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. 1 Good morning, Katoomba! Director, Investor Responsibility

3. 2 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. 3 THE FIRST KATOOMBA PRESENTATION IN MIME How about a new Katoomba Game? Welcome to...

5. 4 THE FIRST KATOOMBA PRESENTATION IN MIME... BIODIVERSITY CHARADES...

6. 5 MIME  Suggestions, please, for how to mime: -- biodiversity -- offset -- currency...... well maybe not.

7. 6 THANK YOU... for the throat lozenges...

8. 7 THANK YOU... for the echinacea...

9. 8 THANK YOU... for your patience and good humour...

10. 9 THANK YOU And, most of all, thank you to my attractive assistant.

11. 10 Biodiversity offsets: lateral thinking

12. 11 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. 12 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. 13 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. 14 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. 15 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. 16 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. 17 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. 18 The ‘no harm’ principle in action

20. 19 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. 20 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. 21 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. 22 So: upset by the onset of offset? offput by offset? Or: The Katoomba “no net loss” principle ?