20 years ago I gave a talk to a group of investors about why it was important to think about issues beyond profit in investment decisions.
I gave an example of an oil spill. I showed them pictures of environmental damage, of polluted waterways, habitat destruction and oil-soaked birds. My talk bombed – they weren’t interested. It wasn’t part of the discourse then – at the time, profit was the whole picture.
Thankfully, things are changing. Investors are recognising that companies can’t exploit the planet without recourse through financial cost or reputational risk.
Human activity has changed almost three quarters of the earth’s surface and a million animal and plant species are now threatened with extinction. Rising social consciousness means people are waking up to the fact that business can be part of the problem or part of the solution – not all profits are created equal.
But there’s still a long way to go if we are to consistently quantify the impacts of businesses and investments on our planet.
We need to value nature, to agree a standard way for companies to measure and disclose their impact on biodiversity, and a global goal to protect and restore it.
What are COP15 and the Convention on Biological Diversity?
You’ve probably heard of the UN Framework Convention on Climate Change (UNFCCC) COP21, where the Paris Agreement was adopted. Or COP26, the next UNFCCC conference set to take place in Glasgow in November.
Well, the UN’s Convention on Biological Diversity (CBD) hosts similar conferences focused on biodiversity. The CBD’s COP15 is due to take place from 11 October in Kunming, China
Adopted by 196 nations in total, the CBD meets every two years to discuss conservation of biological diversity.
What’s the state of progress and what’s expected from this year’s summit?
In 2010 the EU signed targets, the Aichi Biodiversity Targets, agreeing to halt biodiversity loss by 2020. But these targets were not met, as the WWF’s Living Planet Index, which tracks population trends, has shown.
It is expected the post-2020 biodiversity strategy will be agreed this year.
The WWF, Capitals Coalition, Conservation International and World Resources Institute are among those to have backed the idea of a goal to become “nature positive by 2030”.
Meanwhile the independent Dasgupta Review on the Economics of Biodiversity, commissioned by the UK Treasury and published in February, called for a new measure of wealth that recognises natural assets.
Just as economists are assessing how climate change could impact investment returns, it is recognised we must also understand the value of nature, of “natural capital” alongside financial capital.
This was powerfully highlighted by Mark Carney, the UN Special Envoy on Climate Action and Finance and former Governor of the Bank of England.
In a talk for BBC radio’s The Reith Lectures, he said: “Why do financial markets rate Amazon as one of the world’s most valuable companies, but the value of the vast region of the Amazon appears on no ledger until it’s stripped of its foliage and converted into farmland?”.
Why does biodiversity loss matter for investment?
We rely on nature to fuel our economies, from the food we eat to the water we use, and from the commodities we trade to the air we breathe. Our existence depends on nature.
Just as diversity is important for investments, biodiversity is important for nature – to reduce exposure to shocks and improve ecosystem resilience.
More than half of global GDP, around $44 trillion of economic value, depends on natural resources, the World Economic Forum has said.
Companies that do not value nature are increasingly likely to be exposed to risks from overreliance on so-called “ecosystem services”, the benefits ecosystems provide, which are currently not valued or are undervalued.
Sectors at risk include agriculture, marine and food and there is an increasing need for investors to be able to identify companies with the most responsible approaches.
We also see consumer attitudes changing, for example people choosing to reduce use of products which harm the planet, such as moving away from palm oil linked to deforestation.
Increasing regulation can also have an effect on business models and we are already seeing this. The EU Green Deal contains a significant element on biodiversity, with the potential for direct revenue impacts.
As with climate change, if nothing is done the costs will be high. The WWF estimates a direct cost of $10tn globally between 2011 and 2050.
At the same time, there is an increasing variety of interesting conservation finance, with opportunities in sustainable agriculture, forestry and even “rhino bonds”.
The WWF also estimates annual investment opportunities of $3.4tr annually. We have the chance to be a part of the solution.
What should happen – and could a “nature positive by 2030” goal help?
As part of the Schroders Group, we have signed up to the Terra Carta, a charter for nature, people and the planet launched by The Prince of Wales. It outlines areas for action and steps companies can take to help build a sustainable future.
This includes an aim to support the protection and restoration of a minimum of 30% of biodiversity, on land and below water, by 2030 and 50% by 2050. In addition to this, it is hoped that global leaders will agree to the proposed “nature positive by 2030” goal at COP15 in October, along with how to measure progress.
The acceleration of disclosures for nature could make all the difference. Finance ministers from the Group of Seven (G7) of the largest economies have endorsed a Task Force on Nature-related Financial Disclosures this month. This will provide a framework for companies to report and act on nature-related risks – and follows in the footsteps of the successful Task Force on Climate-related Financial Disclosures.
The links between investing and biodiversity are clear.
We consider biodiversity risks in our investment processes, and seek to understand the strengths and weaknesses of corporate biodiversity approaches.
From developing more innovative nature-linked financial products to encouraging portfolio companies to protect and restore nature, we believe that the investment industry can play a key role in halting and reversing nature loss – and helping to restore and protect biodiversity for generations to come.
Supporting conservation of the richest marine biodiversity in the world
The beautiful waters of the Bird’s Head region of West Papua, Indonesia, are full of sealife today. But a decade ago unregulated commercial fishing and other damaging practices had brought this underwater paradise to the brink of ruin. By the 1990s, some fisheries were reporting a decline of up to 90% catch per effort, according to Conservation International.
Thanks to the Bird’s Head Seascape Initiative, launched by the non-profit organisation in 2004, the region – which includes more than 2,500 islands and reefs – boasts a high concentration of marine species, from whale sharks and manta rays to sea turtles.
Robert Baigrie of Conservation International explains: “In 2004, Conservation International, The Nature Conservancy, and WWF-Indonesia forged an unprecedented collaboration. Comprising over 22.5 million hectares in West Papua and Papua provinces of Indonesia, the Bird’s Head Seascape is now recognised as one of the most successful community-driven conservation efforts on the planet.”
More than 40 partners have been involved in creating a network of 12 marine protected areas. These MPAs employ people to survey and protect biodiversity, and help communities protect and sustainably manage resources.
“The seascape initiative aspires to provide long-term effective management of rich marine resources in a way that ensures food security and sustainable economic benefits for more than 760,000 Papuans,” Robert Baigrie says.
He continues: “It has become an international model for effective marine conservation. Many of the coral reefs have become world-class destinations for scuba diving, generating direct economic benefits for local communities.”
In 2017, the coalition launched the Blue Abadi fund, Indonesia’s first marine conservation trust fund, to raise further finance in addition to public finance and revenues from dive tourism. The trust fund is managed by Cazenove Capital.
Robert Baigrie says: “This secured US$23 million of funding from a variety of organisations, making the Blue Abadi fund one of the largest site-specific marine conservation trust funds globally. Through two grant cycles, the Blue Abadi fund has distributed over US$3 million. It has awarded 39 grants to 27 organisations to date.”
For more information, visit: blueabadifund.org.
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