Robert-Alexandre Poujade, Biodiversity Lead, discusses the importance of biodiversity, our biodiversity roadmap and the steps in assessing the biodiversity footprint of our portfolios.
Why does biodiversity matter?
Healthy functioning ecosystems underpin society: they produce the oxygen we breathe, help mitigate climate change and support at least 55% of the global economy.But about 25% of all species is at risk of extinction by 2050 – that is roughly one million species of plants and animals.
There are five main threats to biodiversity
- Land/sea use change
- Invasive species
- Climate change.
Biodiversity loss threatens the achievement of UN Sustainable Development Goals related to poverty, hunger, health, water, cities, climate, oceans, and land, according to IPBES 2019. That is another reason to reverse the destruction of ecosystems and biodiversity loss.
What is being done to protect nature?
At COP15, around 200 countries agreed on the Kunming-Montreal Global Biodiversity Framework. Its centrepiece is a target to protect 30% of nature by 2030. We believe this makes financial sense: A University of Cambridge report has found that the financial benefits of protecting 30% of world’s land and oceans outweigh the costs involved by a ratio of 5 to 1.
Governments have also agreed to phasing out subsidies that harm nature. Subsidies linked to biodiversity loss are estimated to cost around USD 2 trillion annually. The agreement set a target of spending USD 200 billion a year on conservation.
Apart from public sector investment, funds could come from private finance or blended finance as well as pushing the private sector to invest via impact funds and other instruments.
What does this mean for investors?
Biodiversity loss is a systemic risk. Investor assets could be impacted negatively by the loss of even a bee. Bees are responsible for pollinating about one third of the world’s food supply. In the US alone, honeybees provide pollination services valued at roughly USD 15 billion to USD 20 billion a year.
We believe it is important for investors to understand what the risks are. To do so, they require companies to disclose environmental information to help them assess a firm’s impact on biodiversity. However, data from CDP (formerly the Carbon Disclosure Project) has shown that most companies are not translating a commitment on biodiversity into action.
The Global Biodiversity Framework calls on governments to encourage companies and financial institutions to disclose their risks, dependencies and impacts related to biodiversity. Pressure for greater transparency is likely to drive more action from companies to reduce biodiversity loss.
In our view, regulatory action should help investors understand the biodiversity-related risks and opportunities in their portfolios. To this end, we have been involved in the Taskforce on Nature-related Financial Disclosures (TNFD) to develop a framework. It is due to be published on 18 September.
What can asset managers do?
There is currently an annual USD 700 billion gap when it comes to financing the protection of natural systems, according to the Paulson Institute. This can be reduced by cutting subsidies that harm biodiversity and raising more funds through carbon markets, biodiversity credits and green financial products. BNP Paribas Asset Management supports the alignment of financial flows and global biodiversity goals and measures requiring consistent and decision-useful corporate disclosure.
We have detailed our views on the nature and urgency of this crisis in our biodiversity roadmap Sustainable by Nature. The roadmap is based on the six pillars of our approach to sustainability-related investing:
- Integrating environmental, social and governance considerations
- Responsible business conduct
- Taking a forward-looking perspective
- Investment solutions for sustainability
- ‘Walking the talk’ through corporate social responsibility.
Stewardship can be used to bolster a company’s efforts to reduce biodiversity loss, a recent example being our engagement with the pharmaceutical industry to phase out the use of horseshoe crab blood for testing.
Environmental investment strategies can also address climate change and biodiversity loss by helping to bridge the funding gap  to restore, protect and preserve Earth’s resources. Our biodiversity-focused range includes an exchange-traded fund and a thematic equity fund.
We have analysed our global assets under management to understand our exposure to water and deforestation risks and how much we depend on ecosystem services.
Also, to measure how our investments impact biodiversity, we have done research on a ‘biodiversity footprint’.
In Sustainable by Nature Sequel: Our Portfolio Biodiversity Footprint,our analysis focuses solely on negative impacts without addressing dependencies or the financial risks from nature loss. Together with our water and deforestation footprints, we aim to integrate this into our sustainability-based approach to investment decisions.
What is biodiversity footprinting? It is a tool that helps investors combine modelled and reported data of companies they have invested in and their supply chains to quantify their potential impact on biodiversity, without the need to gauge actual biodiversity change on the ground.
This biodiversity footprint assessment complements analysis our Environment, Social and Corporate Governance (ESG) analysts perform at a sector and issuer level and helps to identify key targets for direct engagement by our stewardship and portfolio management teams.
Many challenges remain. Biodiversity in or beneath the soil, marine biodiversity, extinction risk and species richness dimensions have not yet been captured fully, and pressures such as invasive species and resource overconsumption have yet to be modelled.
There is still a lack of data usable by investors, linking specific impacts to individual companies. This is a significant blind spot. However, for us, this is not a valid reason to remain passive. On the contrary.