Biodiversity and nature

INTRODUCTION

What is biodiversity?

The other side of the climate change coin is biodiversity loss, a topic that deserves investors’ attention in its own right, with many experts considering it a threat more serious than climate change.

Biodiversity loss is rising in the World Economic Forum’s annual ranking of global risks, currently coming in third.

But what is biodiversity and how is it relevant to investors?

There are four terms that are often used interchangeably: Biodiversity, nature, natural capital and natural ecosystems.

Nature is the term most familiar to us and can be defined as the natural world untouched by humankind.
Biodiversity is the variability of living things. In other words, we can think of nature as land and biodiversity as the richness of that land.
Natural capital is defined by the Natural Capital Coalition as “the stock of resources (e.g. plants, animals, air, water, soils, minerals) that combine to yield a flow of benefits to people“.
Natural ecosystems are the natural interaction of living and non-living things that, for example, occur in seas and oceans.

The economic value of natural capital is considerable. The second-order effects are systemic, including disruption to food supply chains.

The construction industry, food and beverage sector, agricultural and apparel sectors, chemicals and materials, travel, tourism and real-estate are all dependent on natural capital, including issues such as soil quality, access to sources of fresh water, water filtration, pollination and reliable weather patterns.

The second-order effects of biodiversity loss are systemic, including disruption to food supply chains.

A ton of greenhouse gas, whether emitted in, say, France or the Gran Chaco region, has the same atmospheric effect. But an acre of land in France will have very different environmental characteristics to the Gran Chaco region.

And so, on its own, an aggregated portfolio-level biodiversity or nature metric is not particularly useful, as it depends on sector, geography and land use.

Why address biodiversity risk?

There are a few reasons why investors would address biodiversity and nature-related risks in investment portfolios:

Company-specific financial risk. Many companies’ products rely on natural ecosystems, nature and biodiversity, such as pollination.
Reputational risk. NGOs are increasingly engaging companies on drivers of biodiversity loss.
Policy risk. Policymakers are taking steps to address drivers of biodiversity and nature loss, such as traceability.
Systemic financial risk. Disruption to supply chains could affect multiple parts of the portfolio at the same time in the same direction.

The Kunming-Montreal Global Biodiversity Framework

COP stands for Conference of the Parties. While the climate change COP is well known, there is also a biodiversity COP.

In 2022, the biodiversity COP met in Montreal, Canada (rescheduled due to Covid from Kunming, China). Policymakers agreed the Kunming Montreal Global Biodiversity Framework, which commits to protect 30% of land and oceans by 2030.

Many experts consider the GBF, to be as important – if not more so – than the Paris Climate Agreement.

What are the investor frameworks?

The Partnership for Biodiversity Accounting Financials (PBAF)

PBAF provides guidance on how to understand, assess, measure and take action to mitigate biodiversityrelated risks.

Finance for Biodiversity

Finance for Biodiversity hosts a “pledge” where investors commit to collaborate, engage, assess their own biodiversity impact, set targets and report on biodiversity-related issues by 2024.

TNFD, the nature equivalent to TCFD

TNFD has standardised and organised nature-related disclosures, proposing methodologies to measure naturerelated financial risks and support nature-positive investment and target-setting.

Nature Action 100, the nature equivalent of Climate Action 100+

Nature Action 100, supported by Ceres, IIGCC, Finance for Biodiversity and Planet Tracker, is a global investor engagement initiative focused on driving greater corporate ambition and action to reverse nature and biodiversity loss.

Nature Action 100, the nature equivalent of Climate Action 100+

How would Canbury support you Achieve Your Nature-related Objectives?

Canbury would analyse companies in your portfolio based on operations, products and locations, primarily based on GIS and NGO data (GIS stands for Geographic Information System and allows us to map a company’s operations and supply chains to a country or region).

Companies in your portfolio with the largest biodiversity and nature-related footprints, such as those involved in agricultural commodities known to cause deforestation or land or water degradation, would be subject to ownership structure analysis, to determine receptiveness to shareholder or bondholder engagement.

Next, Canbury would evaluate companies policies and practices (known instances of activities relevant to biodiversity and nature), as well as political activities and corporate governance.

We bring deep expertise of policy and regulatory frameworks – in country as well as export regions – to determine companies’ ability to meet current and new requirements – such as traceability.

We would supplement this with financial analysis. While a company’s traded value is subject to multiple factors, addressing biodiversity and nature-related risks is likely to be a driver of long-term value creation – which we would help you track.

The biodiversity-related data, ownership structure analysis and financial analysis could be incorporated in your investment models.

Next, we would help you determine a stewardship strategy, providing you with the materials and guidance to engage companies that are not managing their biodiversity and nature-related risks. We know the industry collaborative initiatives well and would ensure your engagement is additive.

We do this on a bespoke basis. We do not provide generic black-box data sets to which you subscribe. We don’t believe it’s desirable to provide a standalone “biodiversity score”. Rather we work to understand your investment strategy and investment beliefs and provide an end-to-end service that helps you fully embed biodiversity and nature in your investment processes.

Why Canbury

Canbury was created with a vision to make sustainability meaningful.

Drawing on a unique blend of financial and sustainability experience, we partner with investors, companies and NGOs to develop investment industry guidance, to undertake thematic research and to interpret financial regulation.

Our founders, Will Martindale and Ben Wilmot, each bring over two decades of financial sector, pensions and sustainability experience.

We have deep expertise in biodiversity and nature-related issues. Our experience allows us to challenge convention – when convention isn’t working. Integrating biodiversity and nature-related risks and opportunities is increasingly expected of investors.

This is a shared challenge – and one we can support you to solve.