How to integrate biodiversity into your investment decisions?

Stay tuned > How to integrate biodiversity into your investment decisions?

- February 28, 2023

by Natacha Guerdat, Head of Research

28 February 2023

Economic growth is driven by income generated by produced capital, human capital, and natural capital. We have made progress on understanding how to efficiently manage production processes, human resources but not natural capital.

All economic activities depend more or less on ecosystem services, certain can cause large biodiversity loss which implies a functional risk. Furthermore, as pointed out at the COP 15 in Montreal, biodiversity also plays an essential role in climate mitigation.

Biodiversity loss represents a significant risk to corporate and financial sustainability. Understanding impacts of and on companies is key to managing biodiversity risks and contributing to improved ecosystems and can be assessed in different ways. Furthermore, recognition has risen about the risk this loss poses on the financial system.

On the opportunity side, we are just starting to explore ways to invest to restore biodiversity.

In this blog series we will assess the existing frameworks essential to understand how our production practices should transition, and how nature can be factored into business and financial decisions.

  1. On the macro level, at the end of 2022, 230 countries signed up the Kunming-Montreal Global Biodiversity Framework. 4 goals and 23 targets were set and expect to provide guidance for protecting 30% of land and sea by 2030. This also now called “Paris Agreement of nature” enables alignment between different stakeholders, from countries, companies and asset managers avoiding significantly harming companies and allocating capital towards solution providers.
  2. On a company or sector level, biodiversity already does materially impact a number of them and represent a series of risks. The Task Force on Nature Disclosures delivers a risk management and disclosure framework for organizations to report and act on evolving nature-related risks. These are:
    • Physical risk: for instance, reduction in agricultural yields due to pollinators reduction
    • Transitional risk: regulation changes or new consumer behaviors with a biodiversity loss lens could affect license to operate.
    • Systemic risk: the addition of physical and transitional risk affecting the financial system.
  3. For an investor, assessing biodiversity impact at a portfolio level can have to objectives:
    • mitigating biodiversity-related risks; and
    • investing in companies providing an alternative to an activity worsening the loss of nature capital or a solution to restore biodiversity.

The Biodiversity Footprint for Financial Institutions helps financial institutions assess the biodiversity footprint of their invested economic activities. Even if data and measures reflecting biodiversity information is still unperfect and there is lack of consensus, efforts should not be slowed.

As an impact investor, transparency and reporting regarding the impact generated by the companies in portfolio are key to providing trust and accountability. Biodiversity should be integral part of this effort.

Return to stay tuned
cta image footer
Background Shape


Read More