9 June, 2022 / Comment
Make biodiversity a stewardship priority
By Sonya Likhtman, lead engager, Federated Hermes Biodiversity Fund, EOS at Federated Hermes
Companies and investors must commit to net-positive biodiversity impact by 2030, says Federated Hermes’ Sonya Likhtman
All life on earth and all businesses, to varying degrees, rely on nature, meaning biodiversity loss poses a risk to investors and a systemic risk to the economy. While the two challenges are tightly intertwined, by looking at the problems solely through a climate change lens, investors are unlikely to properly address the decline of biodiversity and ecosystems. A more effective way to integrate engagement with companies on these topics is needed.
Climate change is one of the five main drivers of biodiversity loss, which will likely become stronger as the physical impacts of climate change, such as temperature changes and extreme weather events, become more prevalent. Equally, protecting and restoring biodiversity will enable us to both mitigate and adapt to the negative consequences of climate change, such as through carbon sequestration by soils, forests, peatlands and other ecosystems, as well as by providing natural protection from floods and storms.
At COP26 in Glasgow, there was an increased focus on the role of nature in tackling climate change. Countries committed to halt and reverse forest loss and land degradation, and financial institutions, including the investment community, committed to address deforestation in portfolios through due diligence and engagement.
However, unlike climate change where we measure carbon dioxide emissions, biodiversity loss is more challenging to measure and compare, with impacts often localised and dispersed throughout supply chains. For investors, this presents challenges when it comes to assessing a company’s impact and dependence on biodiversity, though the Taskforce on Nature-related Financial Disclosures should help to strengthen and streamline approaches.
In spite of the hurdles, it is an environmental, social and economic imperative that investors make biodiversity a stewardship priority alongside climate change. We call on companies to commit to having a net-positive impact on biodiversity throughout their operations and supply chains by 2030 at the latest.
The mechanisms to achieve this goal will vary by company and sector, but some strategies can address climate and nature challenges simultaneously. For instance, tackling deforestation in value chains will protect biodiverse ecosystems that are major carbon sinks.
See also: – Breaking down biodiversity: An investor’s guide
Equally, transitioning to a more sustainable food system is critical, as up to 30% of global emissions currently arise from the food system, and given the immense land requirements for animal rearing and growing animal feed. Nature-based solutions can also address the dual challenges of climate change and biodiversity loss.
Engagement on biodiversity
Engagement should focus on companies’ most material impacts and on reducing corporate pressures on biodiversity, such as land-use change, climate change and pollution. Equally, innovation across operations, supply chains and products will be necessary to deliver the ambitious goal of having a net-positive impact on biodiversity at the organisational level.
This goal should be accompanied by strong governance, effective measurement, an impactful strategy and regular disclosure.
Engagement on biodiversity is growing, through the upcoming collaborative engagement initiative Nature Action 100, for example, but further partnership across the industry is needed.
A policy environment encouraging investors and companies to effectively contribute to halting and reversing biodiversity loss is also essential, which is why we continue to advocate for an ambitious and transformative outcome at the biodiversity COP15 through the Finance for Biodiversity Foundation.
To date, the value of biodiversity and ‘ecosystem services’ – the common goods provided by nature, such as clean air and water, fertile soils, pollination and favourable climatic conditions – has been largely unacknowledged by companies and their investors.
A failure to act could result in the collapse of food systems, further breaches to planetary boundaries and significant financial repercussions across the global economy.
Part of the Bonhill Group.