Why should the investment industry care about biodiversity loss? 

Biodiversity loss is consistently highlighted as one of the top global risks in terms of its impact and likelihood in the next 10 years.1 Yet the issue is still not widely understood or managed, it has been overshadowed by climate change and it often does not get the headlines it deserves.2  

Human activity towards economic growth has taken its toll on biodiversity – according to the New Nature Economy Report by the World Economic Forum3: a third of the world’s topsoil has been degraded, 32% of the world’s forest area has been destroyed, at least 55% of ocean area is covered by industrial fishing and there is a rapid decline in the population of mammals, birds, fish, insects, reptiles and amphibians. Four out of nine planetary boundaries4 used to define a “safe operating space for humanity” have been exceeded. 

To maintain our current living standards and growth rates, one Earth is not enough. The Dasgupta review found that between 1992 and 2014 produced capital per person doubled, and human capital per person increased by about 13% globally, but the stock of natural capital per person declined by nearly 40%.5 This trend suggests that the way markets have been operating up to now is not sustainable in the long term. The true value of goods and services nature provides is not reflected in market prices creating pricing distortions and leading to underinvestment in natural assets. 

The biosphere is the foundation of economies and societies and the basis of all Sustainable Development Goals (SDGs). Nature loss threatens financial stability and poses a systemic6 and non-linear7 risk which is likely to impact financial returns in the future and increase volatility. Economic growth at the expense of the environment and the biosphere is unsustainable in the long term. 

The Taskforce on Nature-related Financial Disclosures (TNFD) also introduces risks and opportunities for the financial sector. This likely incoming biodiversity regulation has possible reporting implications and aims to enable financial institutions to integrate nature into decision-making.    

Addressing biodiversity remains a major challenge for the investment industry. Investment organisations already have limited governance budgets which are taken up by climate change, there is a lack of data and regulation and it’s difficult to measure the impact. However, biodiversity risk is rising in investment conscience. Reputational risk and social licence to operate considerations are growing over time. The investment industry has an opportunity for impact through stewardship, lobbying and looking for solutions to target climate change in conjunction with biodiversity through nature-based solutions, such as regenerative agriculture and land use and deforestation solutions. This requires innovative thinking, and addressing both creates co-benefits which are captured in the 17 SDGs. It also makes sense, as according to the UN CCD report “Global Land Outlook 2”, nature can provide more than one-third of the cost-effective climate mitigation needed to limit global warming to 1.5°C.8  

We, as humans, and our economies are embedded in nature – we are part of the ecosystem and depend on it significantly. We can look at nature as having intrinsic value to us, irrespective of its ability to provide a monetary return, or instrumental value, where it is preserved for monetary gain and extraction of services. The intergenerational effect of biodiversity loss makes this issue complex. Looking at biodiversity as a multigenerational problem makes it difficult to approach it solely through an instrumental lens – biodiversity’s value is not just the value we derive from it and isn’t something that can be measured in monetary terms. We therefore should be accounting for the value that future generations will want to derive from it too. 

In the investment industry, we often find ourselves entering into a transactional relationship with nature and it is important we find the middle ground between both intrinsic and instrumental values. We need to find a way where what economic models dictate and what we might really desire for ourselves and our children is aligned.