In this post, Dr Thambisetty reports on the LSE's contribution to COP16 negotiations and the Cali Fund.
Imagine a multilateral mechanism where large companies contribute a percentage of their turnover as the cost of using nature to do business, and 50% of that money goes directly to indigenous peoples and local communities. It may sound too good to be true, but this is the Cali Fund, the basis of which was set out during intense negotiations on the use of genetic sequence data (known as digital sequence information or DSI) in Cali, Colombia from October 21 to Nov 1st 2024.
Academics from the LSE played a critical role during the negotiations by proposing operational criteria and a text-based proposal. The team was working under the umbrella of the Knowledge Exchange and Impact (KEI) funded Ocean Biodiversity Collective (OBC) led by Dr Siva Thambisetty and Dr Paul Oldham, of One World Analytics. The ‘the LSE Model’ as it came to be known during the negotiations, was tabled by Norway and supported by a number of developed and developing countries. This language now sits in paragraph 3 of the annex to the decision that can found here.
Dr Thambisetty set up LSE’s Ocean Biodiversity Collective in response to a recurring challenge in international negotiations, initially gleaned from her experience as Advisor to the Chair of the G77 plus China group of countries on the Oceans Treaty. In complex negotiations relating to biodiversity, Global South states suffer from an imbalance in capacity and power which manifests in the minutiae of legal text in decisions This imbalance can to an extent be redressed by independent expertise and research produced with rigour and presented in a transparent and collaborative manner, which is what the Ocean Biodiversity collective attempts to do, as illustrated in Cali.
The LSE Side-Event on Oct 21st COP16, Convention on Biological Diversity
The LSE Roundtable Outputs
In the lead up to COP16, a two-day Roundtable on Global Biodiversity Finance and DSI was held at the LSE (27th and 28th September); it included a number of experts who presented proposals to stakeholders from industry, indigenous people and many developing and developed state party representatives. The aim of inviting those who would be negotiating in Colombia was to enable parties to take ownership of the knowledge basis of the inputs. The Roundtable generated many ideas, and all presentations that are not under Chatham House Rules can be found here.
Policy makers do not read long academic papers in the run up to a COP. Recognising this, members of the team produced two LSE Policy Briefs setting out the research as follows; ‘Identifying Ways Forward: LSE Roundtable on Biodiversity Finance and Digital Sequence Information’ (reporting on the Roundtable discussions; and ‘A Tiered Sales Based Approach: Digital Sequence Information and Monetary Contributions from Industry’.
What is the Cali Fund?
The need for a global fund grows out of an unfortunate misdirection in the governance of biodiversity. There are three objectives of the Convention on Biological Diversity (1992) including the fair and equitable sharing of benefits arising from the utilization of genetic resources. It assigns all plant and animal genetic resources found within state borders to sovereign ownership. A complication arises because the original definition of genetic resources in the Convention (and its implementing instrument, the Nagoya Protocol) does not include ‘digital sequence information’ (DSI) which is inescapable in the biotechnological application of genetic resources.
During the Nagoya Protocol negotiations many developed states would not allow discussion on whether the scope of the term ‘genetic resources’ must also include ‘genetic information’ or such information in digital form, it was left to state parties to decide. In effect, this silently allowed for the separation of rights over wet (genetic resources) from dry (digital sequence information) resources, though it clearly should not. This allows for the possibility of sovereign states being divested of their natural resources.
This seemingly technical issue culminated in a political process that demanded multilateral settlement through the creation of a global fund where monetary contributions would be made for the use of DSI.
But DSI at its core is ‘data’ and our methodologies for valuation of data are inadequate; and not currently based on the value of the content of the data. So the LSE alighted on a key research question – how do we fairly and equitably share the benefits of a resource that we do not know how to value?
Participants of the LSE Roundtable pointing to Cali, while preparing for COP16
The LSE Model
It is in light of this overarching uncertainty that Decision 16/2 puts in place the basis of monetary contributions that industry will make, 0.1 of turnover or 1% of profit (as indicative percentages) – while these percentages may sound low, they establish a crucial principle and equate to a significant amount of money from individual entities. The entities who pay, for now, will be the largest firms who ‘directly and indirectly benefit from the use of DSI’ in their ‘commercial activities’.
