Over 50% of global gross domestic product (GDP) is ‘moderately or highly dependent’ on nature and ecosystem services, according to WEF New Nature Economy Report 2020. Capital markets are called upon to act.
Investors showed up in numbers at last year’s COP15, the Conference of the Parties on Biodiversity, marking a new, but fitting development as negotiators stressed the urgency of investing to halt and reverse nature loss by 2030.
While the annual biodiversity financing gap is pegged at USD 700 billion, according to the Paulson Institute Financing Nature report, the cost of inaction is higher still: a collapse of ecosystem services would cause annual losses estimated at USD 2.7 trillion by 2030, with some of the poorer countries hit the hardest, according to World Bank.
Much like climate mitigation, the scale of the challenge makes a case for blended finance. Investors can also act via biodiversity funds (a small, but growing segment), carbon markets and biodiversity credits. Investor stewardship – engaging with both corporates and governments – will be critically important.
“Funding biodiversity will not only help species and ecosystems to recover, this is also important to maintaining the world economy and reducing social injustice.”
Robert-Alexandre Poujade, Biodiversity Lead
Applying climate lessons to biodiversity
How then should investors approach biodiversity conservation? At COP15, parties took a non-binding, but important step towards more transparency, agreeing to call on governments to take measures to encourage businesses to disclose their biodiversity risks, dependencies and impacts. Turning disclosure into decision-useful data, however, will require reliable biodiversity indicators.
Going forward, investors can glean valuable insights from their experience with climate indicators:
- Biodiversity risks should be quantified with clearly expressed metrics (e.g., mean species abundance per km²) designed to allow investors to understand each company’s impact on nature as well as their dependencies. Impact and dependencies must be disaggregated.
- Effective action requires specific goals. Science has set an ambition to reverse nature loss by 2030. Investors can adopt biodiversity roadmaps, e.g., prioritise key biodiversity topics such as reducing plastic pollution or deforestation, but they need a combination of environment, social and governance (ESG) data, stewardship and capital allocations to meet their goals.
- Nature loss is a systemic risk. As such, engagement must be done to reduce the drivers of nature loss, guided by the best available science. Portfolio management techniques alone will not protect investors from these risks. Effective stewardship, including public policy advocacy, will also be necessary.
“Investors can and should support consistent regulation, especially through an open innovation approach focused on quality data. They will be better equipped to engage with, and evaluate, the companies in their portfolio.”
Valérie Charrière-Pousse, Senior Portfolio Manager European Large Cap Equities
Opportunities for asset managers
Momentum is building in the investment sphere, backed by cross-sectional initiatives such as CDP or Nature Action 100. This opens opportunities for investors to actively engage with companies across supply chains, especially the biggest polluters – whether via corporate engagement or policy advocacy.
Incentivising companies to reduce their biodiversity footprints and work to reverse nature loss by 2030 is fully in line with the fiduciary role enshrined in the Principles for Responsible Investment (PRI). Preserving nature is in everyone’s interest.
“The collapse of nature will touch every aspect of our lives and our economies. We must act now to end deforestation, but we must go further, engaging on all key drivers of nature loss, which include climate change, land use change, exploitation of species, invasive species and pollution, including chemical and pesticide use.”
Adam Kanzer, Head of Stewardship – Americas
This article is part of the COLLECTIVE INSIGHTS section of our 2022 Sustainability Report where our experts share their views on three key topics: climate, biodiversity and geopolitics.
 Nature Action 100 is a global investor engagement initiative focused on driving greater corporate ambition and action to reverse nature and biodiversity loss
 The PRI works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions