Phoebe Stone, Head of Sustainable Investing
Effectively tackling climate change cannot be done without solving the challenge of biodiversity loss and degraded ecosystems. Whilst nature was not an official theme of this year’s UN climate summit, COP26 proved that there is too much overlap and interrelationship between the two areas to address them separately. There is also a growing understanding that the finance sector needs to view sustainability through the prisms of both climate and biodiversity.
Earlier this year, the UK Government acknowledged that we are in the midst of a “biodiversity crisis”, saying it was in “unprecedented decline”. Biodiversity is much wider than animal conservation and instead encompasses the delicate balance between all plant and animal species that exist on this planet. Just as we mitigate risk in portfolios by holding a diverse range of financial assets, biodiversity provides resilience to nature and humanity by reducing the risk of adverse weather and adapts to the changes in our world’s climate. Biodiversity is vital to human existence on this planet, including provision of food, water, clothing, real estate and medicine’s active ingredients. The global economy risks losing as much as $2.7 trillion a year by 2030 if countries continue to destroy biodiversity, impacting wild pollination, food from fisheries and timber from forests.
Within the solutions that must be part of a transition to a net-zero world, the emphasis at this year’s COP on the importance of nature was palpable. Nature-based solutions such as the restoration of degraded peatland not only enable the combat of climate change, but also help tackle biodiversity loss. Alongside focus from global leaders on biodiversity as an essential part of the transition to net-zero is a shift in terminology away from ‘clean tech’ and towards ‘climate solutions’. We are also seeing this reflected in the finance industry as dedicated climate strategies are investing not just in renewable technology but also in sustainable agriculture and businesses enabling a circular economy.
This shift towards climate ‘solutions’, capturing a wide range of underlying issues, also reinforces the interconnected nature of the United Nations Sustainable Development Goals. These are often presented to investors as siloed challenges that need a focused investment lens and thematic strategy to accompany it, rather than the interconnected set of issues they represent. There is a plethora of biodiversity-themed investment funds being launched which look to tap into this growing concern, and therefore market. But issues around biodiversity cannot be tackled by a single dedicated investment strategy. Legislation changes such as those hinted at during COP26, such as the promise by over 100 countries to eradicate and reverse deforestation by 2030, are crucially important. It is also essential that biodiversity indicators are increasingly considered as part of wider sustainability analysis by the investment industry.
During COP26, the Natural History Museum unveiled a Biodiversity Intactness Index (BII). This has been constructed over the course of eleven years by scientists who have mapped 50,000 species against 22,000 different ecosystems. Satellite images, using AI and geodata, of our planet can then be mapped against one of the 22,000 creating an index. This index reflects seasonal changes and show biodiversity loss over time. Country-level BII analysis has been published. Shamefully, the UK has only 53% of natural levels of biodiversity levels left, it is the country that scores the lowest out of the G7 and ranks in the bottom 10% in the world.
Whilst biodiversity touches 80% of the UN SDGs, less than 1% of companies consider UN SDG 14 (Life Below Water) and UN SDG 15 (Life Above Land) within their corporate strategy. Global United Nations summits are highlighting the importance of protecting and restoring our ecosystems, it is time that the investment industry also finds a way to better integrate it within sustainable investment frameworks. Perhaps pioneering work such as that from the Natural History Museum can help provide the transparency and data necessary to effectively do this.
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