22 May is International Day for Biological Diversity, a call to action for investors and other stakeholders to halt and reverse the loss of biodiversity. The theme this year is ‘Be part of the plan’ by supporting the implementation of the Kunming-Montreal Global Biodiversity Framework, also referred to as the Biodiversity Plan.
Among the causes of biodiversity loss are mankind’s pollution and climate change. Yet, our existence depends on healthy ecosystems. Without biodiversity, our living conditions and the global economy would be severely impacted.
Biodiversity refers to the diversity of genes, species and ecosystems that comprise life on Earth and offer benefits that mankind depends on. It also plays a crucial role to sustain our economies, society and culture.
Investors have a role to play
There is growing awareness of the need for economic actors to participate in preventing biodiversity declining at the current rate. The European Union’s Sustainable Finance Disclosure Regulation, the US Inflation Reduction Act and the Global Biodiversity Framework are all recent examples of major initiatives to protect and restore biodiversity.
Companies can contribute to the effort by developing innovative solutions to address biodiversity loss. They can better prepare for the increasing regulatory environment and increasing tax liability risks as well as potentially benefiting from capital flows directed at solutions.
Companies also need to better understand their exposure to nature-related risks (physical, transition and systemic risks), which might affect their operations.
Dangerous levels of decline
Between 1970 and 2018, the decline of population sizes of mammals, birds, amphibians, reptiles and fish is estimated to amount to 69%. The current pace of biodiversity loss is greater than at any other time in human history.
The Intergovernmental Platform on Biodiversity and Ecosystem Services identified the main drivers of biodiversity loss as:
- Land and sea-use change, increasing habitat loss
- Overexploitation of natural resources
- Increasing levels of pollution
- Climate change
- Invasive species driving out endemic species.
As these factors continue to grow at an unsustainable pace, nearly one million species are currently at risk of extinction, many within decades.
Biodiversity loss impacts businesses with potential transition and physical risks as well as litigation and regulatory risks, all of which can affect the value of investments.
Assessing the impact on investment portfolios
In our view, and as highlighted in our biodiversity roadmap, it is increasingly important to understand and assess the potential impact of biodiversity loss on an investment portfolio.
This is particularly important for sectors with higher biodiversity dependencies and/or impacts. Energy, mining & metals, utilities and food & beverages are among those most exposed to risks arising from biodiversity loss.
However, such risks are not confined to these sectors. Other areas that could be hit include pharmaceutical research, where new active ingredients and molecules in plant and ocean organisms are often critical elements in developing new treatments. In particular, they offer scope for innovation and identifying treatments for human pathologies or treating antibiotic-resistant bacteria. Maintaining biodiversity is vital to maintaining our ability to develop and innovate in these fields.
A World Economic Forum report states that 25% of drugs used in modern medicine are derived from rainforest plants, while 70% of cancer drugs are natural or synthetic products inspired by nature. What this means is that extinction of a species eliminates a potential new medication.
Overall, the consequences of biodiversity loss are much broader. Fundamentally, declining biodiversity undermines economic activity and ultimately our prosperity.
In the same report, the WEF estimated that USD 44 trillion of economic value generation – more than half the world’s total GDP – depends moderately or highly on nature and its services and is exposed to nature loss.
Focusing on companies that walk the talk
The Earth Summit in Rio de Janeiro in 1992 put biodiversity on the global economic agenda. Since then, many governments have moved to accord greater importance to sustainability and placing it at the centre of their programmes for economic development. We believe economic activity can be shaped and calibrated to reduce its impact on biodiversity.
Investors can contribute by allocating capital towards biodiversity-related strategies. BNP Paribas Asset Management provides a range of solutions targeting biodiversity-related challenges including an exchange-traded fund (ETF) strategy.
For more articles on exchange-traded funds, go to the ETFs category on Viewpoint.
