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The biodiversity domino effect

Insight
10 August 2022 |
Active ESGStewardshipSustainable
Submerged cities and mass extinctions may feel 100 years away from anything we’ll ever have to witness in our lifetimes but for large swathes of nature and many communities, the emergency has already begun. Sonya Likhtman, EOS engager, outlines how and why investors can be a powerful voice for halting and reversing biodiversity loss.

The common goods of nature

There is growing awareness in the financial sector of the interlinked climate and biodiversity emergencies, and the potential impacts on economies and markets. Research suggests over 50% of global GDP is highly or moderately dependent on nature¹. Failure to act on these issues could result in collapsing food systems and loss of livelihoods, posing a systemic risk to the global economy.

All life on earth and all businesses, to varying degrees, are dependent on the common goods provided by nature. However, the role that nature plays has often been under-appreciated by companies and their investors – not only for its intrinsic and societal value, but also for the economic value that it underpins.

Covid-19 has been a wake-up call that our health, and that of our economies, are dependent on the health of the world’s ecosystems. The destruction of habitats through land-use change brings humans and animals into ever closer contact, which increases the risk of new infectious diseases being transmitted from animals to humans..

In 2020, we signed the Finance for Biodiversity Pledge, which now has 98 signatories that represent over €14tn. The Finance for Biodiversity Foundation was set up to support a call to action and collaboration between financial institutions on this important issue., We continue to co-chair the Finance for Biodiversity Foundation Engagement and Public Policy Advocacy working groups.

During 2021 and 2022 we contributed to the pre-COP15 discussions on the Global Biodiversity Framework (GBF) on behalf of the Finance for Biodiversity Foundation. We emphasised that the GBF should explicitly reference the role of the financial sector in halting and reversing biodiversity loss and stressed that the framework should require the alignment of public and private financial flows with the goals and targets of the GBF. We also asked governments to create an enabling regulatory environment so that the financial and private sectors can address biodiversity-related risks and opportunities

Closing the funding gap

Many companies and investors have been slow to wake up to the problem of biodiversity loss and, as a result, we are facing a global biodiversity funding gap of >$800m² per annum. The financial industry can play a key role in closing this gap through capital allocation and stewardship.

In 2021, we published a white paper, Our Commitment to Nature³, which set out our engagement priorities and outlined the extent to which investors’ and companies’ current approaches to nature are unsustainable.

We continue to make the business case for action and see investor engagement with companies as a key route by which biodiversity loss can be halted and reversed. We continue to call on companies to commit to having a net-positive impact on biodiversity throughout their operations and supply chains by 2030 at the latest. We expect this goal to be accompanied by strong governance, effective measurement, an impactful strategy, and regular disclosure.

We have also looked at the specific role that marine ecosystems4 play in regulating our climate and providing key services, such as the production of oxygen, and carbon sequestration. We identified five engagement themes for ocean sustainability: addressing the climate crisis, tackling pollution, transitioning to sustainable food systems, reversing the loss of biodiversity and protecting human rights.

With a small group of investors, we are also working to establish a Nature Action 100 initiative, which will facilitate collaborative engagement with companies that have the greatest impact on biodiversity.

Download our Stewardship Report 2021

1 Sources: IPBES Report (2019), EOS, Our Commitment to Nature (2021), WWF and ZSL, Living Planet Report (2020), Seven ESG Trends to Watch in 2021 | S&P Global (spglobal.com).

2 Global Canopy, The Little Book of Investing in Nature (2021).

3 Our Commitment to Nature | UK Institutional (hermes-investment.com)

4 Our oceans under threat | UK Institutional (hermes-investment.com)

Stewardship Report 2021

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