Biodiversity impact investing possible despite the lack of data
Around 1 million plant and animal species are on the brink of extinction, according to a stark 2019 report from the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). Investments are already being made in various sustainability areas. However, directing capital towards firms that protect and stimulate biodiversity proves problematic because of the challenge in collecting adequate data.
BNP Paribas’ biannual ESG Global Survey shows that 41% of institutional investors made net zero a priority in 2023. This is expected to rise to 48% by 2025. Furthermore, over half of institutional investors report that impact investment has gained significance for their investment strategy. This encompasses the protection and increase of biodiversity. This was one of the main subjects discussed during a session of the BNP Paribas Sustainable Future Forum (SFF), held in the Naturalis Biodiversity Centre in Leiden, the Netherlands. The SFF was held from the 18th of September until the 6th of October 2023. On a total of sixteen different locations worldwide, policymakers, CSR managers, scientists, experts, civil society organizations, institutional investors, entrepreneurs, and next-generation delegates interacted on the topic of sustainability.
Naturalis Scientific Director and speaker Koos Biesmeijer made no bones about it: “If there was a world championship for biodiversity loss, the Netherlands would win easily.” He also made a clear connection with climate change. A 2% rise in temperature will cause an additional 5% of all species to become extinct in the future. But in fact, he says, it is crucial to regard nature as one of our most vital business partners. “If we add up all the intangible and material value that natural resources and ecosystems provide to human society and our economy, our natural capital, it is worth several times the world’s gross national product.” Later, during the roundtable discussions, it becomes clear that participants feel the urgency, know they need to do better and want to, but do not know how to improve and invest yet.
Biodiversity is complex and multifaceted. All forms of life are interdependent. If too many species disappear, everything collapses like a tower of blocks. Because of this complexity and stratification, it is difficult to accurately measure the impact of companies’ activities, and the methods for doing so are still in their infancy. The ESG Global Survey shows that two-thirds of investors cite the lack of adequate data as the biggest hurdle in sustainability investing. Although they are becoming more adept at obtaining data in different ways and from different sources, such as Bloomberg and MSCI, they are increasingly taking a holistic approach. Also important are a company’s carbon footprint (its outcome) and its business activities (how it achieves the outcome). Thematic investing is therefore playing an increasingly important role.
Trevor Allen, Head of Sustainability Research at BNP Paribas, also gave a presentation during the session at Naturalis, in which he further discussed the importance of impact investing in biodiversity: “Although data is an issue, thematic impact investing in biodiversity is already quite possible. One of the factors that has a major impact on biodiversity is water scarcity. We are using so much fresh water that our water cycle is being disrupted. In the process of extracting fresh water from its sources and transporting it through pipes, as much as 50% can be easily lost. We should think of water as a precious product, not an unlimited resource. There are many benefits to be gained from pricing and treating water according to its use. For example, drinking water should be cheaper than water for your swimming pool. It could also be used more efficiently in the industry, for example by using captured and unpurified rainwater to cool steel. In addition, water can be recycled more often through smart innovations. For example, there are showers that directly collect, filter, and reuse the water while showering to reduce consumption.
BNP Paribas experimented with a basket of forty companies that invest in better use of water and innovation. This proved to be a good competitor to the S&P 500 because, unlike other commodities such as gold, water is not strongly affected by market fluctuations. These, often smaller, companies are not yet in the spotlight, which makes them quite easy to invest in. However, I expect that interest in these companies will soon increase enormously, making them a smart investment with a positive impact on biodiversity.”