A global agreement on halting and reversing biodiversity loss could benefit investors as well as the planet. Here’s what a heightened focus on biodiversity could mean for your investment portfolio.
In December 2022, representatives from governments around the world came together in Montreal to agree on new goals aimed at halting and reversing nature loss. As a result, biodiversity is now an important investment lens for investors around the world, and initiatives that support biodiversity may provide strong growth opportunities.
The goods and services that nature provides us have been estimated to be worth more than US$150 trillion annually – about twice the world’s GDP.
What’s behind the interest in biodiversity?
We all rely on our planet’s complex ecosystems to live. Natural ecosystems support our water supply, provide the food we eat, filter the air we breathe and store the carbon we generate.
The goods and services that nature provides us have been estimated to be worth more than US$150 trillion annually – about twice the world’s GDP.²⁴ Sadly, our planet’s biodiversity has been in crisis for years.
Of today’s animals and plant species, one in four could face extinction. Three-quarters of land-based ecosystems and two-thirds of our oceans have been negatively affected by human activities, according to the United Nations. And the destruction of natural habitats, depletion of natural resources, pollution, climate change and the introduction of invasive species are all fuelling biodiversity loss.²⁵
From an Australian perspective, this biodiversity loss is predicted to wipe out up to US$20 billion annually from Australia’s economy by 2050.²⁶
That’s why 190 governments reached a landmark agreement in December 2022 at the United Nations biodiversity conference (COP15) to preserve nature and reverse habitat loss by influencing the priorities and disclosures of companies and investors.²⁷
Importantly, a focus on biodiversity doesn’t mean neglecting climate change – the two are closely related. One of the solutions to reducing climate change is storing carbon.
And one of the best ways to store carbon is by preventing deforestation and habitat destruction, and by restoring ecosystems.
The COP15 agreement includes concrete measures to halt and reverse nature loss and protect the rights of indigenous peoples, setting 23 targets for 2030, including:²⁸
Requiring multinational companies and financial institutions to monitor, assess and transparently disclose risks and impacts on biodiversity from their operations, portfolios, supply and value chains.
Mobilising at least US$200 billion per year from public and private sources for biodiversity-related funding.
Phasing out government subsidies that harm biodiversity. At the same time, ramping up positive incentives for biodiversity conservation and sustainable use.
Conservation and management of at least 30% of the world’s land, coastal areas and oceans. Currently, only 17% of land and 8% of ocean areas are protected.
Restoring 30% of land and ocean ecosystems.
Reducing to near zero the loss of areas of high biodiversity importance and high ecological integrity.
Cutting global food waste by half.²⁹
What does biodiversity mean for your investment portfolio?
As governments work to translate the 23 targets into national strategies and action plans, the focus of professional investors on biodiversity is growing. Companies and financial institutions are already starting to assess their impact on biodiversity and formulate initiatives to combat biodiversity loss.
The companies and technologies that are part of the solution stand to benefit. So when your fund manager invests in these areas, your money is making a positive difference to biodiversity while also contributing to your long-term performance goals.
These businesses and technologies may include:
Products and services that provide a nature-friendly alternative to the status quo, for example, sustainable packaging that doesn’t pollute waterways or go to landfill.
Technologies that better preserve and support ecosystems, for example, precision agriculture technologies that use tools such as data analysis and soil sensors to deploy water and fertilisers more efficiently and regenerate soil fertility.³⁰
Reengineered business processes and products that minimise negative impacts. Incremental improvements in production systems can contribute big gains in biodiversity conservation. One example is mining technologies that prevent toxic run-off into water systems.
We expect to see an uptick in innovation and potential investment opportunities as companies start reporting their activities through a biodiversity lens.
Companies with ‘red flags’ likely to be avoided by global investors
We’ll also see more investors looking for red flags in company reporting. These include the lack of a sustainability strategy or failure to mention biodiversity, conservation, ecology or nature in the company strategy. Organisations that fail to note their impacts on biodiversity, either in their supply chain or downstream in their value chain, may find it difficult to attract capital.
How your Lush Wealth financial advisor can help
If you’d like to discuss how a global investment focus on biodiversity could create opportunities for your investment portfolio, speak to us. We can advise you on your options, taking into account your overall financial goals.
What you need to know
This information is provided and produced by Lush Wealth - Financial Planning Advice Newcastle & Sydney. The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
²⁴ BCG – Boston Consulting Group, The Biodiversity Crisis Is a Business Crisis, March 2021, accessed 26 July 2023.
²⁵ MSCI, What Biodiversity Loss and COP15 Mean for Investors, 16 February 2023, accessed 26 July 2023.
²⁶ ACSI – Australian Council of Superannuation Investors, Media release: “COP15 an opportunity for finance sector to play a role in tackling nature loss”, 15 December 2022, accessed 26 July 2023.
²⁷ MSCI 2023.
²⁸ UN Environment Program COP15 ends with landmark biodiversity agreement, 20December 2022, accessed 26 July 2023.
²⁹ UN Environment Program 2023.
³⁰ CSIRO, Precision agriculture, accessed 26 July 2023.