INSIGHT by Gemma James, Head of ESG Issues at Principles for Responsible Investment (PRI). This article was originally published on unpri.org.
| The recently released Living Planet Report 2020 shows an alarming decline in the populations of mammals, birds, amphibians, reptiles and fish by 68% between 1970 and 2016. This trajectory was also reflected in the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) 2019 global assessment report which highlighted a global decline of biodiversity, issuing an urgent call for immediate action.
Biodiversity – the diversity of life on earth – is not a new issue, it continues to garner the attention of investors. Business and society benefit from the goods and services provided by biodiversity and ecosystem services. While investors plan to “build back better” post COVID-191, investors and investees are also contemplating the systemic risk that biodiversity loss can pose.
Investors are increasingly recognising the risks posed by biodiversity loss and the opportunities for them to play a role in reducing biodiversity loss and restoring biodiversity. Despite few investors integrating biodiversity into their investment processes, some are taking early action. The PRI, together with Global Balance, has conducted research to understand investor action on biodiversity and encouraged discussion and collaboration to halt the decline of biodiversity.
| Investors are taking early action on biodiversity
We found that investor action is aligned to some extent with the mitigation hierarchy stages which are: to avoid and minimise biodiversity loss, and to restore and seek positive outcomes for biodiversity. Activities include:
〉Tackling the biodiversity-related topics (e.g. pollinators and world heritage sites) and drivers of biodiversity loss (e.g. deforestation and climate change). For example, the Investor Initiative for Sustainable Forests engages on deforestation within cattle and soybean supply chains. Some investors also have agricultural commodity specific policies and commitments in place.
〉Applying biodiversity filters to negative screening to exclude companies with negative impacts on biodiversity.
〉A growing number of funds and bonds with specific biodiversity objectives. For example, Mirova Althelia’s Sustainable Ocean Fund channels investment into the ocean economy to help reverse the decline of marine ecosystems.
〉Developing biodiversity measurement approaches. At the beginning of 2020, a group of investment managers launched a joint initiative to develop a tool for measuring investment impact on biodiversity.
| How can action be scaled up?
The activities outlined above are encouraging and should motivate other investors to act. However, ‘bending the curve’ of biodiversity loss will require investors to scale up action. We need more investors to assess exposure to biodiversity risk, allocate capital to achieve positive biodiversity outcomes, and engage companies, service providers and policymakers on the issue.
Investors can invest in activities that restore and contribute to positive outcomes for biodiversity, as well as avoid and reduce biodiversity loss. A first step is assessing exposure to sectors associated with biodiversity risk. Mapping which business activities in their portfolios negatively impact biodiversity and are also dependent on biodiversity helps identify which activities contribute to the decline of biodiversity. Tools such as ENCORE are available to assist this analysis, which can then help investors focus on stewardship strategies and explore setting targets to avoid and reduce biodiversity loss.
A recent example of allocating capital to achieve positive biodiversity outcomes is a partnership between HSBC Global Asset Management and Pollination2. The partnership aims to establish natural capital funds, invest in activities at scale that preserve, protect and enhance nature over the long-term including biodiversity and wildlife protection and restoration.
Biodiversity is a systemic and portfolio-level risk, so stewardship strategies need to take into account sectoral and economy-level approaches.
For example, some investors have held dialogues with the extractives sector on adopting no-go commitments for World Heritage Sites and key biodiversity areas. Many mining, oil and gas companies have made these commitments but engagement with governments could enhance the effectiveness of the campaign. Governments continue to provide permits to companies, which have not adopted the no-go commitment, to operate in these areas. Therefore, areas of high conservation value are still at risk of being exposed to negative impacts on biodiversity.
Early engagement on biodiversity also offers the opportunity to share and understand good practice for managing biodiversity and what each stage of the mitigation hierarchy looks like at the corporate and sector level. There are a few examples of biodiversity specific engagements like AXA Investment Management and EdenTree Investment Management which focus on sectors that are considered high impact or dependent in their portfolios.
It is not just companies that investors can engage with, but with data service providers, green fund labels, green bond standard setters, commodity and certification schemes, to encourage the harmonisation of data sets, indicators and integration of biodiversity into existing standards. There are high hopes for a Task Force on Nature-related Financial Disclosures – TNFD – to bring rigour and consistency to address nature related risks and opportunities.
Biodiversity is beginning to make its way into sustainable finance policy but is still limited. There is an opportunity for investors to advocate for stronger policies and action from governments to clarify corporate reporting requirements on biodiversity, create conditions for harmonised biodiversity-related data, and provide incentives to disclose and manage biodiversity impacts. Policy makers can also be engaged on the drivers of biodiversity loss such as subsidies on activities that drive biodiversity loss, such as pesticides etc.
| Opportunities for colllaboration
There are many coalitions and collaborative opportunities for investors to get involved in and share learnings. Most recently, the European Business@Biodiversity Platform has developed the ‘Finance for Biodiversity Pledge’, which commits finance institutions to collaborate, engage, assess their impact, set targets and report on biodiversity by 2024. Several PRI signatories are signing up.
We hope that the PRI Discussion Paper: Investor action on biodiversity will showcase that it is possible and necessary for investors to take action on biodiversity and how some investors are already navigating this challenge. Investors are invited to engage with the PRI on biodiversity loss to learn, educate and build capacity in being able to address the problem. We welcome feedback on the discussion paper at firstname.lastname@example.org
| brief bio
Gemma James joined the Principles for Responsible Investment (PRI) as a Manager in the Investor Engagements team in 2015. Since March 2019, she is Head of Environmental Issues and is responsible for overseeing investor initiatives, research and engagements on environmental themes. She established the PRI Plastics Investor Working Group in 2018 and published The Plastics Landscape series. Gemma previously worked for the International Council on Mining and Metals (ICMM). She worked on water, biodiversity and climate change issues with mining companies to develop and share good practice. Gemma holds an MA in Environment, Politics and Globalisation and a BA in Geography, both from King’s College London.
The UN-supported Principles for Responsible Investment is the world’s leading proponent of responsible investment. It works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
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