World politicians are beginning to consider more seriously the complex issues of nature degradation and biodiversity loss, because climate change is not the only important environmental problem.
Solving these two key issues could be the next big thing for the commodities sector, reports the world news agency CRU.
Businesses in commodity markets will need to develop more detailed environmental strategies and be prepared to pay more for environmental protection.
Nature and biodiversity play an important role in addressing climate change. However, the role of nature and biodiversity is not only limited to helping us achieve net zero targets. They matter in their own right.
In 2019, the OECD estimated that the ecosystem services provided by biodiversity such as crop pollination, water purification or flood protection were worth around $125–140 trillion annually – one and a half times global GDP.
The loss of nature and biodiversity will have catastrophic consequences
The importance of nature and biodiversity is also seen in the UN’s Sustainable Development Goals, with no less than four of the 17 goals directly linked to nature and biodiversity.
The article noted that solving these problems is a much more difficult task than mitigating the consequences of climate change. After all, despite all the challenges, the climate policy is aimed at only one indicator – the reduction of greenhouse gas emissions.
Climate change mitigation is helped by the fact that a tonne emitted in New Zealand is the same as a tonne emitted in Canada – they have the same impact on global climate change.
However, nature and biodiversity usually have a local or regional dimension, although the biodiversity of the Amazon rainforest, for example, will have a global dimension. They can even have a seasonal dimension.
A one-size-fits-all approach does not work when it comes to reducing biodiversity or adapting to climate change, which complicates the formulation of simple political goals.
It is also more difficult to measure nature and biodiversity and it is almost impossible to combine several methodologies and indices into one representative indicator. It would also make it harder to create a market for nature and biodiversity, as was possible for carbon emissions.
This makes environmental targets and regulations the most likely policy response. Thus, the 8th action program for environmental protection within the framework of the European green agreement, which covers the period until 2030, has six priorities: from achieving net zero by 2050 to accelerating the transition to a circular economy and protecting, preserving and restoring biodiversity.
The EU has set a number of targets, among other initiatives, such as planting three billion trees, increasing the total area of urban green space by 3% by 2040 or restoring at least 25,000 km of free-flowing rivers.
Biodiversity offsets and the creation of biodiversity credits can in principle form the basis for market-based policies to address biodiversity loss that can complement targets and regulations.
There are also major initiatives at the global level, including the United Nations Conference on Biodiversity (COP15) to be held in Canada in December 2022 under the chairmanship of China. The main goal of the event is the adoption of the global framework program for biodiversity conservation for the period after 2020 and the start of its implementation.
The framework program sets a mission and milestones for 2030, and also contains an overall vision of "living in harmony with nature" by 2050.
Nature and biodiversity – what are the risks and opportunities of the financial market?
The work of the Task Force on Climate-Related Financial Disclosures (TCFD) has played an important role in increasing the financial community's awareness of climate change issues. In 2021, G7 leaders announced that they would make implementation of the working group's recommendations mandatory.
From the start of 2022, the UK's largest companies and financial institutions will be required to report on climate-related risks and opportunities. Other countries are expected to join the initiative.
For investors and asset managers, understanding these risks and opportunities is fundamental to their investment strategy.
In 2021, a new Task Force on Nature-Related Financial Disclosure (TNFD) was established. Its objective is to develop and implement a risk management and disclosure framework for organizations to report and act on changing nature-related risks, with the ultimate goal of supporting the shift of global financial flows away from nature. negative results and towards natural positive results.
TCFD currently has 34 members representing financial institutions, large corporations and market service providers such as consulting firms and stock exchanges. Its activities are funded by governments and charitable grants. TCFD aims to launch its framework, which should enable companies and financial institutions to integrate nature into their decision-making processes, in September 2023.
TNFD should raise awareness among the financial community about nature-related risks and opportunities. Investors will increasingly ask themselves whether a particular investment could become a dead-end asset, for example through biodiversity loss resulting in a lack of clean water needed for production, and will look more closely at the impact of the enterprise on regional biodiversity.
Greater attention to nature will create new challenges for commodity markets and politicians
There is a growing focus on resource security as geopolitical instability increases and global supply chains are stretched. However, despite the obvious positives for governments, the transfer of strategic value chains (such as batteries) to developed countries may raise concerns among communities and voters about local environmental degradation and biodiversity loss.
Policymakers will have to find a balance between environmental, economic and social goals.
The viability of future mine projects will increasingly depend on environmental factors
Markets and parts of the value chain are under increasing pressure from various environmental causes. For example, much of the focus in the steel and aluminum sectors is on reducing emissions because of their scale and the challenges and costs associated with decarbonizing them.
Mining often occurs in environmentally sensitive locations, with the mining process itself (eg land clearing, processing and transport) and waste disposal (eg tailings, waste water streams) often having a significant negative impact on the local environment.
Although new projects will continue, minimizing environmental impact and risk will often mean significantly higher capital costs. This will affect the financial viability of many new projects. Higher operating costs can also make an existing operation uneconomical in the future, shortening its productive life.
Businesses must be prepared to pay a higher price for harming the environment or reducing biodiversity. Just as carbon emissions become much more expensive through carbon taxes or emissions trading schemes, the costs of environmental damage will rise.
As policymakers step up their efforts to tighten regulation and develop market-based solutions, businesses will have to be prepared to pay more to comply with these regulations, and may even have to trade "biodiversity permits" in years to come.
As EcoPolitic before, the EU did a step back in the matter of preserving ecosystems and biodiversity, which belongs to the list of UN Sustainable Development Goals.
