Faltering commitments to sustainability and a lack of base-level data around natural capital mean tougher regulation on biodiversity should not be expected any time soon.
That was the view of a group of experts from Morningstar Sustainalytics at a recent event on COP16, the UN Conference of the Parties taking place in Colombia this week.
While UK pension schemes are required by regulations to file annual reports on the carbon intensity of their portfolios through Task Force on Climate-related Financial Disclosures (TCFD) reports, the experts at the event said we should not expect a similar requirement in relation to biodiversity any time soon.
Instead, activity around the The Taskforce on Nature-related Financial Disclosures (TNFD) will be voluntary. The TNFD has created a set of disclosure recommendations and guidance that encourage and enable business and finance to assess, report and act on their nature-related dependencies, impacts, risks and opportunities, but there is currently no formal requirement on schemes to monitor this. But the International Sustainability Standards Board (ISSB) is working to incorporate some elements of TNFD into its global sustainability standards. However, some schemes and providers are embracing TNFD as part of their corporate responsibility activities, and to reflect member views.
Figures from Morningstar Sustainalytics show a decline in ESG activity at a stewardship level, with the number of pro-ESG environmental resolutions peaking in 2023 proxy year, at just below 100.
Average support peaked much earlier in 2021, at 38 per cent, amid pre-COP26 enthusiasm. By 2024 this fell to 22 per cent. Anti-ESG resolutions have been rising meanwhile, representing 13 per cent of all environmental shareholder resolutions in 2024, up from 4 per cent in 2023.
Climate change accounted for 78 per cent of the 144 environmental resolutions with significant independent support in the last five proxy years. Of these, only five resolutions directly addressed nature and biodiversity.
Lindsey Stewart, Director of Investment Stewardship Research, Morningstar Sustainalytics: “This is the third year we have been expecting a break-out moment for biodiversity. I don’t think we are quite there yet. COP26 was only three years ago, but it feels like 30. Going into COP29, the high ambition on climate action that we saw from the finance community in 2021 appears to have subsided. But now, the world needs that ambition more than ever.”
Speakers at the Morningstar Sustainalytics event in London said the not
Gayaneh Shahbazian, Biodiversity Engagement Manager, Morningstar Sustainalytics: “Since COP15, significant progress has been made in the biodiversity landscape, but businesses are still just scratching the surface when it comes to reducing their impacts on nature, and are far from contributing towards nature positive outcomes. A key challenge is we don’t have enough market incentives or regulatory muscle to reverse biodiversity loss by 2030.”
Hortense Bioy, Head of Sustainable Investing Research, Morningstar Sustainalytics: “What the world urgently needs is a better functioning international carbon market. Progress has been made on this front since COP 28, which is encouraging. Technical aspects of Article 6 of the Paris agreement (related to carbon markets) are being worked out ahead of COP 29. The final recommendations on methodologies and emission removals that we expect to be announced in Baku have the potential to unlock further capital for climate mitigation and adaptation plans, as well as biodiversity.”
Tom Eveson, Vice President, Corporate Solutions: “The sustainable bond market has been evolving since day 1. What began as a single bond dedicated to renewable energy has now expanded to every sector with multiple goals. With over 20,000 bonds now carrying a sustainable label, investors are asking what has been achieved. As an industry, we are moving past intent to impact and outcomes based on relative performance.”
Arthur Carabia, ESG Policy Research Director, Morningstar Sustainalytics: “Similar to climate, policy makers can play a positive role to support investors’ consideration for biodiversity. Concrete steps such as the adoption of an ISSB biodiversity standard and the extension of the EU Taxonomy to most relevant sectors for biodiversity, such as the Agri-Food sector, would contribute to grow the pool of material information available to investors and support the uptake of biodiversity-related investments.”