ESG Club
BIODIVERSITY – CHALLENGE, OPPORTUNITY OR BOTH?
According to scientists, the natural world is in crisis. We are losing biodiversity – the very fabric of life on Earth – at an alarming rate. The consequences of inaction would be catastrophic, as the biodiversity crisis presents a unique threat to our economies, our investments and our way of life. Yet, as we have seen with the climate crisis, transformative technologies are in devel- opment to combat the degradation. Restor- ing Earth’s ecosystems will require us to move away from the take, make, waste economy to one that operates in harmony with nature. The Age of Transformation, will present investment opportunities.
The avoidable mass extinction event We are in the middle of our planet’s sixth mass extinction event. Approximately 25% of all species on Earth are at risk of extinction by 2050¹, representing roughly one million species of plants and animals. Unlike previous extinction events, the biodiversity crisis is the result of human activity. We, therefore, have an obligation to halt this destruction and embrace ways to restore the planet’s finite resources. Policymakers are starting to recognise that restoring, protecting and preserving eco- system services is critical, and technology is enabling new solutions, ranging from smarter agriculture to flood protection, that safeguard livelihoods and prosperity.
Investment challenges and opportunity Creating a more harmonious relationship with nature will inevitably present oppor- tunities for investors. In parallel with the shift to a low carbon economy, a transition to nature-positive practices will generate an estimated $10trn (£7.3trn) in business value and create 395 million jobs by 2030² as society works to reorient consumption
patterns and production methods. With all sectors of the economy facing various forms of systemic risk, as critical life-support systems are damaged or knocked out of equilibrium, harnessing these opportunities present an array of challenges for investors. As with climate change, investors need to consider how nature loss might translate into financial risk and adopt effective corporate engage- ment and public policy advocacy to ensure this message is spread. They will also require in-depth knowledge and under- standing across a broad range of new eco- system restoration technologies to ensure they can identify the market-leading com- panies in this essential field.
Opportunities to capture Transformative and restorative solutions to address many biodiversity issues are at hand including pollution control and treatment, ways to improve resource effi- ciency, alternatives to pesticides as well as projects to improve the environmental output of transportation and recycling, etc. In terms of conservation solutions, there are three key categories where tech- nologies are needed to slow the rate of degradation and support regeneration: – Aquatic ecosystems: help sustain the lives of billions of people, regulate the climate, produce oxygen and fuel the water cycle
– Terrestrial ecosystems: provide the basis for life through food supply, water, habitats for organisms and biodiversity
– Urban ecosystems: support all life on Earth, but are also the source of pollution
The companies offering solutions to these challenges often do not focus on just one aspect, but span different sectors and geographies and are not necessarily listed as biodiversity loss companies (no compa-
PI Partnership – BNP Paribas Asset Management
nies are currently listed as such). Impor- tantly, many of these technologies and companies need to be scaled, creating an opportunity for investors with the where- withal to find and assess them in depth.
Hurdles to overcome Addressing the biodiversity crisis is not just about finding tomorrow’s technical solutions today, but also evaluating the biodiversity risk of existing companies to better understand their relationship with biodiversity and ecosystem services. While this sounds straightforward it is not. Many companies themselves are not aware of these risks, do not report on them and have yet to implement any form of biodiversity strategy. External data is often insufficient and lacks the level of detail needed by inves- tors to tie specific impacts to an individual company – this needs to change. Collabo- rative engagement could also be an effec- tive tool to addressing and assessing these risks, but investor-corporate dialogues on environmental issues tend to lack a sense of urgency. Companies should be encour- aged to consider habitat restoration and afforestation commitments today. These hurdles will not be solved immedi- ately, but collectively investors should start to ensure that their decisions are informed by biodiversity considerations, just as they are doing for climate change. The investment community can also use its influence to advance the understand- ing of biodiversity issues in the corporate community.
1) IIPBES 2019 Global Assessment Report on Biodiversity and Ecosystem Services
2)
https://www.weforum.org/agenda/2020/07/future-nature- business-action-agenda-blueprint-climate-change-biodiver- sity-loss/
BNP PARIBAS ASSET MANAGEMENT UK Limited, “the investment company”, is authorised and regulated by the Financial Conduct Authority. Registered in England No: 02474627, registered office: 5 Aldermanbury Square, London, England, EC2V 7BP, United Kingdom.
www.bnpparibas-am.co.uk This article is issued by the investment company. Investors considering subscribing for the financial instruments should read the most recent prospectus or Key Investor Information Document (KIID) available on the website. Opinions included in this article constitute the judgement of the investment company at the time specified and may be subject to change without notice. This article does not constitute or form part of an offer or invitation to subscribe for, underwrite or purchase an interest in any strategy. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial investment. Past performance is not a guide to future performance.
36 | portfolio institutional | March 2022 | issue 111
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