Biodiversity vaults onto the G7 agenda

investment viewpoints

Biodiversity vaults onto the G7 agenda

Christopher Kaminker, PhD - Group Head of Sustainable Investment Research, Strategy & Stewardship

Christopher Kaminker, PhD

Group Head of Sustainable Investment Research, Strategy & Stewardship
Thomas Höhne-Sparborth, PhD - Head of Sustainability Research

Thomas Höhne-Sparborth, PhD

Head of Sustainability Research
Michael Urban, PhD - Senior Sustainability Analyst

Michael Urban, PhD

Senior Sustainability Analyst

From vaccines and climate change to global corporate tax, the recent G7 summit examined crucial global short and long-term socio-economic issues – including an unprecedented call to action on biodiversity preservation.

The G7 nations – the US, Canada, Japan, UK, France, Germany and Italy – see biodiversity loss and climate change as intrinsically linked , mutually reinforcing and equally important existential threats to people and the planet. Acknowledging their contributions to the decline of biodiversity, they pledged to play key roles in its restoration and conservation. While climate change has been a fixture of G7 action plans, this is the first time the topic has made it to the G7, highlighting the increased momentum around natural capital and biodiversity loss on the global agenda overall in 2021. 

 

TNFD and the G7 Nature Compact

Alongside its call for companies to report on climate risk in accordance with the Taskforce on Climate-related Financial Disclosures (TCFD), launched in 2015, the G7 urged that a similar transparency framework for nature is needed and endorsed the Taskforce on Nature-related Financial Disclosures (TNFD).

The TNFD is a global initiative that began in 2020 and aims to provide the finance sector with a complete view of environmental risks. The TNFD will deliver guidance for companies to report and act on evolving nature-related risks.1

In addition, to support strong outcomes for nature at the upcoming Convention on Biological Diversity (COP15 in) Kunming and COP26 in Glasgow later this year, the group launched the ‘G7 2030 Nature Compact’ to help reverse biodiversity loss by 2030. It directs action across four pillars (see figure 1).

We look forward to COP15, where some or all of these commitments may be further defined and discussed with a broader audience. We hope this leads to a global pact on biodiversity preservation similar to the Paris Agreement on combating climate change.

 

FIG 1. The four pillars of the G7 2030 Nature Compact

Source : G7 2030 Nature Compact as at June 2021.

Nature: an economic pillar

At LOIM, we support the rise of biodiversity preservation on the policy agenda and are encouraged that leaders of major developed economies have committed to take action. With more than 50% of the world’s GDP moderately to heavily dependent on ecosystem services provided by natural capital2, our prosperity and wellbeing depend on a sustainable relationship with nature. For example, every year:

•    Trees and other land vegetation convert 11 billion tonnes of carbon dioxide into plant matter and oxygen through photosynthesis – removing and storing the equivalent of 27% of human carbon emissions3
•    Bees pollinate crops worth up to USD 577 BN, free of charge4
•    We extract nearly 100 billion tonnes of resources – more than half the height of Mt Everest – which is one indication of our physical impact on earth5

Free and vast carbon storage and crop pollination are two of the many services that healthy ecosystems provide to human societies (see figure 2). 

 

FIG 2. Our economic activity depends on nature

Nat_Cap_non-renewable-renewable_EN.pngSource: LOIM. For illustrative purposes only.

 

Investing in nature for our future 

We have identified a universe of about 500 small- and mid-cap companies whose products and services help to preserve nature and harness its regenerative power. They are typically aligned with the following themes:

  • The circular bioeconomy unlocked by emerging technologies
  • Leaner forms of production achieved through resource efficiency
  • An outcome-oriented approach to consumption
  • The move towards a zero-waste world

Investors targeting opportunities among these companies are supporting pillar two of the G7 2030 Nature Compact, in our view. Investing in natural capital is vital for mobilising some of the capital required to decarbonise the economy, restore biodiversity and underpin sustainable growth.

The key aims of natural capital investment are to generate positive impact, embed sustainability and align growth with the future viability of the world’s ecosystems. As policymakers and society at large recognise that biodiversity loss threatens the health of humanity, the planet and the economy, we believe that companies with businesses aligned to a sustainable future present the greatest long-term opportunities.

sources
3  The Economist at 14 June 2021.
 United Nations Development Programme at 2017
5  Circle Economy at 2017

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