Opportunities in biodiversity investing

Stay tuned > Opportunities in biodiversity investing

- March 21, 2023

by Natacha Guerdat, Head of Research

21 March 2023

Wealth creation is highly dependent on a healthy ecosystem. Additionally, the goal of keeping temperature rise under 1.5 degrees is unlikely if biodiversity is not addressed. The topic of nature is moving up the investor agenda as awareness grows about the risks that biodiversity loss poses to the financial system. Furthermore, investors are willing to allocate capital aligned with their sustainability objectives and contribute to halting biodiversity loss and to the building of healthy ecosystems.

It is however difficult to quantify the true price of nature which means it is currently not valued in capital markets. Clear guidance and incentives are necessary to help make the scale of required investment happen. The Kunming-Montreal Global Biodiversity Framework has set the first step towards this goal. It provides a framework to align policy, actions, and financial flows with it the goal to protect 30% of land and 30% of coastal/marine areas by 2030.

Disclosure for companies is evolving with the TNFD and also the European Corporate Sustainability Reporting Directive (CSRD) will help understand the impacts in biodiversity loss from companies’ activities which will be key to managing biodiversity risks and contributing to improved ecosystems.

For an investor, assessing biodiversity impact can be considered in investment decisions and mainly have two objectives:

  1. mitigating biodiversity-related risks; and choosing investments that have the least impact on biodiversity.
  2. 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 investing and lending activities.

Even if data, methodologies, and tools reflecting biodiversity information is still unperfect and in development, efforts should not be slowed. The first step is determining what economic activities are directly and indirectly linked to a company or project in terms of revenue generation. Then by adopting a life cycle analysis and using an environmentally extended input-output (EEIO) database such as Exiobase can be used to measure a biodiversity footprint by quantifying the environmental impact of a product or service. The ReCiPe method, adapted for biodiversity, can be used to calculate the impact of environmental pressures on biodiversity. At Asteria our entire impact research framework is based on revenue generated by positively and negatively impacting activities. Measuring our footprint and what impact in the real world our invested companies have is at the heart of our added value as an impact investor.

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