A WORD ON
SUSTAINABLE FINANCE
Preserving biodiversity: the emergency within the emergency
Equity fund manager
OFI INVEST ASSET MANAGEMENT
Biodiversity had long remained in the shadows of climate investment. But acting to preserve biodiversity has now become an emergency within an emergency.
In 2009, a Stockholm-based research team quantified the risks arising from humanity’s impact on the planet and, more to the point, the nine broad processes involved in the functioning of ecosystem Earth – climate, biodiversity, the forests, changes in land use, the freshwater cycle, ocean acidification, disruption of biogeochemical cycles, aerosols emissions into the atmosphere, and shifts in the ozone layer. Each threshold crossed destabilises the planetary environment. So far, six thresholds have already been crossed, including depletion of biodiversity.
Finance is, in fact, on the front lines, as, according to the International Monetary Fund (IMF), almost half of global GDP derives directly from ecosystemic services that nature provides to humanity, whether for supply of resources or regulation of nature, including pollination and regulation of erosion. Preserving biodiversity is accordingly a vital necessity for safeguarding entire swaths of the economy, and the capital requirements for preserving and restoring it are considerable.
Yes, it is. The main challenge is in obtaining scientifically objective and reliable data. As a matter of fact, measuring biodiversity is far more complicated than measuring climate. For investors, proper measurements are necessary to ensure that well-founded decisions have been made. However, this lack of maturity should not hold investors back. On the contrary, better to invest now with the certainty that in the coming months and years, data will becoming increasingly available. With this in mind, the managers’ task consists in building a solid methodology.
We began with the five current drivers of depletion of biodiversity, as defined by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES): changes in use of land and sea, overexploitation of resources, climate change, pollution and invasive species. We evaluate the degree of pressure exerted by companies’ business activities (low, medium or high) and the remediation measures they are taking.
To do this, we have selected 70 indicators, in order to score each company’s practices. We assign a bonus to companies whose products and services offer solutions for preserving, and even restoring, biodiversity. Behind this methodology, we are driven by a firm conviction – that failing to manage biodiversity will ultimately undermine companies’ financial health.
Ultimately, targeted returns remains a decisive criterion. Investing in sustainable thematics must not mean giving up on financial performance.
To pick stocks, we focus on three research pillars: our in-house model of analysing negative impacts on biodiversity, our analysis of ESG (Environment, Social, Governance) criteria and our financial analysis of companies. And, lastly, we build into our investments a process of dialoguing and engaging with companies, in order to support them in taking biodiversity more into account in their activities.
Biodiversity is in a condition of serious risk.
When fewer than 10 out of 1 million species are lost, depletion of biodiversity is deemed to have no major impact on the biosphere. However, this threshold has been exceeded by far, as the number of species going extinct is now estimated to be 10 to 100 times Victoria RICHARD WEILL greater.
Completed on 29/04/2024
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