Biodiversity: why investors should care

Foreword

The past 30 years have seen a bigger improvement in human prosperity than all of the past centuries combined.

We have built more roads, buildings and machines than ever before. More people are living longer and healthier lives and access to education has never been better. The average GDP per capita has grown 15-fold since 1820. More than 95 per cent of newborns now make it to their 15th birthday, as opposed to just one in three in the 19th century.¹

However, such progress has come at a great cost. As humanity has thrived, nature has suffered. 

Humans are driving animal and plant species to extinction and destroying their habitats to feed an ever-increasing population. And for some decades now, they have been consuming more natural resources than the Earth can naturally replenish in a 12-month period, drawing down on what’s available for future generations.²

Putting an end to this unsustainable relationship demands a deeper understanding of the biosphere’s impact on human well-being and its contribution to economic growth. Policymakers now consider biodiversity protection as urgent a priority as halting global warming.

The UN COP15 biodiversity summit in Montreal in December, the biggest in a decade, will aim to agree on ground-breaking targets for 2030 to protect nature.

But such efforts should not be confined to the policy arena. The financial industry, too, must play a more active role. As a steward of global capital, it is uniquely positioned to help build an economy that works with, rather than against, nature. 

It can facilitate a nature-positive transition, by transforming the way it allocates capital and developing new models to price biodiversity risks and opportunities more accurately.

It is worth noting that by channelling investment to companies developing advanced environmental technology and services, the financial industry has helped improve efficiency in everything from energy use, agriculture, trade and transport.

For example, thanks to the development of agri-tech, the world can produce almost three times as much cereal from a given land as it did in 1961.¹

The rate of improvement in the average cereal yield has outpaced that of the population growth. However, the bulk of mainstream investments flows to incumbent economic activities that cause environmental and social harm.

The finance industry, therefore, must add its heft to the global effort to reduce the damage, while also enhancing nature's recovery.

All of this explains why Pictet Asset Management has become a founding partner in a new four-year global research programme geared to helping the financial industry develop strategies to protect natural capital and halt biodiversity loss.

The Finance to Revive Biodiversity (FinBio) programme, which will be overseen by the Stockholm Resilience Centre at the University of Stockholm, aims to develop valuable research that should help the finance industry transform current practices – which reward growth at the expense of biodiversity – to a new model which accurately captures – and attaches an economic value to – the nature-positive quality of a business.

Did you know?

2 years

As a result of biodiversity degradation, the world is already losing one potentially critical drug every two years.

Funded by the Swedish Foundation for Strategic Environmental Research (Mistra), the programme will break new ground by bringing together a diverse consortium of academic researchers that rarely interact, as well as financial- sector partners.

The consortium has set itself ambitious targets. The first task is to translate biodiversity and natural capital data into metrics that asset managers and asset owners can understand and use.

The second objective is to establish a financial framework that will facilitate the development of a new class of nature-aligned securities, capital that can be harnessed to achieve biodiversity goals and build a genuinely sustainable economy.

The financial industry – banks, asset managers and asset owners – has for too long ignored the threat biodiversity loss presents to human prosperity and growth. It must now acknowledge the crucial role it has to play in repairing the biosphere and placing the economy on a more sustainable footing.