Earth Day – spotlight on biodiversity
For financial professionals only
Conversations about the environment usually focus on climate change and global warming. Something less discussed, but just as important, is biodiversity.
Biodiversity (‘biological diversity’) relates to the variety of life on earth, including all species of plants and animals, the genetic diversity within and between these species, and the variety of ecosystems they are part of. Healthy ecosystems are essential to society and our economy, providing us with food, clean water, medicines and even oxygen. They also have many other uses, such as how mangroves and coral reefs provide protection from extreme weather for coastal communities.
These ecosystems and their interactions are incredibly complex, having developed through evolution over millions of years. However, due to human activity including unsustainable agriculture, deforestation, urbanisation and pollution, many of the ecosystems are in decline, presenting long-term risks to our economy’s sustainability.
You can see the impact through the ‘Planetary Boundaries’ framework developed by the Stockholm Resilience Centre(1). This shows the safe operating limits for human activity. When we operate outside of these, we can cause long-term damage to the environment. As seen in the chart below, we’re already operating outside of the boundary for several areas, such as Biosphere Integrity, relating to biodiversity loss including the rate of extinction of species each year.
Credit: J. Lokrantz/Azote based on Steffen et al. 2015.
The resources provided by these ecosystems are estimated to be worth $44 trillion, or more than half of the world’s GDP(2). The economic sectors relying most on nature are agriculture, food and beverages, and construction – with a combined value of roughly double the German economy(2). That’s not insignificant, and highlights the need for change to avoid causing irreversible damage to the natural capital underpinning our society and economy.
As investors, a consideration of environmental, social and governance (ESG) criteria can allow us to invest in companies managing these risks effectively, and provide solutions that transition us to a more sustainable economy. We can also align our investments with the UN Sustainable Development Goals 14 and 15, ‘Life Below Water’ and ‘Life on Land’, both linked to biodiversity. Through active stewardship and engagement, we can encourage companies to better manage their businesses and supply chains.
There are more and more government policies and initiatives to support this process. The next UN Biodiversity Conference, COP 15, is taking place in China later this year. Similar to the COP 26 gathering on climate change in 2021, this is an opportunity to get widespread international agreement on policies to protect biodiversity. The EU’s Biodiversity Strategy for 2030 is another long-term plan to protect our ecosystems, and the Taskforce on Nature-related Financial Disclosures is beginning to establish metrics for companies to report on biodiversity impacts. These endeavours can help governments create a framework for society to have a positive impact on biodiversity.
As with climate change, the importance of biodiversity cannot be underestimated and this topic increasingly arises in our conversations with our fund managers, and our Ethical Oversight Committee. The natural world underpins our economy and provides the majority of our daily goods and services. As individuals and investors, we can all do our bit to make sure we protect the nature we depend on for generations to come.
(2) World Economic Forum 2020 report, ‘Nature Risk Rising’, https://www3.weforum.org/docs/WEF_New_Nature_Economy_Report_2020.pdf
“The above article is intended to be a topical commentary and should not be construed as financial advice from either the author or Parmenion Capital Partners LLP. If a client wishes to obtain financial advice as to whether an investment is suitable for their needs, they should consult an authorised Financial Adviser. Past performance is not an indicator of future returns.”
Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation. All investment carries risk and it is important you understand this. If you are in any doubt about whether an investment is suitable for you, please contact your financial adviser.