New in Biodiversity Finance: February - March, 2024

In this issue:

• Key recent developments across nature-related policy and regulation; standards; and market transactions
• Biodiversity labeled funds reach $1.4 bn; new nature-related funds
• Nature-based credits and biochar
• Investor commitments and action on nature

Policy and Regulation

European Parliament passed EU’s Nature Restoration Law that requires countries to introduce measures to restore at least 20% of terrestrial and marine areas by 2030. The law seeks to reverse the decline of Europe’s natural habitats and includes specific targets across different ecosystems, albeit some watered down following political opposition. (Reuters, CarbonBrief Q&A)

The European Central Bank added nature loss and degradation to its key areas of focus in the next two years. (Environmental Finance)

EU will allow exporting countries of soft commodities from areas prone to deforestation more time to comply with its Deforestation Law. (FT) While the EU Commission withdrew a bill aimed to reduce the use of pesticides in food production, following farmers’ protests. (Carbon Pulse)

Brazil will be developing a common framework for bioeconomy to increase investments into sustainable business models across agribusiness, forestry, energy, timber, biotechnology and other sectors that foster biodiversity conservation. This work is undertaken as part of Brazil’s G20 Presidency; and the framework is expected to be part of the Rio Declaration to be adopted by G20 countries in November 2024. (Carbon Pulse)

Cali, Colombia, was picked to host the Biodiversity COP16. It is the capital of the Colombian Pacific, the most biodiverse region in Colombia. (Press release)

Standards

The World Bank Group released its methodology for tracking Nature Finance in its operations across all institutions. The methodology was developed to meet institutional commitments to increase finance for nature reflected in the WBG Climate Change Action Plan, IDA20, and the COP26 Joint MDB Statement on Nature, People and Planet. The methodology defines nature finance as contributing to the ‘nature positive’ goal “to halt and reverse biodiversity loss by 2030” and articulates two categories for tracking and reporting: (1) “Nature Positive Finance” that delivers measurable positive gains for nature and (2) “Nature Mainstreaming Finance” that enables a broader transition of economic activity towards business and production models that reduce the key drivers of nature loss. This methodology is consistent with IFC Biodiversity Finance Reference Guide. It is also aligned with the MDB Common Principles for tracking nature-positive finance.

Verra launched a new version its Unplanned Deforestation Allocation tool as a key component to set project baselines for REDD + projects. While the Gold Standards published a draft new methodology for carbon removals from mangrove ecosystems.

The Forest Stewardship Council (FSC) proposed a new framework to align its sustainable forest certification scheme with the EU deforestation regulation to make it suitable for organizations to demonstrate compliance with the law. The proposed new framework introduces a due diligence system to monitor deforestation and to add assurance that only deforestation-free material enters an FSC chain of custody value chain. (Quantum Commodity Intelligence).

TNFD is seeking feedback on Additional guidance for financial institutions and guidance for eight real sectors to apply TNFD recommendations.

Market Transactions

Apple’s Restore Fund received an additional $50 million from Taiwan Semiconductor Manufacturing Company and $30 million from Murata Manufacturing, bringing the fund’s total to $280 million for investing in nature-based carbon removal projects. The Restore Fund also announced its investee companies – Symbiosis, Arbaro Advisors, and BTG Pactual Timberland Investment Group – to support the creation of sustainably certified working forests on degraded lands in South America. (Press release, Feature story).

French assent manager Mirova announced the second close of the Climate Fund for Nature at $213 million from French IT company Capgemini, real estate company Unibail-Rodamco-Westfield, and flavoring group Mane. The fund was initiated and seeded with €140 million by the French luxury goods brand Kering. (Carbon Pulse)

OTHER MARKET UPDATE

Funds

According to Environmental Finance, assets in funds that contain biodiversity in their title grew to $1.4 bn at the end of 2023 across 19 funds, up from $984 million at the end of 2022. Most of this growth happened in last four years. European fund managers are in the lead, with French AXA Investment Managers managing the largest assets by a sizeable margin -- $537 million across two funds.  Most of the biodiversity-themed funds are relatively small, below $100 million. Most of the funds focus on addressing the key drivers of biodiversity loss in economic activity rather than investing in nature restoration. The growth of biodiversity-related funds is expected to continue to grow in 2024.

(Note: the numbers for nature-related funds are likely to be larger. There are other funds that do not contain biodiversity in their title but do target biodiversity and nature related investments, such as the European Circular Bioeconomy Fund).

In terms of financial performance, most of the funds with biodiversity in their title posted positive returns in 2023, albeit, below their benchmarks. For comparison, most of these funds posted negative returns in 2022. (Environmental Finance)

UK pension fund Nest selected Lombard Odier Investment Managers to invest 5% of its $45 billion in equities across three themes of climate change, natural capital, and social issues. (Environmental Finance)

S&P Dow Jones Indices launched two biodiversity related indices: the S&P500 Biodiversity Index and S&P Global LargeMidCap Biodiversity Index. The indices are designed to offer additional insights to investors on the impact of their investments on the natural world. To screen and select constituents for the indices S&P DJI uses S&P Global Sustainable1’s Nature & Biodiversity Risk dataset which assesses nature-related impacts and dependencies at the asset, company and portfolio level.

