What’s next for nature?

A delegation from Aviva, including representatives from Aviva Investors, attended the Biodiversity COP16 conference to contribute a financial services view to the GBF. As investors, we believe biodiversity considerations will become more prominent in years to come, bringing investment risks, but also significant opportunities to potentially generate alpha.

These will stem from investments in activities that contribute to restoring and protecting nature. Well-positioned companies can reap significant reputational benefits, leading to increased revenues. In particular, consumer demand for more sustainable products across Gen Z and millennial demographics creates opportunities for first movers. And investments positioned ahead of changing nature-related regulation are likely to benefit over the longer term.

This year, Aviva and Aviva Investors formed part of the Finance for Biodiversity delegation and the Principles for Responsible Investment delegation. We were invited to participate in a number of panel discussions, including on data, engagement and private finance’s role within the GBF. We also published our thematic report: Navigating nature: Opportunities for the investor of tomorrow, in which we share how we are supporting the GBF and unlocking long-term value for our clients.³ Finally, as Aviva and Aviva Investors, we shared our policy asks to governments ahead of COP16, to ensure the swift implementation of the GBF.

Progress beyond data measurement

Some of the conversations among companies we spoke to at COP16 have matured. Some real-economy firms have assessed their impacts and dependencies on nature and are now trying to understand how these results can be used beyond reporting – to include nature in business models or deliver more nature-positive actions.

In conversations with leading banks and asset managers, we found they were looking to understand how assessment of nature impacts and dependencies can be used to inform financing activities/allocating capital. The exchange of ideas that takes place at conferences like COP16 plays an integral role in building the knowledge and understanding to help capital allocators make better-informed decisions.

Over 500 firms, including 129 financial institutions with a combined $17.7 trillion in assets under management, have now committed to disclosing on nature-related issues in the coming years, in line with Taskforce on Nature-related Financial Disclosures (TNFD) recommendations.⁴ And three companies have committed to adopting the Science Based Targets Network’s (SBTN) new science-based targets for nature, following a pilot programme with an initial group of 17 global companies.⁵

The need to scale up financing   

Official negotiations highlighted the pressing need for financing. In the final agreement, the parties failed to clarify how to fund $200 billion a year by 2030, the sum agreed on at COP 15, in the GBF.

While some local-scale investments have been made, wider spending on entire landscapes is yet to materialise. Finance is also still not flowing at scale to emerging markets, even though the Global South is vital to meet global targets on biodiversity, not least because it is home to a significant proportion of the world's natural assets.⁶

In addition, the overarching issue is that the international financial system is not currently equipped to encourage the required capital to flow at speed and scale to emerging markets and developing economies (EMDEs), including on nature.

Private finance for nature

Our discussions with asset managers, banks and wealth managers gave us a sense that they wish to increase allocations to natural capital, but that the mechanisms for private investors to do this at scale are limited. Most sources of capital earmarked today are public, blended finance, philanthropic, or even direct asset ownership.

The role of public equity markets was mostly absent from the conversation, although some of the larger banks hinted at the opportunity to scale investments, and several business incubators and start-ups attended COP16. Aviva Investors colleagues highlighted the contrasting landscape between far more established climate equity investment vehicles and the nascent but fast-growing nature-focused cohort. A recent article cites just 34 European listed OEICs investing $3.7bn in nature, compared to more than 1,600 climate funds deploying over $530bn.⁷

A permanent body for indigenous peoples was established

Indigenous rights were one of the major focus points at COP16, with representation reaching an all-time high. COP16 established a permanent subsidiary body to ensure the meaningful contribution of indigenous peoples and local communities towards three biodiversity objectives: biological diversity conservation; its sustainable use; and a fair and equitable sharing of benefits.

Launch of the ‘Cali Fund’ on digital sequence information (DSI)

DSI refers to plants and animals’ genetic information. Parties established a global DSI fund “under the authority of and accountable to” COP. While not obliged, companies that rely on DSI for their products and services (e.g., pharmaceuticals and biotechnology) were strongly encouraged to contribute a share of their profits. The beneficiaries will be developing countries, indigenous peoples and local communities contributing to biodiversity preservation.

As we have mentioned, as Aviva Group and Aviva Investors, we published our COP16 policy-asks ahead of the conference. Considering these, our view as an asset manager is that COP16 outcomes fell short in four key areas.

1. Aligning nature and climate in policy and transition planning

Embedding the connections between climate and nature would improve the clarity and efficiency of international and national policies and transition plans, send a clear market signal and encourage bolder action from the private sector.

Aviva provided its joint work with WWF on nature-positive sectoral pathways, which was used in COP16 discussions as a reference for how governments can help companies develop their transition plans.^8,9 The TNFD published guidance on implementation for companies, as did the Glasgow Financial Alliance for Net Zero (GFANZ) Nature Workstream, which Aviva co-chaired.^10,11

However, COP16 fell short of providing clarity on the practical delivery of the parties’ nature commitments, including on their integration with climate agendas.

