OPINION COLUMN - The UN Biodiversity Conference (COP15) is being held in Montreal from December 7 to 19. CNP Assurances and Ostrum Asset Management(1) underline the urgency for financial markets to integrate biodiversity and its immense challenges into asset allocation strategies.
Mankind will be faced with an irreversible tipping point when nine planetary boundaries are crossed. Six have already been crossed. Yet the integration of biodiversity issues lags some ten years behind those of the climate. This is no doubt because biodiversity is more complex and local, and involves multiple factors including:
- water pollution,
- overexploitation of animal species
- soil depletion
Biodiversity loss is also much less spectacular than the impacts of climate change.
Over half of global GDP is linked to biodiversity
The figures are categorical: over half of the world’s GDP is linked to biodiversity. The risks generated by the impoverishment of biodiversity are major and material:
- “physical” risks: 35% of global food production depends on pollination;
- transition risks: changes in consumption standards or habits, for example, the consumption of pork or beef;
- regulatory and reputational risks for companies.
Investors and asset managers have powerful leverage to encourage companies to integrate biodiversity into their strategies. As a priority, we target the most sensitive sectors, including agrifood and construction.
To fully address biodiversity, investors need to control the issues relating to the five threats identified by the IPBES(2):
- land-use change
- natural resource use and exploitation
- climate change
- invasive species
They also need to identify the most relevant emergencies and investments.
Taking greater account of double materiality
Companies are not yet paying for the price of services rendered by nature in a manner commensurate with the pressure they exert.
Double materiality is about introducing this approach:
- the impact of our investments on biodiversity, measured by the average number of species per square metre or MSA(3);
- the dependence of our assets on ecosystem services provided by nature.
Despite being a major factor in achieving results, this concept is prevalent in Europe only.
Naturally, this is a subject where all the players are in a learning curve. Which is why cooperation, transparency and true ambitions are key to obtaining results. To that end, businesses need to work together to establish a framework and leverage deep and reliable data.
No miracle recipe, but collaboration is key
Pending the availability of scientific data to calculate the “biodiversity trajectory” of portfolios, several initiatives need to be undertaken now on key points.
- Sustainable sector policies on forests and real estate assets must be implemented, with a green charter for work carried out or to limit urban sprawl.
- An exclusion policy based on biodiversity, supplementing that based on the climate, is also a potential way forward.
Biodiversity today is increasingly integrated into our investment decisions. But we have a long way to go on implementing this highly complex project. We also need to rally all stakeholders:
- public authorities,
- regulatory bodies,
- data providers,
Harnessing the European data sector and assessment tools
As we initiate a global approach to biodiversity, it is also crucial that investors support the European data sector to share solutions.
In concrete terms, few listed companies at this stage have developed solutions to restore nature. But we are optimistic about the rapid evolution of business models because the need well and truly exists. European regulation and the development of assessment tools, such as the biodiversity footprint, also stand as powerful accelerators. Expectations are also high for the outcome of COP15 work.
This column was written by:
- Joséphine Chevalier , Head of Integration and ESG Strategy at Ostrum Asset Management
- Aude Verriès , Head of the Governance and SRI Department at CNP Assurances’ Investment Division
(1) Ostrum Asset Management is one of Europe’s leading institutional asset managers.
(2) IPBES: Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services; https://ipbes.net/
(3) MSA: Mean Species Abundance.