disregarded from decision making. Consider water use in the agricultural industry. Weak regulation and mispricing have led to overexploitation of groundwater for irrigation and increased pollution. The polluter pays principle is not being followed. As we improve our understanding of our dependency on nature, we can more easily bring it into strategic planning, policy and regulation, pricing of natural resources, risk management, and asset allocation decisions. We will be able to better mitigate risks to the natural world posed by the activities of companies and by governments. At the same time, we will be in a much stronger position to develop investment opportunities specifically designed to protect and restore nature. We are keen to discuss with policymakers how this is achievable, including utilising levers as we describe in the following point.

• Make nature mandatory – Prior to COP15 we encouraged policymakers to make Target 15 of the GBF mandatory. While negotiators ended with a voluntary commitment, we’re continuing to encourage policymakers to establish a robust regulatory regime that mandates firms to assess, integrate, and then disclose how they are holistically managing their nature-related risks, opportunities, impacts, and dependencies, in direct operations and across value chains. The Taskforce for Nature-related Financial Disclosures (TNFD) is instrumental in implementing this, and we have been unequivocal in our support for it  (indeed, Legal & General has become an early adopter). Globally harmonised standards on nature through the International Sustainability Standards Board are promising but will not be formalised until 2026[1]. This is too slow and, hence, we have been engaging stock exchanges on adopting the TNFD in their disclosure expectations and listing rules, recognising their role in driving progress ahead of broader regulation.

• National action – Under the GBF, countries agreed to submit updated national biodiversity strategies and action plans (NBSAPs) ahead of COP16. At writing, of the 196 GBF signatories, only 20 countries have done this[2]. The pathways to reach the GBF targets are not always obvious or easy. What is clear is that they require greater direction and domestic policy action. Governments must work hard to set the ambition and create an enabling environment that will drive aligned corporate action.

• Rethink government subsidies – For several years, we have been engaging policymakers to redirect government funding programmes, particularly in the agriculture sector, that work against the international nature and climate commitments. Indeed, Target 18 of the GBF is specifically dedicated to the reduction of harmful subsidies. While progress is being made in countries like the UK through its ’Environment Land Management’ scheme, it is unfortunate that we have not seen much significant movement in this area internationally. We will continue to engage policymakers over the coming months, including at COP16.

• Intersection between nature and climate (and health) – Nature and climate are intrinsically linked. Healthy ecosystems – forests, wetlands, oceans – are critical in regulating climate change. They help absorb carbon dioxide and mitigate the effects of global warming. Climate change is also one of the five direct drivers of nature change, disrupting habitats and ecosystems. In this regard, earlier this year Legal & General released its ‘Climate and Nature’ At COP16 there will be an increased focus on the synergies and how to better integrate nature into climate strategies and policy. One crucial area we’re keen to see is nature integrated into climate transition plans. Another is expanding the development of sectoral roadmaps to help align with climate and nature commitments, for example we have been engaging for several years with peers and the Farm Animal Investment Risk & Return Initiative in the development of a Roadmap for the Agricultural, Forestry and Other Land Use (AFOLU) sector, that the United Nations supported and have released its first phase of. Next year’s climate summit, COP30 in Brazil, will be a real test for more systematically integrating nature into the policy agenda. There are, of course, interlinkages with health that must also be more greatly acknowledge, for example antibiotic pollution in the water system and exacerbating anti-microbial resistance (AMR), or the challenges in transforming the broader food system.

• Multilateral Coordination – Beyond building the synergies with the other Rio Conventions, policymakers must continue to ensure GBF commitments are implemented through broader multilateral avenues. For example, through agreeing an ambitious Global Plastic Treaty, and ratifying the WTO’s Agreement on Fisheries Subsidies and High Seas Treaty. There is also scope to further strengthen regional and domestic regulation targeted at ending deforestation, such as the EUDR. Additionally, there are aspects where we may need further international intervention, specifically on bringing clarity and harmonising definitions of key terms. For example, 27 organisations have come together to look at the definition of ‘Nature Positive’, and further areas of terminology to address could include ‘Regenerative Agriculture’ or ‘Sustainable Packaging’.

As a firm, we are committed to taking action on nature. We have recently released our Nature Framework while publishing more detailed policy documents for our focus on Water, Deforestation, Natural Capital Management, and the Circular Economy. We’ve also signed the ‘Business for Nature’ Business Statement for COP16, urging governments to demonstrate renewed policy ambition for nature.

Much rests on COP16 fuelling the global momentum to address nature’s degradation. The challenges of implementation are great, but the consequences of not making progress, even greater.

[1] IFRS - ISSB to commence research projects about risks and opportunities related to nature and human capital

[2] https://ort.cbd.int/?_gl=1*41ws1v*_ga*ODIzODk2NzI5LjE3MjYwNjM3MTU.*_ga_7S1TPRE7F5*MTcyNjA2MzcxNC4xLjEuMTcyNjA2NDkyMy42MC4wLjA.