Kerry ten Kate

1. Biodiversity offsets: mileage, methods and (maybe) markets “Beyond carbon - emerging markets for ecosystem services” Katoomba VI  Locarno, Switzerland 1 November 2003 Kerry ten Kate

2. Good morning, Katoomba! • Director, Investor Responsibility

3. Great idea! • I’ve looked at something like this • Difficult showing causation • Difficult disaggregating biodiv from security, human rights etc. • But let’s look at it . . . .

4. Welcome to . . . THE FIRST KATOOMBA PRESENTATION IN MIME • How about a new Katoomba Game?

5. THE FIRST KATOOMBA PRESENTATION IN MIME • . . . BIODIVERSITY CHARADES . . .

6. MIME •  • Suggestions, please, for how to mime: • -- biodiversity • -- offset • -- currency • . . . . . . well maybe not.

7. THANK YOU • . . . for the throat lozenges . . .

8. THANK YOU • . . . for the echinacea . . .

9. THANK YOU • . . . for your patience and good humour . . .

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

11. Biodiversity offsets: lateral thinking

12. 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 US$500-800bn. 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. • There’s no mechanism/trigger (unlike CBD Article 15 & national access laws). • SO . . .

13. 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

14. Why voluntary? • Two reasons: • Policy takes ages • Biodiversity is going down the tubes • Kyoto won’t help in the first commitment period • There’s 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!

15. 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

16. 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

17. 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 > 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?

18. 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

19. The ‘no harm’ principle in action

20. 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

21. 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.

22. Conclusions and next steps • See:www.insightinvestment.com/Corporate/responsibility/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@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

23. So: • upset by the onset of offset? • offput by offset? • Or: • The Katoomba “no net loss” principle ?