The future of biodiversity – no time to stop and smell the roses

A global biodiversity crisis is upon us and, like the climate crisis, we have been heading here for some time now. Around 50% global economy ($44tr USD) is dependent on biodiversity and the call to act is finally being answered^[1].

So far the majority of engagements has come from the public sector and a significant funding deficit has grown. Private sector investment and engagement as stewards of capital is key to match the scale of the biodiversity emergency.

The crisis at hand places a high degree of risk on existing investments and with the development of the Taskforce for Nature Related Disclosures (TNFD) and other similar frameworks now is the time to start thinking of how portfolios can adapt to the natural environment.

Asset owners will have to be highly discerning with the growing number of targeted nature solutions available, but with the first mover opportunities available in some instances, we believe now can be an exciting time to act.

Global frameworks for addressing nature loss

To engage the private sector with the crisis, various geographies have introduced targeted legislation to promote nature positivity, such as the ‘Green Deal’ in the EU, ‘No Net Loss’ in the USA and ‘Biodiversity Net Gain’ in the UK.

This legislation is backed up with the development of frameworks such as the TNFD to provide guidance to asset owners and managers on to how to be nature positive in their activities. Traditionally nature and biodiversity has been an area where markets have struggled to assign economic value, but this is changing with the growing number of methodologies to track nature loss and regeneration.

With these developments asset owners can begin to take nature into consideration for their investment portfolios, and where appropriate allocate capital to stop the decline.

Investment opportunities

The increased engagement with biodiversity has seen a growing number of investment opportunities on the market. These include:

• Listed Equity Opportunities – Allocating capital to indices and funds where nature is explicitly taken into consideration.
• Fixed Income – Investing in biodiversity bonds and debt swaps where the issuer allocates the fund to nature regeneration or where nature loss is mitigated from activities.
• Unlisted Equity Opportunities – Such as generating biodiversity credits on a large scale.

Although not every opportunity will be suitable for all asset owners, there may be some first mover gains available and nature-based investments have potential to act as a diversifier of returns for those for whom it is suitable.

Next steps

The biodiversity crisis is here and now is the time to act. Asset owners can begin to determine how their portfolios can consider the natural environment. Increasingly investment opportunities are combining this mentality with financial return potential.

Private investors can improve biodiversity characteristics in their portfolios by:

• Engaging with the asset managers with whom they invest
• Seeking targeted nature positive opportunities
• Asking the right questions to see how nature is considered with existing investments
• Pushing for continued improvement to see what further can be done

It all starts with first steps – and occasionally stopping to smell the roses.

Footnote

1. World Bank, 2021, Protecting Nature Could Avert Global Economic Losses of USD2.7trillion per year. Return to article undo