An Investor’s Guide to Nature and Biodiversity Risks and Impacts
Biodiversity loss, driven by human activities, poses an existential threat to both nature and humanity. This rapid decline business and investment as over half of the world's economic output relies on nature. For instance, the food industry depends on diverse species for agriculture, yet its practices contribute significantly to biodiversity loss. To address this, frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD) have been developed. By implementing it investors can start their biodiversity journey now, addressing both risks and impacts from investee companies with a comprehensive approach, and start tracking the progress.
How much worth the biodiversity loss?
The World Economic Forum (WEF) estimates that more than half the world’s economic output — USD 44 trillion — depends either highly or moderately on intact ecosystems and their benefits.
The WEF shows which industries are the most dependent in terms of their direct operations on biodiversity:
Integrating Biodiversity into Investments.
For investors who are relying on thriving economic growth, biodiversity can be both a threat and an opportunity. There are two dimensions along which biodiversity can be understood. First is how biodiversity can impact businesses, both negatively and positively, and how business depends on nature. Investors need to understand the connection between the two.
There are five main drivers of biodiversity loss identified by IPBES, such as GHG emissions and pollution, etc., through which companies may negatively impact natural capital and simultaneously rely on it, including climate regulation, freshwater and raw material supply, soil quality, and disease control.
To assess the relationship between business and nature, investors can ask:
- What is my portfolio’s potential impact on biodiversity/nature?
- How could my portfolio be affected by biodiversity/nature loss?
The Taskforce on Nature-related Financial Disclosure (TNFD) was launched to close the gap between investors’ awareness and generally accepted standardized reporting standards on biodiversity- and nature-related risks. It released a critical framework for companies and investors that includes disclosure recommendations and practical guidance on how to assess and incorporate biodiversity risks and opportunities into business and investment decisions.
Deep Eco can help you:
- Evaluate your business impact and dependencies on nature
- Assess your nature-related risks and opportunities
- Prepare to respond to nature-related risks and opportunities
- Report on your material nature-related issues.
How to integrate biodiversity into investment decisions?
- Educate Yourself: Understand the basics of biodiversity and its connection to finance. Recognize how climate change and biodiversity loss are interlinked and their impacts on businesses.
- Follow Developments: Stay updated on regulatory mandates and initiatives like the TNFD, SBTN, the UN’s Global Biodiversity Framework, Nature Action 100.
- Assess Exposure: Evaluate your portfolio’s exposure to nature-related risks and impacts, including physical and transition risks.
- Define Strategy and Targets: Set clear, quantifiable goals to mitigate risks and align with climate commitments.
- Take Action: Reduce exposure to biodiversity-sensitive areas and employ biodiversity footprinting and risk assessment tools.
- Promote Positive Outcomes: Engage in stewardship and voting to support nature-positive policies and hold companies accountable for biodiversity impacts.
- Adopt Reporting Standards: Align with TNFD and other relevant frameworks to ensure comprehensive biodiversity-related financial reporting.
Nature's services are critical yet overexploited. The loss of biodiversity will significantly impact the global economy and investor portfolios. Investors must urgently integrate biodiversity considerations into their strategies. This involves understanding the relationship between biodiversity loss and financial risks, regulatory pressures, and the potential for growth in nature-positive sectors. We in Deep eco prepared tools to assess these factors in accordance with MSCI Nature & Biodiversity Metrics Framework and would be happy to support investors and businesses in this crucial journey towards sustainability.
The article was prepared by Akim KIBNOVSKYI, Deep Eco’s ESG expert.