24 May 2021
May 2021 | Responsible Investment Team, Investment Content team
Biodiversity is the variety of life on Earth – it is nature in all its forms and interactions, from genes, to species, to entire ecosystems such as rainforests and coral reefs. It is essential for human life: the air we breathe, the water we drink and the food we eat all rely on it. It is also fundamental to our global economy: roughly half of the world’s GDP is highly or moderately dependent on biodiversity. But humanity is destructing biodiversity at a scale that’s pushing nature to the verge of breakdown.
Measuring biodiversity is a complex task that can’t be figured out in one simple sum – but the following are good indicators:
Biodiversity loss began to ramp up during the 18th century industrial revolution, but over the past 50 years it’s become unsustainable, leading to the stark figures above. The expansion of global trade, increasing levels of consumption, human population growth and rapid urbanisation are considered indirect drivers of biodiversity loss – but make no mistake: they are huge shifts in human values and behaviours that cause the direct drivers of biodiversity loss, such as changes to the way we use the land and sea, exploitation of natural habits, climate change and pollution.
Biodiversity loss is an interconnected issue that seriously threatens the achievement of the United Nations Sustainable Development Goals. We can’t combat climate change if we keep destroying our forests and coral reefs, which help to regulate our planet’s temperature; we can’t eradicate hunger if food becomes more scarce; and we can say goodbye to reducing inequalities because loss of biodiversity especially hurts the poorest people who depend on it.
We also must bring indigenous peoples into the conversation. Comprising less than 5% of the global population and protecting 80% of biodiversity, any damage to the ecosystems in which they live threatens their livelihoods and wellbeing, while severely undermining their rights to land. Biodiversity loss is a gendered issue too: in many rural and indigenous communities, women are the primary land and resource managers, with a wealth of knowledge of their local ecosystems. Again, any damage to their surrounding environment can have an especially negative impact on them. Meanwhile, both indigenous peoples and women remain underrepresented in environmental and sustainable development decision-making. Including their perspectives and ensuring their participation in decisions could help drive better solutions.
Biodiversity loss must urgently rise up investment agendas. But gaps in understanding remain around the science behind biodiversity, how business operations and investment decisions affect or depend on nature, and what the associated risks are.
A more universal agreement about how to disclose nature-related dependencies and impacts would help investors to decide which companies are the best stewards of biodiversity and identify the laggards to engage with for positive change – something being pioneered by the Taskforce on Nature-related Financial Disclosures.
Meanwhile, recent tragic events have demonstrated just how connected we are to nature. Various recent wildfires, and of course Covid-19, can all be linked to human activity that caused environmental degradation – and all had a direct negative impact on society and economies.
There’s also rising awareness of the huge investment opportunities available: transitioning to a nature-positive economy could generate up to US$10.1 trillion and create just shy of 400 million jobs by 2030. There has already been an explosion of creative tech solutions, from tree-planting drones to satellites monitoring animal species. Meanwhile, regenerative agriculture practices are improving soils, protecting the environment and enhancing ecosystem services.
Our global food system is the main driver of biodiversity loss, and therefore needs urgently addressed. To help drive positive change, we’re members of both the PRI-Ceres Investor Initiative for Sustainable Forests and the PRI Investor Working Group on Sustainable Palm Oil (both are now under transformation into new initiatives). In 2020, we engaged 52 companies to drive more sustainable practices in food production and consumption – read our ESG Viewpoint to discover details and key findings. We’re also a member of the FAIRR Initiative – a collaborative investor network raising awareness of the ESG risks and opportunities brought about by intensive livestock production, which targets food retailers and producers. Learn more about this initiative in our podcast episode.
The Dasgupta Review recommends an integration of the value of nature’s goods and services into accounting systems, and a rebalancing of the economy to ensure demand on nature does not exceed its sustainable supply. We’ll use the findings of the report to inform our engagement on valuing ecosystem services and assets as part of company biodiversity strategies.
This year, we’re continuing our engagement with the food industry and expanding our dialogue with companies in other high-impact industries, such as household and personal products, extractives and chemicals. We’re aiming to assess companies on their overall approach to biodiversity, to understand how business models are dependent on biodiversity and ecosystems, and to mitigate impacts. We’re specifically focusing on curbing deforestation and land-use change linked to the production of agricultural commodities and to mining and associated activities; on the responsible use of pesticides to prevent terrestrial and aquatic biodiversity decline; and on waste management to tackle air, land, water and marine pollution.
Putting things right will take collaborative action by every nation on earth. It will require international agreements to change our ways. Each ecosystem has its own vulnerabilities and requires its own solutions. There has to be a universally shared understanding of how these systems work, and how those that have been damaged can be brought back to health.
David Attenborough, Dasgupta Review, 2021
Risk warnings
The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.