Stafford Capital Partners raised $635 million for its timberland fund towards its $1 bn final close target by Q3 2024. The fund acquires secondary positions in existing timberland funds and co-invests in afforestation and natural forest restoration projects. It has already invested $160 million. (Environmental Finance)

The Global Environment Facility (GEF) will invest $1bn into projects in emerging markets focusing on nature and biodiversity in food systems, forest management, land degradation, river and ocean health, and wildlife. (Environmental Finance). In addition, the Global Biodiversity Framework Fund, established at Biodiversity COP15 and managed by GEF, received an additional capital commitment from Spain of €10 million, bringing total pledges to $219 million of which $55 million have been paid so far. (Carbon Brief)

Nature-based Carbon Credits

US soil carbon project developer Boomitra has partnered with Brazilian Terra Carbono to provide carbon finance to farmers and ranchers to promote sustainable agriculture and grassland management practices – such as integrated crop-livestock management, rotational grazing, improved water management – across six states of Mato Grosso, Mato Gross do Sul, Para, Tocantins, Maranhao, and Parana. (Quantum Commodity Intelligence)

France’s NetZero partnered with soft commodities trader ECOM Agroindustrial Corp to open its third biochar production facility in Brazil. The new facility is expected to produce 4,000 tons of biochar and sequester 6,000 tons of CO2 in Machado, Minas Gerais, coffee producing region. Under this partnership, coffee farmers would be offered a scheme to sustainably dispose of coffee husk waste (vs burning it or letting it rot) and receive biochar in return which could be used to improve soil fertility, while generating carbon credits. (Quantum Commodity Intelligence).

Kenya’s biochar producer Bio-Logical will sell 10,000 carbon removal credits certified by Puro.earth standard to Microsoft in a largest transaction of the kind in Africa. Amid the growing interest in carbon removal credits from biochar, European digital platform Toucan.earth is preparing the world’s first ‘liquid’ market for biochar credits in a move to help grow this market. (Quantum Commodity Intelligence).

Singapore’s Alcom Carbon Markets completed a pre-series A funding round to build five new biochar production facilities in the Philippines, India and other Southeast Asia countries to remove 1 million tons of CO2 by 2030. (Quantum Commodity Intelligence).

US Oregon Biochar Solutions started offering first insured biochar removal credits. US carbon insurance company Oka developed a policy to cover a range of risks such as reversals, over-crediting, non-additionality, double issuance, project fraud and geopolitical risks. (Quantum Commodity Intelligence).

In terms of prices, the spot prices for biochar carbon credits are reported at $150-180 per credit and forward contracts at $80-100.

Newly updated guide to carbon credit buying “Oxford Principles for Net Zero Aligned Carbon Offsetting” emphasizes the need to focus on carbon removal credits over avoidance and reduction units. It identifies nature-based solutions such are afforestation, ecosystem restoration and biochar as effective in generating carbon removal credits.

Investor (in)action

Amundi pledges to accelerate pressure on investee companies to adopt best practices of identifying impact, reporting and risk management policies on biodiversity. The investor included biodiversity in its escalation strategy which means that it will take action against holdings with the worst performance on and highest exposure to biodiversity loss (Environmental Finance)

Dutch pension fund ABP identified biodiversity and climate solutions as key themes for its €30 billion investment strategy by 2030. At least €1 billion will be allocated to biodiversity, €10 billion for climate. The pension fund also intends to take action to mitigate biodiversity related risks in its investment portfolio. (Environmental Finance) 

Norges Bank Investment Management divested from three unnamed companies due to biodiversity risks and five due to insufficient risk management strategies in water use. (Environmental Finance)

Global Canopy in its 10th  annual Forest 500 report, that tracks 350 companies and 150 financial institutions on their action against deforestation, found inadequate progress across both real sector companies and financial institutions over the last decade and calls for greater regulation and transparency and reporting:

• 63% of companies have a deforestation policy for at least one commodity, 37% have policies for all commodities they are exposed do, while only 6% adequately implement them. Top 5 leading companies include Nestle, Unilever, Mars, Danone, and Colgate-Palmolive.  Laggards include Deichmann Group and Bright Food.
• 45% of the financial institutions now have a public deforestation policy for at least one commodity, but only 15% have comprehensive policies across their portfolios. The report calls out Ameriprise and Barclays as leaders in making progress on reporting and implementation of their deforestation polices and calls out BlackRock, Vanguard and Wells Fargo as laggards which do have a published a policy.
• Only 1% of tracked organizations address human rights in the context of deforestation.

BONUS: Super cute nature’s corps of engineers -- Axios covered a study in Nature on the introduction of sea otters to save a marshland in California from erosion, saving the state millions of dollars on restoration. All the sea otters needed to do was to be themselves – munch on plant-eating marsh crabs to allow vegetation to take hold and do its shore stabilization job.

Thank you for reading!