Ashursts sustainable finance column March 2023 biodiversity

On 21 February 2023, we heard from John Glen MP, Chief Secretary to the Treasury at the City UK conference in London. Glen's speech was a soft launch of the government's sustainable finance strategy that we expect out later this quarter (March 2023, probably). Stripping away the usual rhetoric about grandchildren's futures, the speech focused on the need for the UK to lead the world in protecting biodiversity.

And the most important takeaway was this simple message: you can't achieve net zero without biodiversity.

But why does this matter to this column's readers, you might ask? Good question, and to answer it you need to take a step back. To understand why Glen's speech is important you need to look to the future. If government climate policy is putting biodiversity on the same footing as climate adaptation, climate mitigation and climate transition, a "new" category of assets becomes essential and, in some cases, financially attractive.

Wetlands, land repurposed for rewilding, forestry assets - all of a sudden are vital to achieving the government's objective of ensuring and protecting biodiversity. Indeed, those assets will have a value as a result, not previously identified or indeed realised. Consequently, there will be those that see the opportunity to acquire those assets, protect them and use their features to issue carbon credits against them. All of which will need financing from the banks.

Indeed, banks themselves may be first out the gates to join these dots and take action to amend their lending practices and valuations to take this into account.

This means that another piece of the sustainable finance puzzle will need to move. Firms will revisit their investment objectives and principles to include assets promoting biodiversity (if they haven't already done so), taxonomy eligibility will need to be considered, KPIs reassessed, and disclosures amended. Taskforce on Nature-related Financial Disclosures (TNFD) reports are likely to be one of the key publications for firms on this theme.

Glen's speech is the starting gun on a series of new market and regulatory developments that firms will need to get to grips with to determine what biodiversity means for them. And in the same way as we have seen in relation to other sustainable investments, with these developments comes both risks and opportunities.

For more information about the work of the TNFD, see Practice note, Climate-related and environmental disclosures: guidance and voluntary reporting frameworks: TNFD: Task Force on Nature-related Financial Disclosures.

For details of other sustainable finance columns written by Ashurst, see Practice note, Ashurst's sustainable finance column.

Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com.