Kerry ten Kate

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Biodiversity offsets mileage, methods and
(maybe) markets
Beyond carbon - emerging markets for ecosystem
services Katoomba VI ? Locarno, Switzerland 1
November 2003

• Kerry ten Kate

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• Good morning, Katoomba!
• Director, Investor Responsibility

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Great idea!

• Ive looked at something like this
• Difficult showing causation
• Difficult disaggregating biodiv from security,
  human rights etc.
• But lets look at it . . . .

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THE FIRST KATOOMBA PRESENTATION IN MIME
Welcome to . . .

• How about a new Katoomba Game?

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THE FIRST KATOOMBA PRESENTATION IN MIME

• . . . BIODIVERSITY CHARADES . . .

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MIME

• ?
• Suggestions, please, for how to mime
• -- biodiversity
• -- offset
• -- currency
• . . . . . . well maybe not.

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THANK YOU

• . . . for the throat lozenges . . .

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THANK YOU

• . . . for the echinacea . . .

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THANK YOU

• . . . for your patience and good humour . . .

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THANK YOU

• And, most of all, thank you to my attractive
  assistant .

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Biodiversity offsets lateral thinking
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Can we make the offset idea work or is it mad?

• Where did the idea come from?
• Benefit-sharing is required in CBD in the context
  of access to genetic resources. (Global annual
  market between US500-800bn. But NO REAL MARKET
  DEMAND so few benefits shared.)
• Nice if we could share the benefits (and costs)
  of ecosystem services.
• BUT
• Ecosystem services are generally free goods.
• Theres no mechanism/trigger (unlike CBD Article
  15 national access laws).
• SO . . .

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Can we make the offset idea work or is it mad?

• How about getting companies make a direct impact
  on biodiversity (ie through physical operations,
  not their footprint) to commit to offset any
  unavoidable, direct harm they do?
• The
• no net loss
• commitment

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Why voluntary?

• Two reasons
• Policy takes ages
• Biodiversity is going down the tubes
• Kyoto wont help in the first commitment period
• Theres no clear plan to deliver the CBD/WSSD
  2010 goal
• (substantial reduction in loss of biodiversity
  by 2010)
• MEAs - lack of political will and the
  International Treaty on PGRFA just took us 7
  years to negotiate!

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Why voluntary?

• Second reason
• Investors have a mandate with investee
  companies
• Insight and other investors, as shareholders, can
  encourage voluntary compliance by investee
  companies with best practice
• US 1,000 bn of assets under management for SRI
  in the UK alone

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Biodiversity offsets mileage, methods and
(maybe) markets

• Context key questions for a mainstream
  investor
• Current experience with biodiversity offsets
• Basis and challenges
• Conclusions and next steps

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Key questions for a mainstream investor

• Context
• Insight is the asset manager for Halifax Bank Of
  Scotland (HBOS).
• 67.7 bn under management. 300 pension funds and
  gt 2m retail clients.
• Engagement across whole portfolio. Working on
  integration.
• Key questions
• Could voluntary biodiversity offsets by companies
  work? Or would a regulatory regime be needed?
• Could the political, scientific and logistical
  challenges with offset be overcome and companies
  motivated to participate?
• What role could investors play?

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Experience with biodiversity offsets

• Offsets required by legislation
• US Clean Water Act 1972 Section 404(b)(1)
• UK Electricity Act 1989 Schedule 9
• UK Habitats Regulations 1994
• Enabling policy framework
• US Endangered Species Act
• Tenure rights conservation law
  concession contracts HGAs/PSAs
• Voluntary offsets
• Individual companies Mining Minerals
  Oil Gas Utilities
• Principles no harm minimise/mitigate
  maintaining ecosystems offset
• positive contribution
• EBI ICMM

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The no harm principle in action
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Potential benefits of corporate biodiversity
offset commitments

• Conservation Positive contributions to
  conservation by companies
• Flexibility Change location, scale of
  rehabilitation
• Trade
• Third party implementation
• Efficiency Pick most cost-effective
  option - use flexibility
• Effectiveness Maximise biodiversity value -
  select area
• Bang for buck

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Basis challenges

• Basis No net loss
• Maintain functional ecosystems
  species representativeness
• Currency Not all hectares are created equal
• Habitat function assessment methods -
  crude, multiplicity, no consensus
• Need reliable, inexpensive methods to
  measure ecosystem services
• Where As near original site as possible?
  Similar ecosystem?
• Internationally tradeable?
• Motivation Business case for voluntary, beyond
  compliance measures
• license to operate, reputation,
  competitive advantage, reduce liabilities
• Is this sufficient to encourage
  voluntary offset commitments?
• Mistrust Public/NGOs Genuine contribution or
  license to trash?
• Companies government fear of
  criticism.

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Conclusions and next steps

• See www.insightinvestment.com/Corporate/responsi
  bility/project/biodiversity.asp
• Conclusions
• Potential conservation and business benefits from
  offsets merit further consideration.
• Scientific, logistical and political hurdles to
  cross.
• Next steps
• Get your feedback and suggestions
  kerry.tenkate_at_insightinvestment.com
• Research project.

Part of the HBOS Group. Issued by Insight
Investment Management Limited. Registered
Office 33 Old Broad Street, London EC2N 1HZ.
Registered No. 02111149. Authorised and
regulated by the Financial Services Authority
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• So
• upset by the onset of offset?
• offput by offset?
• Or
• The Katoomba no net loss principle ?