Due to climate change, we have become accustomed to the concept of reducing our ecological footprint and the goal of net zero emissions. However, the biodiversity crisis is not yet a familiar term for many, although it is acutely endangered. With this, the long-term investment opportunities as well because it is the foundation of many aspects of our lives. Unfortunately, this is still not recognized by the short-sighted and greedy actions of mankind. But protecting and restoring biodiversity creates opportunities!
Disclaimer: I am NOT a financial advisor. I’m using information sources believed to be reliable, but their accuracy cannot be guaranteed. The information I publish is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. You are advised to discuss your investment options with your financial advisers, whether any investment is suitable for your specific needs. I may, from time to time, have positions in the securities covered in the articles on this website.
Protecting Ecosystems Helps With Sustainability And Investment Goals
Joni Mitchell’s line of text dates back a few decades, but it could come from today: “They paved paradise and put up a parking lot”. Humans have increasingly encroached on and depleted the planet’s natural resources by clearing forests, overfishing the oceans and polluting water sources. Since 1970, when Joni Mitchell released her hit “Big Yellow Taxi,” global mammal, fish, birds, reptiles and amphibian populations have declined by a staggering 68 percent.
But the consequences of successfully destroying the biodiversity should not be underestimated. The term “biodiversity” used in this context describes the interaction of all life forms, resulting in an ecosystem that is balanced and preserves life. It is the basis of the natural resources for our survival: food, clean water, medicine and shelter. In addition to meeting these basic human needs, protecting and restoring ecosystems can also make a significant contribution to achieving the United Nations Sustainable Development Goals (SDGs). And as with the issue of climate change, which is gaining global attention, biodiversity-focused solutions can benefit businesses, investors and society at large.
Can We Quantify Biodiversity?
It’s easy to understand how important biodiversity is. However, its measuring is less easy. But some have tried, and their results are more than enlightening. The World Economic Forum and Swiss Re estimate the total value of biodiversity at more than USD 44 trillion, which is around twice the US GDP and more than half of the global GDP.
If this estimate is nearly realistic, it is absolutely clear that damaging our natural capital would be foolish and very costly in the long run. The Dasgupta report, which describes the hidden costs of destroying natural assets as an obstacle to long-term value creation, also goes in this direction.
From Bees To Mangroves: Biodiversity As Development Multiplier
Studies have shown that combating the biodiversity loss, taking into account cross-goal benefits and adverse trade-offs, has a strong positive impact on the overall United Nations SDG agenda. On the other side, the current loss of biodiversity and massive degradation of ecosystems are hampering the progress on 80 percent of the SDG targets related to life on land, aquatic life, water supply, health and poverty.
Bees, for example, are considered an essential part of the food system, as 35 percent of the world’s production of the food we eat relies on natural pollination. Global crop yields worth between $235 billion and $577 billion per year are at risk from pollinator loss. Their importance to SDG 2 (Zero Hunger) is so clear that some people see their endangerment as a threat to human existence. Soil health and quality are also crucial for the fertility and yield of agricultural land. And soil exhaustion has already reduced the productivity of 23 percent of the global land area.
Due to their ability to capture and store CO2, mangroves act as a natural climate change retarder. But they also stabilize coastal areas and protect against tsunamis and coastal erosion as well. But as the loss of coastal habitats and natural protective functions increases the risk of flooding and storms to the life and property of 100 to 300 million people living in coastal coastal floodplains, mangrove conservation is an obvious choice.
Fishing and/or tourism are essential for the survival of some population groups living near the coast. Hence, healthy and comprehensive marine resources are crucial to protect them from impoverishment in line with SDG 1 (“No poverty”).
For the rural population in emerging countries, this is also an issue of gender equality, because it is primarily women who – in contrast to men who perform other tasks – are dependent on biodiversity resources/forests for their income.
The United Nations are giving a high priority to the protection and sustainable use of the seas, rivers and lakes as well as the protection, reforestation of our mother Earth’s forests. That’s why they formulated it as their own sustainability goals, namely SDG 14 («Life below water») and SDG 15 («Life on land»).
Why Do Investors Need To Care About Biodiversity?
Some say biodiversity may be “the new climate”. The reason for this statement is that many of the SDGs cannot be achieved without protecting or restoring biodiversity. This also applies to the climate goals, which the world is already paying a lot of attention to.
Urgent action is therefore required to protect natural ecosystems. This includes governments creating incentives that reward their protection and preservation but sanction violators. Political attention could prompt companies to adjust their strategies and provide EPS growth for companies that are on the safe side.
There are already some developments could be achieved. For instance, incentives for clean energy changed the game rules for investors. If this repeats, biodiversity-focused solutions could prove an attractive long-term investment opportunity. By investing in problem-solving companies, investors can not only help protect biodiversity, but also potentially capture long-term growth opportunities and generate solid financial returns.
The Wish List For The COP15
The fifteenth Conference of the Parties (COP15) on the Convention on Biological Diversity took place in December 2022. The draft of the global framework for post-2020 biodiversity sets targets for action by 2030, including:
- Protection of at least 30 percent of all global land and sea areas
- Restoring at least 20 percent of all degraded freshwater, marine and terrestrial ecosystems
- Reduce introduction of invasive alien species by 50 percent
- Reducing nutrient losses to the environment by at least half
- Reducing pesticide use by at least two-thirds, and eliminating plastic waste runoff completely
- Natural contributions to climate protection amounting to at least ten giga tonnes of CO2 equivalents per year
As investors, we want to see progress in measuring and monitoring the biodiversity footprint of countries, companies and hence, funds and other financial products. The Mean Species Abundance (MSA) indicator is can play the same role in terms of the biodiversity footprint as greenhouse gas emissions in terms of climate.
However, it is difficult to find MSA data at company level and concrete actors and actions responsibilities or good development to assign. Many initiatives are underway to establish methodological standards and ultimately recommendations for reporting.
Some of the most notable among them are the Task Force for Nature Related Financial Disclosure (TNFD), the EU Taxonomy, the Climate Disclosure Standards Board (CDSB), the Biodiversity Impact Analytics powered by the Global Biodiversity Score (BIA-GBS) and the Corporate Biodiversity Footprint (CBF).
Resolving their differences may be challenging. Hence, clear guidance from higher authority and harmonization would be helpful on the part of COP15.
In addition, there is an observable current attention of many governments focused on major geopolitical issues like the energy crisis, the cost of living, food crises and other important challenges. This has in some cases led to a temporary setback in the pursuit of organic land (e.g. the EU’s 2030 Farm-to-Fork (F2F) strategy announced in May 202012).
Alghought solving the food crisis is also an urgent goal, there is obvious that policymakers also have to recognize the importance of nature-centric solutions and the importance of environmental planning, smart farming, organic fertilizers, plant-based nutrition, second-generation biofuels, waste management and the circular economy will acknowledge.
Investors who identify and invest in promising companies with solutions in these areas can look forward to a double win: attractive long-term returns while supporting biodiversity which is preserving the total value of all natural resources of our planet.
Related Stock Selection
If you would like to invest in some stocks taking action on biodiversity, I’ve got an overview for you. You may be surprised to find some of them you never thought that these ones would ever show interest in sustainable investing or biodiversity. Please consider this selection not as a final one but as an inspiration and motivation for further and deeper researches before you make a final decision.
- Engie (ENGI)
- Philip Morris (PM)
- AGCO Corporation (AGCO)
- Evoqua Water Technologies (AQUA)
- Danone (BN)
- Xylem (XYL)
- Tetra Tech (TTEK)
- Christian Hansen Holdings (CHR)
- Smurfit Kappa Group (SKG)
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