Overview of COP15, the 15th meeting of the Conference of the Parties to the UN Convention on Biological Diversity – Nearly 200 UN member states are currently convening in Montreal to address the rapid decline in global biodiversity. According to the WWF, biodiversity around the world is declining faster than at any time in human history, with an estimated ~US$44T of GDP (representing around half of the world's annual economic output) at risk due to this rapid change (declining and collapsing ecosystems could lead to an annual decline of ~US$2.7T in global GDP annually). Against this backdrop, COP15 has established four key goals: 1) biodiversity conservation (e.g., recovery of ecosystems, species, and genetic diversity, etc.); 2) sustainable use of biodiversity and nature (noting that our current standards of living uses the equivalent resources of ~1.6 Earths); 3) fair and equitable sharing of benefits from the use of genetic resources; and, 4) means of implementation (e.g., resource mobilization, capacity-building, etc.).
Implications of COP15 and other global biodiversity actions for businesses – There are currently 22 proposed targets at COP15, of which the 5 most impactful targets on businesses include: Target 2) ecological integrity of degraded areas and ecosystem restoration; Target 7) addressing pollution as a driver of biodiversity loss; Target 12) biodiversity in urban spaces; Target 15) reducing the negative impacts of business on biodiversity (we note that COP15 was the first UN CBD with meaningful engagement from businesses, most of which were large, multinational corporations); and, Target 18) positive and negative incentives for biodiversity. In addition to these targets, we note that the legislative backdrop as it relates to biodiversity preservation is rapidly evolving (e.g., U.K. legislation in 2021 requires a biodiversity "net gain" for most developments; the 2019 Canada Impact Assessment Act increased biodiversity requirements, etc.), while banks/lending institutions are increasingly imposing high biodiversity standards for obtaining loans and insurance. Overall, we believe the key takeaway is that COP15 will likely increase the responsibility placed on businesses to: 1) consider biodiversity-related impacts from their activities; and, 2) include nature- related considerations into their ESG targets/goals, which we believe will create opportunities for WSP and the broader E&C space to provide advice/expertise.
Opportunity for Engineering firms is large (and growing); WSP is well positioned to capitalize – WSP estimates the funding shortfall for biodiversity-related initiatives is ~US$700 billion, which we believe represents a large opportunity for the company and the broader Engineering/Consulting industry. Further, as noted above, the need for private sector clients across multiple industries to adapt to rapidly evolving biodiversity regulations is likely to create meaningful demand going forward for WSP and our covered E&C names. As an example, WSP highlighted that asset decommissioning (e.g., mines, coal-fired power plants, etc.) and habitat restoration will be key focus areas for the company going forward. This is expected to be driven in part by resource- extraction businesses looking to decarbonize their operations in line with their environmental/biodiversity commitments while navigating the evolving regulatory environment. Overall, we believe WSP is particularly well positioned to capitalize on the larger biodiversity opportunity given the strength of its underlying business (i.e., its capabilities in the Earth & Environment silo), which were expanded with the company's ~US$1.1B acquisition of Golder, and its ~US$1.8B acquisition of John Wood's E&I consulting business. Taken together, WSP currently has ~23,000 employees working in its global Earth & Environment business, offering services spanning the entire project lifecycle (including baseline surveys, impact assessment, modeling/analysis, etc.), which we believe aligns the company well to benefit from the coming biodiversity tailwind.