How to Invest in Biodiversity
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Biodiversity refers to forests, oceans, and other ecosystems, as well as efforts to protect them. It’s vital because processes such as the nitrogen and carbon cycle are impossible without a variety of organisms existing and being involved at every stage, while ecosystem services such as pollination and flood prevention are inextricably linked with life on our planet.
Investing in biodiversity involves mobilising sustainable finance for the conservation and restoration of natural habitats, as well as promoting sustainable practices. Worryingly, just $124-143 billion is mobilised each year to biodiversity conservation. Approximately 80-85% of funding is derived from the public sector through governmental budgets and taxation – estimates of biodiversity funding needs by 2030 amount to $722-967 billion each year1.
Bridging the financial gap therefore requires mobilising $598-824 billion every year by that time horizon. This is mostly needed for agriculture transition (54%), protected areas (21%) and urban environment (10%), while other activities (mitigation of invasive species, coastal restoration, fisheries, and forest maintenance) altogether amount to 15%1.
By comparison, $632 billion is mobilised annually for climate-related projects2. However, it’s important to point out that biodiversity loss and climate change are intrinsically linked. So, while biodiversity loss recently fell out of the World Economic Forum’s top 10 most pressing risks list for the next two years, a trade-off between climate and biodiversity is disingenuous.
As the report highlighted: “Without significant policy change or investment, the interplay between climate change impacts, biodiversity loss, food security and natural resource consumption will accelerate ecosystem collapse, threaten food supplies and livelihoods in climate-vulnerable economies, amplify the impacts of natural disasters, and limit further progress on climate mitigation.”3
The good news is that the 15th Conference of the Parties to the United Nations Convention on Biological Diversity – COP15 – underscored the urgency of biodiversity loss. The landmark deal that was struck in December 2022 in Montreal has paved the way for new regulations and increased investor demand. Ambitious objectives that have been set for 2030 include:
- ensuring the effective conservation and management of at least 30% of terrestrial, inland water, and coastal and marine areas
- reducing the impacts of the food sector by limiting the risks from pesticides and fertilizers leaks by half
- mobilising $200 billion per year for biodiversity while making biodiversity disclosures compulsory for large organization and transnational companies – thereby easing identification of virtuous players by the financial sector.
So, how can investors take advantage of the opportunities and tangibly invest in biodiversity?
Nature-based solutions, also called ‘natural capital’, include investments in sustainable land use, like land restoration/rehabilitation activities, and those that focus on sustainable supply chains. They also cover environmental assets, like payments for ecosystem services, the conservation of biodiversity-rich areas, and carbon credits. Investment opportunities are also found in the blue economy, which includes sustainable seafood supply chains, the circular economy, and the conservation of marine and aquatic environments.
According to research, there’s a growing interested from mainstream institutional investors in natural capital investments – provided the underlying projects and companies prove a minimum level of robustness5. And that’s where blended finance has a role to play.
Blended finance uses public funds or government support to encourage private investment, the result of which can finance projects or businesses that, under normal circumstances, would be considered ‘un-investable’. Governments effectively provide a safety net – their co-investments and guarantees unlock private investment by lowering risk or enhancing returns and, in many ways, transform the ‘un-investable’ into the ‘investable’.
Pooling resources means more investment at scale. Most importantly, money goes to the areas that need it most: to help in the fight against climate change and biodiversity loss, and to build better, more sustainable livelihoods for local communities.
According to research, there’s a growing interested from mainstream institutional investors in natural capital investments – provided the underlying projects and companies prove a minimum level of robustness5. And that’s where blended finance has a role to play.
Blended finance uses public funds or government support to encourage private investment, the result of which can finance projects or businesses that, under normal circumstances, would be considered ‘un-investable’. Governments effectively provide a safety net – their co-investments and guarantees unlock private investment by lowering risk or enhancing returns and, in many ways, transform the ‘un-investable’ into the ‘investable’.
Pooling resources means more investment at scale. Most importantly, money goes to the areas that need it most: to help in the fight against climate change and biodiversity loss, and to build better, more sustainable livelihoods for local communities.
There are also a number of companies that can have positive contribution to biodiversity. Take companies involved in food supply and production, for instance, which is the economic activity that has both the largest impact and dependence on biodiversity.
Current intensive agriculture models require large scale land use to produce feed, food and biofuels reducing habitat for wildlife. Artificial inputs such as pesticides are polluting soils and waterways, while livestock and fertilizers generate greenhouse gases (GHG) such as methane and nitrogen oxide.
Conversely, reliance on a limited number of crops and breeds jeopardises the food sector’s long-term resilience to biodiversity erosion. This is illustrated by the loss of soil fertility and pollinators leading to increased occurrences of pests, while induced climate change exacerbates water stress that also reduces the crops’ resistance. Down the food value chain, the consumption of excess calories, meat and sugars can lead to higher ratios of chronic diseases5.
Equally, consumer health concerns often lead to excess consumption of long-distance imported fruits and vegetables. This means extensive use of plastics packaging. It could also mean over reliance on nutrient-rich crops, exacerbating the issue of increased water intake in water-stressed regions.
