Why investors should pay attention to nature?

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Nature and biodiversity is under threat like never before. Climate change, exploitation of natural resources and human-use of land and sea have contributed to a devastating drop in wildlife populations over the last 50 years. As the foundation of our economy, society and life itself, biodiversity supports all life on our planet. Yet it is eroding at a pace that is severely damaging the natural ecosystems that provide us food, water and clean air, posing a large risk for all of us.

With the establishment of the Taskforce on Nature-related Financial Disclosures (TNFD) and the recent publication of the EU Taxonomy criteria for activities contributing to protection and restoration of biodiversity and ecosystems (along with the other non-climate objectives), nature is a theme which is emerging in the financial industry as a future investment risk. Nature-related risk a very broad and wide-ranging topic with little detail of how material different aspects of it could be to investors. Historically, the investment community has focused on a limited number of environmental issues outside of climate change, such as deforestation and sustainability of palm oil. This leaves out the majority of the natural world and its contributions to industry and economy, which are still weakly understood (for example, the marine environment  plays a critical role in climate regulation, oxygen production and serves as an important food source).

Our economies are dependent on nature. Nature loss can cause significant negative impact to individual  companies and as well as whole industries, which makes it paramount  for investors to consider nature-related risks material to their investee companies (e.g. decrease in bee population leading to reduced pollination and a crop yield). Companies that fail to adequately identify and manage their impacts and dependencies in relation to nature and biodiversity could face financial, reputational, legal and other negative consequences.

Our “Why Nature?” video focuses on:

  • Nature as a value creator ensuring the continued stability of key inputs for day to day life
  • The dependency of industry and the economy on goods and services provided by natural capital
  • The threat to ecosystem resilience stemming from the human activities, or the ability for ecosystems to continue normally even in the face of shocks
  • The concept of “ecological footprints” in the context of value chains (i.e. Electric Vehicles)
  • Beyond environmental degradation, business activities can result in negative social impacts, such as disrupting local communities along the value chain  
  • Growing nature-related risks which are regulatory, physical and reputational 
  • The 5 key direct drivers of biodiversity loss and their inter-connectedness,  which can be used to help investors build views of their own exposure to financially material risks