Biodiversity – challenge, opportunity or both?

According to the world’s leading scientists, the natural world is in crisis. We are losing biodiversity – the very fabric of life on Earth – at an alarming rate. As with climate change, 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 also seen with the climate crisis, solutions and transformative technologies are in development to combat the degradation. Restoring earth’s vital ecosystems will require us to move away from the take, make, waste economy currently to one that operates in harmony with nature. In the Age of Transformation, this will also 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 take action to halt this destruction and embrace ways to restore the planet’s finite resources before it is too late.

Policymakers are starting to recognise that restoring, protecting and preserving ecosystem services is critical, and technology is enabling new solutions, ranging from smarter agriculture to flood protection, that safeguard livelihoods and prosperity.

The investment challenge (and opportunity)
Creating a more harmonious relationship with nature will inevitably present opportunities for investors. In parallel with the shift to a low carbon economy, a transition to nature-positive practices will generate an estimated USD 10 trillion 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 will present an array of challenges for investors. As with climate change, investors will need to consider how nature loss might translate into financial risk for companies and adopt effective corporate engagement and public policy advocacy to ensure this message is spread. They will also require in-depth knowledge and understanding across a broad range of new ecosystem restoration technologies to ensure they can identify the market-leading companies in this essential field.

Opportunities to capture
Transformative and restorative solutions to address many biodiversity issues are already at hand including pollution control and treatment, ways to improve resource efficiency, 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 technologies 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 don’t focus on just one aspect, but span different sectors and geographies and aren’t necessarily listed as biodiversity loss companies (no companies are currently listed as such). Importantly, many of these technologies and companies still need to be scaled, creating an attractive opportunity for investors with the wherewithal 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 investors to tie specific impacts to an individual company – this needs to change. Collaborative engagement could also be an effective tool to addressing and assessing these risks, but investor-corporate dialogues on environmental issues tend to lack a sense of urgency. Companies should be encouraged to consider habitat restoration and afforestation commitments today.

These hurdles won’t be solved immediately, 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 understanding of biodiversity issues in the corporate community.

Walking the talk
While a consistent framework for understanding and reporting the range of risks presented by biodiversity loss is currently lacking, there is no reason for investors to hold back from incorporating these themes into their portfolios. In fact, the investment community is in a position to lead action on biodiversity by mobilising the required funding, playing a role in helping to make meaningful data available and using its leverage to encourage companies to act on issues of biodiversity. Moreover, it is the investment industry’s fiduciary duty to seek out such opportunities for its clients. It is no longer acceptable to just talk about green and sustainable investments, it needs to walk this talk and deliver real impact.

At BNP Paribas Asset Management, we believe a better world is one whose economic model is underpinned by a successful energy transition, is more environmentally sustainable and more equitable and inclusive. We recognise that we have an important role to play in ensuring a just and sustainable future for our clients and are integrating biodiversity considerations across our sustainability strategy and it will also be a core aspect of our stewardship work globally. Our sustainable product line now offers clients a range of thematic strategies focused on biodiversity themes, including the Blue Economy and Ecosystem Restoration. We are proud to embrace our role as a future maker – the risks may be great, but the opportunities are also immense.

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