Perspective

Nature has a value. We must account for it


Twenty 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 nature.

What are COP15 and the Convention on Biological Diversity?

You’ve probably heard of COP26, the UN’s climate change conference set to take place in Glasgow in November. Well, COP15 is the biodiversity equivalent, and is due to take place from 11 October in Kunming, China. Signed by 196 nations in total, it 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, 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 in investments, biodiversity is important in nature – to reduce exposure to shocks and improve ecosystem resilience. Around $44 trillion of economic value depends on natural resources, the WEF has said.

Companies that do not value nature are increasingly likely to be exposed to risks like reputational loss or fines. We also see consumer attitudes changing, for example – in choosing to reduce use of products which harm the planet, such as moving away from palm oil linked to deforestation. Increasing regulation, say over the use of land, can also have an effect on business models.

At the same time, there is an increasing variety of interesting conservation finance opportunities, with opportunities in sustainable agriculture, forestry and even “rhino bonds”.

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 Disclosures.

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.

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.

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.

For more information, visit: blueabadifund.org.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.