The world is currently experiencing the largest loss of life since the dinosaurs due to human activity. According to WWF, there has been an average decline of 69% in species populations since 1970. Research shows that the two largest drivers of biodiversity loss are changes in land and sea use, and exploitation of animals and plants for food and materials. Looking at it from the industry perspective, agriculture, forestry, fishing and ocean-based aquaculture together cause nearly three-quarters of species loss. To halt the trend, world leaders agreed on the UN Biodiversity conference in 2022 that 30 % of the Earth’s surface shall be protected by 2030.
Unsustainable human development is putting up to one million species at risk of extinction within a few decades according to the United Nations, a rate not seen in 10 million years. Although it is very complex and not really meaningful to put a monetary value on nature, there are some telling figures that could illustrate the magnitude. According to the World Bank, more than 50% of global GDP depends on natural resources such as water and other raw materials. Also, when ecosystems collapse or diminish locally or in a region, it will likely have cascading effects along supply chains. This could then lead to inflationary pressures and even systemic financial risks.
With political will to protect and restore nature, companies contributing to biodiversity loss face increased regulatory risks. With risks come also opportunities to invest in companies that support the sustainable use and protection of nature’s resources. The World Economic Forum estimates these business opportunities to be worth up to USD 10 trillion annual by 2030.
With political will to protect and restore nature, companies contributing to biodiversity loss face increased regulatory risks.
From a risk management perspective, investors are wise to consider how dependent investee companies are on nature in their value chain, for example their use of renewable resources. It is also important to look at biodiversity from the other angle: to what extent the investee companies’ production and final goods affect biodiversity – both negatively and positively. Some sectors and geographies are more risky than others. For instance, a beverage or mining company operating in a water stressed area entails a high risk, as well as a meat or soy producer in the Amazon. Companies working to reduce their biodiversity footprint and restore degraded land or water are better positioned for the future.
The term “nature-positive” is used to describe an approach that enriches biodiversity, stores carbon, purifies water and reduces pandemic risk. In short, a nature-positive approach enhances the resilience of our planet, our economies and societies.
Investors can for examples look for companies that produce certified products (for example organic food or FSC certified furniture), or companies that develop solutions to regenerate natural resources or mitigate negative effects. This includes companies that purify water or provide technologies for more sustainable agriculture. Social and governance factors should also be considered by looking at policies, commitments and targets in relation to biodiversity and local communities, not least indigenous people. Engagement, for example voting at general meetings, can be used to revise business models or operations to be more circular.
Nordea recently added a thematic biodiversity fund to our offering. The fund will invest in companies that intend to use natural resources and ecosystem services in a more sustainable way than their peers. Also, the fund selects companies with technologies, goods and services that help reduce biodiversity loss or restore natural habitats. You can read more about our thematic fund offering in the netbank in Denmark, Norway, Sweden and Finland.
