Biodiversity focus climbing up global investor agenda

The world has seen an estimated 68% drop in wildlife over the last 46 years, while 10mn hectares of land – about the size of Germany and accounting for 11% of global GDP – get deforested every year.
The World Economic Forum has estimated that roughly half of global gross domestic product, or about $44tn worth of economic value, depends on the natural world in some way, meaning its destruction represents an enormous financial loss.
Global biodiversity is in crisis.
From an investment perspective, Moody’s Investors Service says almost $1.9tn is at stake as biodiversity loss intensifies nature-related risks.
High-risk sectors such as coal and metals mining will likely face greater regulatory and investor scrutiny as every day passes.
Companies that lack credible management strategies in this arena face the prospect of not only reputational damage, but also serious financial repercussions, according to Moody’s.
“Risks such as ecosystem health, biodiversity loss and natural resource management are rising up the policy and investor agenda,” said Rahul Ghosh, managing director of environmental, social and governance (ESG) issues at Moody’s.
Unlike universal measures for gauging greenhouse gas emissions, there are no ready equivalents for gauging nature-related risks, Moody’s said.
As a result, many of the relevant factors for understanding these risks are particular to different biomes, which makes the measurement of nature-related dangers and opportunities especially challenging.
Companies that are dependent on “ecosystem services,” such as protein and agriculture, are vulnerable. In fact, forestry, agriculture, fishing and tourism are among the sectors most at risk.
Moody’s has also said its “environmental heat map” identified another 24 industries with $9.6tn of debt that have “moderate exposure” to natural-capital risks.
Most investors and intermediaries are only just beginning to include nature-related risks in their assessments.
The Paulson Institute estimates the market for biodiversity investments may reach as much as $93bn by 2030, up from about $4bn in 2019. That would follow a similar trajectory to other environmentally-labelled products like green bonds, which had sales of more than $500bn last year, little more than a decade after the first one was issued.
In a wider sense, according to Bloomberg Intelligence, global ESG assets are set to climb to $50tn by 2025 from about $35tn now. That’s up from $30.7tn in 2018 and $22.8tn in 2016, according to the Global Sustainable Investment Association.
Natural capital commonly refers to the fundamental “assets” of the natural world — land, air and water — and from an economic perspective, a range of ecosystem services that are essential for supporting life, says a Financial Times report.
Scientists believe human mismanagement of the environment — notably through resource extraction, intensive agriculture, and climate change — is precipitating a sixth great extinction of plants and animals in Earth’s history.
Longer term, natural capital preservation and restoration can also slow the impact of global warming, as in the case of carbon sinks like forests and oceans.
Loss of biodiversity is now considered as serious as climate change, and investors are increasingly realising that they have an important role to play in conserving it.
“An ongoing, catastrophic loss of biodiversity is among the world’s major environmental challenges,” says sustainable investment house Generation Investment Management, co-founded in 2004 by former US vice-president Al Gore and financier David Blood.
With financial markets currently under siege, concerns about biodiversity probably aren’t the first thing that comes to mind for panicked investors. But the long-term ramifications of a depleted natural world are potentially devastating.