The size of the entities is set by exceeding two out of three threshold criteria of profits, turnover and assets. A text proposal based on the notion of thresholds was presented on October 21st by Dr Thambisetty at a side-event which was picked up by state parties.
Dr Kamath (Associate Professor (Edu) in LSE Accounting) developed the ‘two out of three’ approach to defining tiered thresholds for industry contributions based on the discussions at the LSE Roundtable. This tiered sales-based model rests on newly articulated thresholds rather than triggers, which was the basis of discussions thus far. Under the guidance of Dr Kamath, PhD student Agata Makowska-Curran helped with modelling contributions raised from industry under various scenarios.
The LSE team had an opportunity to answer detailed questions form state parties in a joint LSE-Norway technical briefing for states chaired by the Norwegian Head of Delegation, Gaute Voigt-Hanssen and Dr Siva Thambisetty. This was a very unusual event and highlighted the resoluteness with which expertise-led contributions were welcomed at COP16. The slides presented at this event are here.
A few key ideas underlie the LSE Model. First, the notion of ‘pay nature first’ became a rallying idea over the tension between using profits vs sales to set out rates of contributions. This powerful idea was first articulated in this way by Kyle Vermette, an indigenous group representative at the LSE Roundtable. Contributions to the multilateral mechanism are a cost of using nature, and so it is best seen as a cost of doing business. The distinction in Dr Kamath’s words, is the difference in paying a utility bill (sales) vs paying a dividend (profit).
Secondly, it seems logical to ask industry to contribute based on sales (or turnover) related to DSI-based products, rather than all sales. But the legal nexus between DSI products and cost of doing business cannot be set out with any degree of certainty. Therefore, the LSE team recommended and the states accepted, the use of proxies – in particular a sector-based approach that would identify sectors based on UN classification codes where entities are most likely to ‘directly or indirectly benefit from the use of DSI’. Based on research by Dr Oldham, a list of sectors now sits in enclosure A of the decision. Although not perfect, this particular trade-off between precision and uncertainty makes the Cali Fund operational.
Thirdly, in order to create a level playing field for industry we advocated that any criteria must be fair, reasonable, equitable, transparent and predictable. These principles, called FRETAP are set out in ‘The Pandemic Access and Benefit Sharing Systems: Four Elements of a Trusted System’ by Oldham and Thambisetty.
And finally, the Cali Fund is a voluntary mechanism as it is the result of a decision of the Conference of the Parties, not a legally binding agreement. In order to ensure that industrial entities make payments, the LSE model included the recommendation to set up a ‘Transparency Register’ to identify entities that ought to be contributing. The idea of the transparency register did not make it to the final text; what the decision does do however is to enable reputational benefits to industry of making payments for the use of nature.
Further work will be necessary to see how much revenue can be raised, and to analyze the relative impact on entities in the intersessional period before COP17 in 2026 which will be held in Yerevan, Armenia. In terms of setting out a programmatic way of encouraging contributions, there is no doubt that the Cali Fund is unprecedented and ushers in a new era in global biodiversity finance.
The research project and expert input during COP16 negotiations was led by Siva Thambisetty, Associate Professor of Law, LSE (project Co-lead) and Paul Oldham (LSE Anthropology 1996, founder of One World Analytics and project Co-lead) and Dr Saipriya Kamath. Lea Reitmeier (Grantham Research Institute), Agata Makowska-Curran (LSE Geography and Environment and Grantham Research Institute), Jasmine Kindness (LSE Anthropology 2018 and One World Analytics) and Julian Portilla (Meridian Institute) were part of the team that produced the research that led to the model. Daniel J Stewart, an associate partner on the Ocean Biodiversity Collective and Executive Founder of Independent International Legal Advocates contributed support to the host government, Colombia. The roundtable received substantial funding from NORAD and benefitted from facilitation by the Meridian Institute and the Grantham Research Institute
The LSE Team at COP16 - Dr Paul Oldham, Dr Siva Thambisetty, Dr Saipriya Kamath, Lea Reitmeier, Jasmine Kindness and Agata Makowska-Curran
Media coverage on the LSE’s involvement: