Retrospective: Focus on biodiversity

31-07-2024

Watch the videos of our first thematic event held on 28 June 2024, in Brussels.

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Our first thematic event, held in Brussels on 28 June, brought together a number of international experts to take stock of the integration of biodiversity into investment decisions. The event gathered representatives from civil society, asset managers, think tanks, academics, and policy makers. Here are some key takeaways from the presentations and the discussion panel that followed.

“The climate crisis and the biodiversity crisis are inherently linked,” said Sebastien Godinot, Senior Economist at the WWF European Policy Office. “Through the Green Deal, Europe is taking the lead in terms of regulation. However, there's still work to be done. Reporting should never be an end in itself. The ultimate goal is transition. On the other hand, there's no excuse not to report, especially concerning biodiversity. Numerous tools are available to monitor nature-related risks.”

Thanks to the guidelines from initiatives like the Taskforce on Nature-related Financial Disclosures (TNFD), businesses and the financial sector can assess, report, and act on their dependencies on nature and the associated risks and opportunities. This enables them to integrate nature into their decision-making in line with the Global Biodiversity Framework.

“The Kunming-Montreal Global Biodiversity Framework is akin to the Paris Agreement, but focussed on nature and biodiversity,” said Diane Roissard, Head of Data and Corporate Engagement at the Finance for Biodiversity Foundation. The foundation was established in March 2021. Members can gain and share knowledge through five working groups: corporate engagement, impact assessment through biodiversity measurement and data, public policy influence, target setting, and positive impact. “Our members are committed to setting goals by 2026 at the latest,” said Roissard. “These goals must be achieved by 2030 at the latest.”

“Lack of a complete data set is no excuse to procrastinate,” said Emine Isciel, Head of Climate and Environment at Storebrand, Norway's largest private investor. “Land use is a critical yet often overlooked aspect of both climate change and biodiversity loss. When we wrote the Storebrand Deforestation Policy in 2019, no major data provider included deforestation data in their analyses. Since then, various organisations have joined forces in ForestIQ, allowing us to screen around two thousand companies for deforestation impacts.”

The importance of tackling deforestation is evident. Rainforests cover just 6% of the Earth's surface but contain over half of all biodiversity. Moreover, 15% of greenhouse gas emissions are linked to land use. The four main risk sectors related to deforestation and biodiversity loss are soy, palm oil, beef, and timber, accounting for 80% of deforestation.

“Financiers often focus on energy or transport,” Isciel noted. “Deforestation also impacts specific sectors: clearing rainforests alters rainfall patterns, directly harming the livestock farms responsible for the deforestation. By the end of next year, we aim to eliminate all deforestation from our portfolios.”

Isciel also refuted the idea that sustainability isn't a financial consideration. “Companies' cash flows depend on ecosystem services like crop pollination and water purification. It's absurd to think that financial prosperity can continue amid further environmental degradation.”

Lucian Peppelenbos, Climate & Biodiversity Strategist at Robeco, echoed Isciel's sentiments. “These are systemic risks. Financial wealth is based on nature.” However, the task for asset managers focused on biodiversity is challenging.

“There are about 45,000 publicly listed companies we could invest in. A survey by a Dutch impact fund among investors and NGOs found that only four out of these 45,000 companies were considered nature-positive. So, we assess each sector's leaders and categorize companies into four groups. Yet, the situation is rarely black and white. For instance, Danone is exemplary in deforestation and plant-based proteins but lags in plastic use and recycling.”

“There are three concrete ways to preserve biodiversity by investing,” said Godinot. “Firstly, through the Hippocratic principle of 'do no harm.' This means no deep-sea mining, no replacing forests with plantations, and a complete halt to fossil fuels.”

“But there's a significant inconsistency in European regulations,” Peppelenbos interjected. “Europe allows new gas extraction in the North Sea but prohibits financial institutions from investing in it.”

Another way to achieve the transition is by 'doing more good.' Investments must outperform the current benchmark, which is not straightforward.

“We see a significant lack of funding for nature-based solutions like organic farming,” Godinot remarked. “Agriculture is to biodiversity what fossil fuels are to the climate. It's responsible for two-thirds of biodiversity loss.”

Godinot also pointed to what he calls 'legacy harm': existing infrastructure that needs to be adapted (like buildings) or dismantled (such as coal mines). Not all companies have developed a transition plan for this.

“Additionally, shareholder engagement must see a significant boost,” Godinot continued. “Some are serious, but many lack concrete goals or timelines, often just sending a few letters a year.”

“That's why we focus on intensive engagement with a detailed voting policy,” Peppelenbos said. A robust engagement policy is a strict requirement for obtaining the Towards Sustainability label.

Isciel concluded with a successful example of the salmon industry in Norway. “Salmon is fed with soy from Brazil. Although all the soy was certified, it turned out that three suppliers differentiated their deliveries: certified soy went to Norway, while the rest of the world received non-certified soy. Now, they only sell certified soy. This shows that voluntary actions based on investor engagement can truly make a difference.”