Investing in biodiversity gains momentum

Following the historic COP26 summit in Glasgow, the private sector is uniquely positioned to help accelerate global climate action and build resilient economies. Business leaders and investors have made it their priority to drive innovation and scale best practices in sustainable business and finance to meet their ESG goals.  

“Investing in biodiversity is such an interesting topic to me because it does go a layer down from these broad (decarbonization) discussions that we’ve been having. I think it marries these two worlds.” said Michelle Jamrisko, moderator and senior Asia economy reporter, Bloomberg at the Sustainable Business Summit on July 27.

Biodiversity is indeed a very interesting topic, said Anderson Tanoto, managing director, Royal Golden Eagle (RGE), “because in the environmental side, everyone’s talking about carbon, but people forget that carbon is something that you cannot see. Biodiversity, you can.  A big part of carbon is biodiversity. There are ecosystem services that is provided through biodiversity.”

Ecosystem services are the many and varied benefits to humans provided by the natural environment and from healthy ecosystems, including agroecosystem, forest ecosystem, grassland ecosystem and aquatic ecosystem.

Laura Bosch Ferreté, sustainable investing specialist, Robeco, said that “It’s estimated that half of global GDP depends on these natural services that we get from biodiversity. That figure is actually higher here in Asia Pacific. Two-thirds of the regional GDP strongly depend on these natural services that we get from ecosystems.

“The challenge that we see is a strong decline on the quality of these ecosystem services, and also erosion of the number of species that we have on Earth. That’s certainly worrisome.

“We’re using more resources than what nature can actually regenerate within a year. That’s very fundamental, also for the financial industry, to understand that we need to take into account the actual value of nature and integrate that in the way that we value the investee companies that we want to include in our portfolios, and also in the way that we allocate capital.”

Investing in biodiversity is game changing. Investing in biodiversity in Southeast Asia alone could mean more than US$2.19 trillion in benefits a year, according to the Academy of Sciences Malaysia.

Challenges of investing in biodiversity

“I think the biggest challenge that we face is that we don’t have a global goal for nature. We’ve seen that with the topic of climate change, when the Paris Agreement was consolidated, there was a clear metric and end goal. Now, all the different stakeholders are figuring out how to (reach net zero) by 2050. At the moment, we don’t have that goal for nature,” said Ferreté.

“That’s why all eyes are on COP 15 (15th meeting of the Conference of the Parties), happening in December, in Canada, where global leaders will come together, and will really talk about putting together a framework on what type of biodiversity goals we need to achieve globally.

“The challenge here is that biodiversity is a complex issue. It’s not going to be a CO2 emission metric and we need to reduce that by 2050. It’s going to be much more complex than that. They are talking about like a range of goals that they want to set up, like reversing nature loss by 2030, and having like 30 percent of conservation on different ecosystems.

“If we want to achieve that, it’s going to require a wider range of tools, for investors as well, on how we start measuring the overall ambitious level of our investee companies to achieve that target. I think the only way to achieve that is if we have that sort of agreement, from COP 15, and we work together with companies and with governments to really find solutions.”

“The political factor is a concern,” said Kelvin Chiu, founder and principal, Silverstrand Capital. “I think we could have better institutions, better environmental laws, of course, better enforcement, and so on. It’s worth focusing on the root cause of biodiversity loss, and that’s the food system and land use change.

“We still have an incessant rise in the demand for global commodities, whether that’s palm oil, rubber, timber here in Asia, or soybeans and cattle in the Amazon, for example. How do we manage that when global populations are rising, diets are changing?”

Chiu raised the importance of customer awareness and understanding the “price on the negative externalities that industrial agriculture generates”.  In order to salvage biodiversity, consumers may need to change their diet, for example, cutting down on meat which is not regeneratively grazed.

“My biggest fear is short-termism,” said Tanoto, “that people start thinking quarterly, even annually.” He recalled seeing an article stating BlackRock is taking a step back on ESG, because of the Ukraine Russia war.

“Sustainability and biodiversity take time. It takes commitment, and it takes years and years to implement. If companies are held in a capital structure that rewards quarterly earnings only, then it’s very, very difficult to invest in biodiversity.”

Hope for the future

“We (now) have a financially sustainable way of doing conservation, of protecting nature,” said Chiu when asked about the hopes for the future. “It’s the carbon markets, its regenerative models, and also, I think we are getting to the stage, we’re at the precipice of change here, where society increasingly recognizes that net zero is no longer enough. We have to move towards nature positive. That’s a very good direction we’re heading to.”

“What I think is very positive is to see the overall rise on awareness from the investor community on this topic,” said Ferreté. “The launch of the Nature Action 100, that’s going to be an investor collaborative group, really engaging with those companies, 100 companies that have the most negative impact on biodiversity loss.

“I think these examples are great to showcase how we can also play a role in trying to find solutions and really nudge our investee companies to implement more sustainable business practices, and also, for example, embrace regenerative agriculture as a tool for those companies in the agricultural sector to mitigate a bit of negative impact on nature.”

“The younger generation, whoever is consuming, needs to make the right decision, and I hope that regulators can point us the right way, which are the products that are really sustainable, and which are the products that are trying to be sustainable,” said Chiu.

Photo credit: iStock/Wand_Prapan

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