2. Embedding nature into the global financial architecture

To support the GBF, nature considerations must be embedded within the global financial system. This includes the global banking, regulatory and supervisory bodies that comprise the international financial architecture.

Financial regulators’ mandates must evolve to include nature so regulators can actively support a nature-positive transition without overreaching their mandate.

This is important for investment outcomes, as current company valuations do not reflect firms’ impacts on nature. Financial market participants themselves cannot correct this market failure individually, but they can support regulators in identifying and correcting its causes.

3. Resource mobilisation strategy

One change we advocated for was the alignment of private financial flows to the GBF. The resource mobilisation strategy is essential for this, to ensure biodiversity goals underpin private and public financial flows.

However, COP16 lost quorum and was suspended before the approval of the strategy. Discussions will resume in February 2025 in Rome but, so far, there is no agreement on how to get funding to those who need it most and no operating budget. We believe this must be at the top of the agenda in February.¹²

4. National biodiversity pledges

As part of the GBF, parties agreed to submit new National Biodiversity Strategies and Action Plans (NBSAPs) ahead of COP16. We had called for parties to submit ambitious plans but only 44 of the 196 parties had produced new plans by November 2. Another 119 submitted national targets, without a plan for how they would be achieved. A new decision was adopted, urging countries to release new NBSAPs “as soon as possible”.

We will continue to engage at all levels on these four topics.

As an asset manager, we recognise the importance of identifying and managing the nature-related risks to our clients’ portfolios, as well as providing solutions to allocate capital to nature should this align with investors’ preferences.

There are various ways in which we can partner with clients to understand and deliver on their nature-related goals. Some are outlined below, and more detail can be found in our Navigating nature report.¹³

Risk management tools and analytics

We have a set of proprietary tools that assess the potential nature-related risks of individual holdings, including deforestation risk, and negative and positive impacts and dependencies on biodiversity.

They can be used by the investment desks to inform issuer selection and decisions, and by investment analysts for bottom-up, sector and thematic research.

They can also inform top-down portfolio construction by providing insights on the composition of a portfolio and potential areas for mitigation.

Nature engagement programmes

In 2024, we formalised our nature-related engagement with companies, launching three programmes on biodiversity and deforestation, water, and circularity. Targeting around 50 companies, we encourage them to assess their impacts and dependencies on nature and to take nature-positive business decisions.

This complements our existing work under the Finance Sector Deforestation Action and role we played developing the first set of deforestation expectations for the banking sector.

We also chair the Investor Initiative on Hazardous Chemicals, which engages with companies and their regulators to reduce investor risk arising from the environmental and health impacts of hazardous chemicals.

Holistic stewardship approach

We recognise that, while company engagement is important, structurally significant market failures, such as nature loss, pose risks to the entire financial system. To address these, we believe asset managers and investors should work with governments, multilateral institutions and via broader industry initiatives.

This is because companies do not act in isolation; they are deeply embedded in broader economic, market, industrial and social systems. Ultimately, unless we change the systems they operate in, companies will remain limited in the extent to which they can adopt nature-positive practices.¹⁴

Dedicated nature investment strategies

Since 2021, we have been managing our Natural Capital Global Equity strategy, aiming to provide long-term capital growth and support the transition to a nature‑positive economy. We either invest in globally listed companies whose products or services provide solutions to reduce the human impact on nature, or in businesses that are leaders in aligning their business models and operations to a nature-positive economy, by reducing their negative impacts on biodiversity.

We also manage the Aviva Investors Climate Transition Real Assets strategy, launched in 2021 and converted to a Long-Term-Asset Fund (LTAF) in March 2024.¹⁵ The strategy aims to reach net‑zero emissions by 2040. This entails measuring our investments’ carbon footprint, decarbonising existing buildings and assessing the impact of new projects. To deal with residual emissions, we invest directly in carbon-removal solutions.

In October 2024, we launched a carbon removal capability, which invests in nature-based solutions and early-stage, innovative carbon removal solutions.¹⁶ Our ambition is to provide financial returns alongside human wellbeing and biodiversity benefits, aligning the GBF goal of mobilising $200 billion a year for biodiversity.¹⁷

The GBF and its implementation will shape the future of nature for decades to come. Given our concerns about the impact of nature loss on the global economy, we must develop an understanding of how this impacts risk in our clients’ portfolio exposures, and how to protect long-term value.

On the flipside, we fully anticipate that growing global efforts to transition towards a nature-positive economy will present attractive return opportunities for our clients.

Private capital flows are necessary to solve the nature crisis but, despite the shortcomings of the COP16 negotiations, we believe the overall trend is positive. Company innovations in products and services that contribute to the protection and restoration of natural ecosystems – and growing investor appetite for them – will help plug the financing gap required to halt and reverse biodiversity loss by 2030.

With the negotiations resuming in February 2025, we look forward to tangible actions for the private sector as the parties develop the resource mobilisation strategy and monitoring framework. In particular, private finance will be key to plug the financing gap. Our holistic stewardship efforts will reflect this expectation.