Insights et vue du marché
What is biodiversity? How can it be measured? And are investors interested in it at all? An overview.
In 1916, in a scientific paper called The Variable Desert, the biologist J. Arthur Harris described in awe the richness and variety of the plant life he had observed in the wild lands around Tucson in Arizona. There was, he wrote, "a flora rich in genera and species and of diverse geographic origin or affinity". Yet this, he went on, was "entirely inadequate as a description of its real biological diversity".
It wasn't until 1988 that another scientist joined those words to create a portmanteau: biodiversity. But Harris had been among the first scientists to realise that the variety and variability of nature itself, be it in an American desert or a great ocean, is an indicator of the planet's health - and therefore the wellbeing and prospects of the human species.
Today the word is so ubiquitous in discussions of climate change and broader fears for our environment that it risks losing meaning. But it is only becoming a more vital barometer, given its links to, among other grave threats, pandemic resistance (recent studies have described how viruses spread less easily in areas with greater biodiversity).
Moreover, a lot of the drugs used in medicine are derived from natural sources, and it is thought that only a small fraction of the world's wild species has been explored as potential sources of new treatments. In short, reduced biodiversity is bad for us in multiple ways. The World Economic Forum estimates that more than half of the world's GDP is moderately or highly dependent on nature and its ecosystem services.
Efforts to stem declining biodiversity - a process of shrinking populations and extinction that has hastened alarmingly in the industrial age - have been fraught and the focus of repeated UN conventions and accords. Increasingly the financial community is facing scrutiny for its role in either contributing to that decline - or tackling it head on.
"It's really becoming a huge topic and only this year, starting maybe late last year," says Ursula Finsterwald, LGT's Head of Group Sustainability Management.
One of the reasons for the recent embrace of biodiversity as a subject for finance institutions has been the laser focus on carbon emissions targets. "Other topics kind of got lost a little bit because everybody only talked about climate change and limiting global warming to 1.5 degrees," Finsterwald adds.
This focus makes sense. Reducing carbon emissions will not only have a rapid effect on mitigating the climate crisis but - crucially for an industry that works with numbers - emissions are easy to measure, and therefore targets are easy to create (if not, as it turns out, easy to meet). "In biodiversity it's harder to get any data," Finsterwald explains. "It's much more complex and we need to develop standards to measure the loss."
The demand for such measures is growing as net zero targets are increasingly being seen by investors as non-negotiable rather than nice to have. They now want to know what biodiversity risks might be attached to an investment in a particular company, from obvious threats to biodiversity such as pollution and deforestation to more subtle side effects. "Investors know that to have such risks in their portfolio could have a negative impact on future returns," Finsterwald says.
Only last month the UN Environment Programme Climate Finance Unit launched something called the Land Use Finance Impact Hub alongside a Positive Impact Indicators Directory. It aims to help users, including impact funds, asset managers and debt managers, to identify and measure how land use investments generate positive environmental and social impacts.
Meanwhile the Species Threat Abatement and Recovery (STAR) Metric, developed by the International Union for the Conservation of Nature, measures the contribution that investments can make in reducing species extinction risk.
This move is being presented as something more positive than mitigating an impending disaster, as reaching desperately for carbon targets can sometimes feel. "Nature positive is the new net zero," read a headline in the Australian Financial Review earlier this month. "Nature positive" is a phrase being used for investment that boosts nature, including biodiversity, and its contribution to society.
Leaders in this burgeoning movement accept that much needs to be done for biodiversity risk to become as measurable as carbon emissions. After all, how do you compare, in cold hard numbers, the relative values of a bald eagle in Alaska and a common seagull in Australia? But as with so much in this space, there is no shortage of momentum.
Meanwhile, the once variable deserts of Arizona, where J. Arthur Harris had his brainwave, have been gripped by drought and record high temperatures in recent years. Threats include mining operations, urbanisation, water diversion and damming, as well as animal agriculture. Species of cactus, tortoise and salamander are among those now under grave threat. Hardier invasive species are moving in, threatening ecosystems and - yes - biodiversity. Change here can’t come soon enough.