In a nutshell, a sustainable vegetarian or flexitarian diet in developed regions is characterised by about 2,000 kcal a day, a 50% reduction in meat and sugar intake, and increased intake in vegetables and fruits in the region of 500g a day6.
Current intensive agriculture models require large scale land use to produce feed, food and biofuels reducing habitat for wildlife. Artificial inputs such as pesticides are polluting soils and waterways, while livestock and fertilizers generate greenhouse gases (GHG) such as methane and nitrogen oxide.
Conversely, reliance on a limited number of crops and breeds jeopardises the food sector’s long-term resilience to biodiversity erosion. This is illustrated by the loss of soil fertility and pollinators leading to increased occurrences of pests, while induced climate change exacerbates water stress that also reduces the crops’ resistance. Down the food value chain, the consumption of excess calories, meat and sugars can lead to higher ratios of chronic diseases5.
Equally, consumer health concerns often lead to excess consumption of long-distance imported fruits and vegetables. This means extensive use of plastics packaging. It could also mean over reliance on nutrient-rich crops, exacerbating the issue of increased water intake in water-stressed regions.
In a nutshell, a sustainable vegetarian or flexitarian diet in developed regions is characterised by about 2,000 kcal a day, a 50% reduction in meat and sugar intake, and increased intake in vegetables and fruits in the region of 500g a day6.
Investors could also direct their attention to companies that evidence a positive impact on biodiversity as measured by the Science-Based Targets for Nature (SBTN) typology of positive impact7. These targets include:
Moreover, these activities can generate biodiversity co-benefits through habitat restoration. Examples include companies deploying sustainable forestry management guaranteeing forest soil carbon conservation and resilience through diversity of tree species and provide lumber, thereby substituting to carbon-intensive cement and steel5.
There are also biotech companies that reduce livestock’s emissions thanks to feed additives reducing enteric fermentation, also limiting excess nitrogen in manure. And there are companies involved with post-consumer plastics bottle and recycling activities, reducing the need for raw petrochemicals, and limiting plastics pollutions5.
- avoiding extraction of resources, when compared to a business as usual scenario – as illustrated by water reclamation enabling municipal wastewater reuse in agriculture and groundwater replenishment
- reducing their use of resource overtime and regenerate ecosystems – through solutions such as precision agriculture enabling soil sampling and intercropping thereby reducing inorganic fertilizer and improving soil health
- restoring nature where it has been degraded – thanks to production of wood biomass on pastureland to produce pulp from plantation, earmarking land for conservation, and reuse of wood wastes in the production of sustainable-by-design low toxicity biochemicals substituting to petrochemicals.
Moreover, these activities can generate biodiversity co-benefits through habitat restoration. Examples include companies deploying sustainable forestry management guaranteeing forest soil carbon conservation and resilience through diversity of tree species and provide lumber, thereby substituting to carbon-intensive cement and steel5.
There are also biotech companies that reduce livestock’s emissions thanks to feed additives reducing enteric fermentation, also limiting excess nitrogen in manure. And there are companies involved with post-consumer plastics bottle and recycling activities, reducing the need for raw petrochemicals, and limiting plastics pollutions5.
There are also fixed income solutions that can also have a positive impact on biodiversity, primarily by ring-fenced investments in corporate green bonds. Green bonds are comparable to conventional market bonds in that an issuer of a green bond pays the principal and interest (coupon) back to the lender over a designated period of time. The difference is that the proceeds of the green bond issuance go towards financing projects that contribute positively to the environmental and energy transition.
And green bonds can finance a combination of nature-based solutions and smart technologies5, which include:
And green bonds can finance a combination of nature-based solutions and smart technologies5, which include:
- water utilities that dedicate financing to separate sewer systems and wastewater lagooning, reducing river pollution risks through streams separation and increased carbon sequestration in wetlands
- forestry owners launching forests’ soils carbon sequestration projects based on restoration of degraded wetland and mire, and reduction of forest fire risk thanks to improved road infrastructure
- renewable energy developers operating offshore wind farms that mitigate climate change through brown-to-green power substitution and creation of habitats to marine biodiversity on mills’ artificial reefs.
2 Source: Global Landscape of Climate Finance, 2021, Climate Policy Initiative, https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2021/
3 Source: WEF Global Risks Report 2023, https://www.weforum.org/reports/global-risks-report-2023/digest
4 Source: Bloomberg, 2 May 2023 https://www.bloomberg.com/news/articles/2023-05-03/biodiversity-beats-climate-as-talking-point-for-republicans
5 Source: Mirova 2023, https://www.mirova.com/en/ideas/mirova-for-nature-action-biodiversity
6 Source: The EAT-Lancet Commission on Food, Planet, Health, 2019, The EAT-Lancet Commission, https://eatforum.org/eat-lancet-commission/
7 Source: Science-based targets for Nature: Initial Guidance for Business”, 2020, SBTN https://sciencebasedtargetsnetwork.turtl.co/story/science-based-targets-for-nature-initial-guidance-for-business/
The provision of this material and/or reference to specific securities, sectors, or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of any regulated financial activity. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the portfolio manager(s) as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material. The analyses and opinions expressed by external third parties are independent and does not necessarily reflect those of Natixis Investment Managers. Past performance information presented is not indicative of future performance.
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