How fund operators can embrace biodiversity as an opportunity

Elizabeth Gillam, Head of EU Government Relations and Public Policy, Invesco, explains how biodiversity is the next frontier in ESG is and the critical role that it will play in sustainable investment opportunities over the coming years.

Fund Operator Editor POSTED ON 2/16/2022 4:23:23 PM

In Clear Path Analysis’s recently released Fund Technology, Data & Operations, Europe 2022 report, industry leaders from companies including Storebrand Asset Management, Invesco and Broadridge address key concerns related to data management including the availability, quality, and maintenance of data. 

Biodiversity, and its destruction, is detrimental to wider ESG goals of institutions across the world and has become a major part of the environmental efforts around sustainability. Often playing second fiddle to climate change concerns, biodiversity will become increasingly focused on over 2022 as the COP15 draft agreement is signed in Kunming, China in April and May of this year.

Gillam uses the analogy of a viral video from the 2010s that forced viewers to focus on the minute details – a basketball being bounced – while missing the bigger picture – a man moonwalking across the background of the video dressed as a bear – and said this is similar to what the industry is doing with environmental strategy.

“As an industry, we are very good at keeping our eye on the ball; measuring performance against benchmarks, return on equity or measuring risks such as volatility, drawdown, and counterparty risk. As an industry, we need to start looking at the bigger picture, and biodiversity,” she explains, meaning the man in the bear costume.

Biodiversity is a key area that many groups are encouraging investment and protection into. According to the World Economic Forum, the value of goods and services that nature provides is estimated at $33 trillion a year. More legislation, including the draft framework from the Taskforce on Nature-related Financial Disclosures and other regulations will be launched for consultation or be implanted this year for the financial services sector, which could make biodiversity a much hotter topic.

The World Bank estimates that a combination of policies, particularly supporting innovation, could result in a general increase in global GDP in 2030 of in the order of between $50-150 billion. “Their model shows that a conservative estimate of collapse in selected nature related services such as pollination, the provision of food, marine fisheries and timber from forest could result in a significant decline in GDP of $2.7 trillion in 2030, around 2.5% of global GDP,” says Gillam. “It would actually be more than 10% for those parts of the world that are most exposed.”

Gillam adds that there is a lot of work now being done to assess financial stability risks stemming from biodiversity and how to develop forward looking biodiversity related analysis.

But despite this poor outlook for biodiversity, changes in policy could see ways to reverse damage, which are also significant opportunities at the macroeconomic level for investments. “According to the World Bank, nature smart policies could create favourable economic outcomes. The World Bank estimates that a combination of policies, particularly supporting innovation, could result in a general increase in global GDP in 2030 of in the order of between 50-150 billion,” it says.

The investment opportunities are also impressive, according to one estimate, she adds, and add up to a total investment in nature of $8.1 trillion that is required between now and 2050. Annual investment will need to reach over $500 billion annually by 2050 to successfully tackle the interlinked climate, biodiversity, and land degradation crisis.

To read this report in full – click here.


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