Biodiversity is being jeopardised by human activities such as industrial production, logging, agriculture and mining natural resources. They have destabilising effects on air and water quality, land use and climate change, to name just a few. Investors should, in our view, take note of the resulting imbalances affecting specific business areas and entire economies.
Simply put, biodiversity refers to the incredibly rich variety of life on Earth. A contraction of ‘biological diversity’, the word refers to every living thing on the planet. It encompasses all bacteria, insects, plants, animals, humans and more.
Biodiversity is usually discussed on three levels:
1. Genetic diversity deals with the different genes found in all individual plants, animals and living organisms
2. Species diversity denotes the differences found within and between populations of species, and between the different species on Earth
3. Last but not least, ecosystem diversity takes in the processes, habitats, communities and variations within any geographical area.
Why it matters to investors
Between 1970 and 2019, there was, on average, a 68% decrease in population sizes of mammals, birds, amphibians, reptiles and fish – that is a decline occurring at a greater rate than at any other time in human history. The Intergovernmental Platform on Biodiversity and Ecosystem Services identified the main drivers of biodiversity loss as:
- Habitat loss
- Climate change
- Invasive species.
These factors have continued to grow at an unsustainable pace, and nearly 1 million species are currently at risk of extinction, many within decades.
Biodiversity loss impacts businesses with potential transition and physical risks as well as litigation and regulatory risks. These risks can affect the value of investments.
It is important to understand the potential impact on an investment portfolio, particularly as some sectors have higher risk associated with them than others. For example, among the most exposed industries are energy, mining & metals, utilities, and food & beverages.
Other areas are affected by biodiversity loss include pharmaceutical research into new active ingredients and molecules in plant and ocean organisms. This is a promising field for identifying treatments for human pathologies or treating antibiotic-resistant bacteria. However, biodiversity loss limits our ability to explore these fields.
According to a World Economic Forum report, 25% of drugs used in modern medicine are derived from rainforest plants, while 70% of cancer drugs are natural or synthetic products inspired by nature. This means that every time a species goes extinct, we miss out on a potential new medicine.
However, the implications are more far-reaching. The loss of biodiversity can jeopardise all economies and our prosperity. In the same report, the WEF estimated that USD 44 trillion of economic value generation – more than half the world’s total GDP – depends moderately or highly on nature and its services and is exposed to nature loss.1
Reducing businesses’ biodiversity footprint
Since the Earth Summit in Rio de Janeiro in 1992, many world leaders have acknowledged the importance of putting sustainability at the centre of economic development. While economic activity cannot be stopped, an effort can be made to reduce its footprint on biodiversity.
Investors can contribute. BNP Paribas Asset Management provides a range of solutions targeting biodiversity-related challenges including an exchange-traded fund (ETF) strategy.
For more articles on exchange-traded funds, go to the ETFs category on Viewpoint.
 Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES), Global Assessment Report on Biodiversity and Ecosystem Services, 2019
 World Economic Forum, Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy, January 2020