Nature Finance, COP 16 and a Critical Window for Action

Key Insights:

• As the UN Conference of the Parties (COP16) reconvenes in Rome in February 2025, aligning financial flows with biodiversity objectives remains a pressing challenge and one that the conference must address.

• The availability of nature-related data is set to accelerate this year, with over 500 organizations stating their commitment to start reporting voluntarily in line with the TNFD recommendations, alongside companies mandated to report under the EU’s Corporate Sustainability Reporting Directive (CSRD).

• Investor expectations have shifted, where according to Morningstar Sustainalytics’ ESG Voting Policy Overlay data, shareholder proposals addressing biodiversity and nature-related topics rose from 12 in 2023 to 33 in 2024.  

Nature as an asset class remains mispriced¹ – a distortion that continues to drive biodiversity loss, which is one of the most severe global risks of the coming decade.² While awareness of biodiversity as a financial risk has gained traction, its potential for long-term value creation remains largely untapped. Two years after the adoption of the Global Biodiversity Framework, which set global targets to halt and reverse biodiversity loss by 2030, implementation remains unsteady.

The UN Biodiversity Conference (COP16) in Cali, Colombia, was expected to accelerate national action, yet progress stalled on key issues, including a strategy to scale finance and a framework to measure progress. As COP16 reconvenes in Rome in February 2025, breaking this deadlock will be a priority. A central outcome will be the adoption of a strategy aimed at securing at least USD 200 billion annually by 2030, with a significant increase in private sector contributions. 

Despite setbacks, the financial sector’s understanding of biodiversity as a financial issue has advanced significantly, reflected in its engagement at COP16 in Cali. Over the past two years, initiatives such as the Taskforce on Nature-related Financial Disclosures (TNFD) have translated biodiversity into terms of financial risks and opportunities, enabling investors to engage with the issue more effectively. However, according to the State of Finance for Nature report, private financial flows to activities that harm nature are 140 times larger than private investments into nature-based solutions.³ Aligning financial flows with biodiversity objectives remains a pressing challenge and one that Rome must address.

Nature-Related Data: No Longer an Excuse

The era of insufficient nature-related data will end. With over 500 organizations already stating their commitment to report in line with the TNFD recommendations (this number expected to grow), alongside companies subject to new disclosure requirements under the EU’s Corporate Sustainability Reporting Directive (CSRD), the availability of biodiversity data is poised to accelerate this year (see Figure 1 below). 

While this data will initially be regionally skewed, with over 80% of TNFD early adopters based in Europe and Asia Pacific,⁴ global alignment will likely follow, as the International Sustainability Standards Board (ISSB) considers incorporating nature into its standards. The question for investors will shift away from if they will access nature-related data, toward how effectively they will use it.

Figure 1. Geographical Distribution and Profile of TNFD Adopters

_{Source: TNFD.
Note: Data as of October 2024.}

Investing in Nature: Appetite Versus Uncertainty  

The rise of innovative financial mechanisms, such as debt-for-nature swaps, biodiversity bonds, and the biodiversity credit market framework,⁵ signal growing appetite for nature-related investments. Yet most investors remain hesitant, perhaps constrained by regulatory uncertainty and undefined nature transition pathways.  

Stronger political signals are essential to unlock this momentum and enable markets to move forward. By the close of COP16 in Cali, only 22% of parties had submitted their National Biodiversity Strategies and Action Plans (NBSAPs) – the key tool to formalize roles and responsibilities for non-state actors, including the private sector. Sector-specific nature transition pathways are another missing piece of the puzzle. These pathways will enable investors to assess whether companies are contributing sufficiently to halting and reversing biodiversity loss by 2030. 

A Step Change: Linking Profits to Nature

A significant outcome of COP16 was the establishment of the Cali Fund. Under this mechanism, companies benefiting from plant and animal genetic information – such as pharmaceutical, cosmetic and biotechnology industries – should contribute a share of their profits or revenues to a global fund for the countries and Indigenous peoples that steward nature. While voluntary for now, the Cali Fund represents a transformative shift. It directly links corporate profits to biodiversity conservation. This is a step toward embedding the value of nature into financial systems. 

The Investor’s Role

The foundational elements for nature finance are now in place – from disclosure frameworks to innovative financing mechanisms – investors have the tools for implementation. In addition, technologies like eDNA and satellite imagery are becoming more affordable and precise, allowing for granular assessments of nature-related impacts and dependencies. 

For investors yet to act, the first step is clear: assess exposure to nature-related risks to the extent possible. This will provide the insight to target companies for engagement, inform shareholder proposals, and ultimately align capital with activities that protect and restore nature, rather than exploit it. 

Investor expectations are already shifting. According to Morningstar Sustainalytics’ ESG Voting Policy Overlay data, shareholder proposals addressing biodiversity and nature-related topics rose from 12 in 2023 to 33 in 2024 (Figure 2). These proposals, such as a recent one urging McDonald’s to assess and report on its biodiversity impacts and dependencies,⁶ demonstrate a powerful way investors can amplify their expectations and drive change. However, recent SEC guidance and remarks⁷ may introduce new barriers to shareholder engagement, raising questions about how these trends may evolve in the future.

Figure 2. Biodiversity and Nature-Related Shareholder Proposals

_{Source: Morningstar Sustainalytics ESG Voting Policy Overlay. For informational purposes only.
Note: Data as of December 2024.}

A Turning Point for Nature Finance

As COP16 reconvenes in Rome, establishing a strategy to secure USD 200 billion annually by 2030 will be a central objective. While the building blocks for nature finance are in place, the real challenge lies in scaling these solutions to drive meaningful impact.

To bridge the gap, financial institutions must move beyond risk awareness to realigning capital flows with nature-positive outcomes. Stronger policy signals are important. Without them, private finance risks stagnation. However, waiting for perfect clarity would mean missing a critical window for action. Rome must set the stage for decisive financial shifts that channel global capital toward halting and reversing biodiversity loss within the next five years.

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References

1. Sections of this article originally appeared in Morningstar Sustainalytics. 2024. Six Sustainable Investing Trends to Watch in 2025. https://connect.sustainalytics.com/six-sustainable-investing-trends-to-watch-in-2025-report.
2. Elsner, M., Atkinson, G. & Zahidi, S. 2025. Global Risks Report 2025. World Economic Forum. https://www.weforum.org/publications/global-risks-report-2025/.
3. UN Environment Programme. 2023. State of Finance for Nature 2023. https://www.unep.org/resources/state-finance-nature-2023.
4. Taskforce on Nature-related Financial Disclosures. 2024. “Over 500 organisations and $17.7 trillion AUM now committed to TNFD-aligned risk management and corporate reporting.” October 25, 2024. https://tnfd.global/over-500-organisations-and-17-7-trillion-aum-now-committed-to-tnfd-aligned-risk-management-and-corporate-reporting/.
5. International Advisory Panel on Biodiversity Credits. 2024. “Framework for high integrity biodiversity credit markets.” https://www.iapbiocredits.org/framework.
6. As You Sow. 2024. "McDonald's Corp: Report on Risks Related to Biodiversity and Nature Loss." December 10, 2024. https://www.asyousow.org/resolutions/2024/12/10-mcdonalds-report-on-risks-related-to-biodiversity-and-nature-loss.
7. US Securities and Exchange Commission. 2025. "Sheep in the Steep: Remarks before the Northwestern Securities Regulation Institute." January 27, 2025. https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-northwestern-securities-regulation-institute-012725