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Biodiversity investing: three drivers of alpha

13 October 2023 |
Protecting biosystems is an obligation for responsible investors but we believe it can also bring long-term rewards.

For glass-half-full enthusiasts, a scan of recent headlines about the health of our planet makes for grim reading. Not only was September the warmest on record, but the northern hemisphere experienced its hottest summer since records began. Globally in 2023, the world is on track for temperatures far in excess of the long-term annual average.1 The result? Extreme weather events such as the wildfires that devastated parts of Canada, Tenerife and Hawaii this year. Even Burning Man, the multi-day mega festival beloved by Silicon Valley’s elite, succumbed to extreme weather when its Nevada location was hit by unexpected flooding.

Meanwhile, global biodiversity loss remains a constant. According to the United Nations Environmental Programme, more than one million plants, animals and other living things face the threat of extinction because of our impact on the world’s ecosystems. In its most recent Invasive Alien Species Report, the UN noted that humans have introduced more than 37,000 invasive species, many harmful, into biomes around the world. These intruders have been a major factor in 60% of all extinctions, costing the global economy more than US$423bn annually2.

Such is the human impact on nature, scientists believe we are now entering a new geological epoch, the Anthropocene. As the year’s extreme temperatures illustrate, we are already edging towards the red zone – and what we do from here will determine the liveability of the planet for generations to come.

Yet amid the gloom there is hope. The Kunming-Montreal Global Biodiversity Framework adopted by 188 government signatories during COP15 in 2022 is one example. The framework, which includes concrete measures to halt and reverse nature loss, aims to put 30% of degraded ecosystems under protection by 2030.


Every economic value chain – each item of food we consume, every drop of water we drink – relies on biodiversity and ecosystems working together in equilibrium.


Similarly positive is the EU’s Nature Restoration Law, which passed in the face of fierce opposition earlier this year3 and intends to rewild a fifth of the EU’s land and sea habitats from 2030 at the latest.

Despite some recent setbacks around the green narrative, it’s become clear that the risks associated with biodiversity loss are being recognised by governments and consumers and that change is taking place.

This should come as no surprise. Every economic value chain – each item of food we consume, every drop of water we drink – relies on biodiversity and ecosystems working together in equilibrium. Globally, the value of those systems has been variously estimated at between US$120-145tn annually – a sum larger than the world’s GDP.4

It’s against this backdrop that our Biodiversity Equity Strategy recently celebrated its launch anniversary. A pioneer in its field, the strategy’s starting point is that, as responsible investors, we have both the obligation and the opportunity to invest in a way that not only protects but also enhances biodiversity. More than that, we believe we can do so and be richly rewarded.

The three structural drivers of alpha in biodiversity

Over the long term, we have identified three structural drivers of long-term value around the theme of biodiversity:

  • We believe corporate ‘biodiversity champions’ will emerge and benefit from superior rates of growth. New regulations that seek to address biodiversity loss will be the main driver of this. Here, a good example is the EU’s Deforestation Regulation which from next year will require companies trading in commodities such as cattle, cocoa, coffee and wood, to conduct extensive due diligence on their supply chains and ensure they come from sustainable sources. Consumers – who are increasingly aware of the biodiversity imperative – will also play a part as they hold companies to account for their actions. The resulting surge in demand for solutions to the problem of biodiversity loss will provide a tailwind for the companies that can provide them. In a world starved of growth opportunities, we see this as a compelling bright spot with valuations that right now are extremely attractive.
  • Regulatory change will directly benefit biodiversity champions. Companies already well-placed to comply with tighter regulation and legislation around biodiversity will experience a competitive advantage against peers that are not prepared for change. We believe this will allow them to out-earn competitors, and deliver stronger returns.  
  • Over the long term, a valuation premium will emerge for biodiversity champions. As investors become more aware of biodiversity as a theme and its benefits, capital flows will gain their own momentum. We’re delighted to have started early and to have built our strategy at this point when this ‘green’ dividend is yet to be fully realised.

Our approach

With these structural tailwinds in mind, our approach is seek out companies that respond to specific needs in the realm of biodiversity.

Can we, for instance, find businesses which help green and brownfield developers identify areas of biodiversity importance and therefore mitigate building risks? Can we invest in businesses which remove food waste from fast-moving consumer goods (FMCG) value chains, or provide machinery to increase the yield of the harvest cycle? Can we invest in businesses which are producing biodegradable or less harmful pesticides and chemicals?

In each case, there are companies within our portfolio that service meet these challenges. To learn more about them and to understand how we are investing today for the planet of tomorrow please read our latest Biodiversity report.

The ECB’s view on the potential financial cost of biodiversity

  • 72: Percentage of eurozone companies financially exposed to biodiversity loss.
  • 75: Percentage of eurozone bank loans exposed directly and indirectly to the same.

Sources: EXIOBASE, ENCORE, AnaCredit and ECB calculations, 8 June 2023.

For additional information on how we are investing for life and the planet, please read our investment page.

1 Source for temperature data: ERA5, C3S/ECMWF, BBC: ‘Warmest September on record as ‘gobsmacking’ data shocks scientists’, 5 October 2023.

2 Media Release: IPBES Invasive Alien Species Assessment | IPBES secretariat

3 Financial Times: ‘EU rewilding plan survives centre-right challenge’, 12 July 2023.

4 See World Economic Forum: ‘How much is nature worth?’, 30 October 2018.

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