As climate adaptation and mitigation is increasingly addressed in industry, the discussion of biodiversity loss is also gaining traction. These two issues are related as managing the transition to a net-zero economy cannot happen without addressing the biodiversity crisis. This article will provide context, a short case study, and examples of how investors might approach biodiversity.
The Importance of Biodiversity
The Natural Capital Coalition defines biodiversity as the stocks of renewable and non-renewable resources that provide products and services essential to human well-being. With up to one million species currently at risk of extinction worldwide, the decline of biodiversity has critical implications for humanity such as the disruption of entire supply chains. This has a direct impact on investments, as over 50% of the world’s GDP is influenced by or depends on biodiversity.
In 2019, the gap between global financial needs for biodiversity and actual financing totalled US$824 billion. Preventing further destruction to biodiversity loss and reversing the negative impacts will require international collaboration. Such collaborations include biodiversity initiatives like the Finance for Biodiversity Pledge and the Taskforce for Nature-related Financial Disclosure (TNFD), whose objectives are to understand biodiversity, our opportunities, risks and impacts, and possible mitigating action plans. Initiatives and conferences allow for increased conversation to restore, conserve, and use nature in a sustainable way, building a ‘nature-positive’ pathway.
United Nations’ Biodiversity Conference
COP26 highlighted the need to stimulate climate action and restore deforested lands by taking on the Bonn Challenge. The United Nations Biodiversity Conference (COP15), which started in 2021 and continues in 2022, identifies a potential global plan to “bend the curve” for biodiversity, stopping its degradation and loss. COP15 will be held in Montreal this December 2022, where thousands of delegates from around the world will convene to agree on a new set of goals for nature over the next decade. The Convention of Biological Diversity concluded talks on the post-2020 framework and nature protection act in Nairobi on June 26, 2022. This meeting, in preparation for COP15, created a written four goals framework with 23 potential targets, and paths to meet the objectives. All effort is going into creating a life in harmony with nature as said by Elizabeth Maruma Mrema, Executive Secretary of the Convention on Biological Diversity. Canada will be at the forefront of COP15, advocating for international collaboration on an ambitious biodiversity framework, targeting 30% of lands and oceans conserved by 2030.
Desjardins Global Asset Management’s (DGAM) Approach
As one of Canada’s largest asset managers, DGAM added the theme of biodiversity and natural capital protection to our list of priority issues in 2021. Our Responsible Investment team continues to research and analyze the theme to fully understand its financial impact and implications for the companies we have in our clients’ portfolios. We’ve identified three areas of interest related to biodiversity: 1. Deforestation and land rehabilitation 2. Water quantity and quality, and 3. Regenerative agriculture. ESG metrics for these sub-focus areas are integrated into our internal assessment grid as part of the investment process and included in our dialogues with consumer companies, where we ask companies to explain and provide examples of their various biodiversity strategies. The World Economic Forum called biodiversity one of the top three threats to humanity before 2030, therefore a call to action is required to focus our attention. Nature is an undervalued resource that we have used without regard for too long, changes need to be made to reduce the impact of nature’s loss on our economy.
Case Study: Food Sector Company Ingredients
Over the past two years, DGAM actively engaged with a large Canadian manufacturer and distributor of dairy and grocery products on three axes of influence:
- Motivating them to use sustainably sourced ingredients;
- Encouraging them to adopt a goal to end deforestation in their supply chain; and
- Urging them to increase their supply of plant-based proteins.
DGAM was not the only investor to make such requests; the company had received similar shareholder proposals.
The company was feeling added pressure as they were in the process of being evaluated by the Farm Animal Investment Risk and Return (FAIRR) initiative, a collaborative network among investors that focuses on material agricultural issues including ESG research and analysis related to animal protein and animal welfare practices. FAIRR works closely with investors to research, analyze data from multiple animal protein producers and manufacturers, and engage with global food companies to diversify their protein sources to systematically transition product portfolios that facilitate healthier and more sustainable diets, while ensuring long-term food security. The company was also undergoing evaluation by the Business Benchmark for Animal Welfare.
In 2021, the collective efforts of the ESG community paid off—the company announced commitments related to its supply chain, including ending deforestation, sustainably sourcing its key ingredients, and planning to obtain traceability certification from a recognized organization for some of its key ingredients. These actions will drive growth and reduce risk exposure while improving their ability to compete and innovate in an increasingly resource-constrained world.
Simply put, the world must support the efforts and act on nature protection. DGAM is one entity contributing its voice and resources to support various initiatives and act on nature protection, but we are not alone. Multiple international financial institutions, corporations and science communities are also raising their voice, inspiring others to prioritize biodiversity and a nature positive future. Our hope is that our efforts allow biodiversity to become part of ESG guidance and the decision-making process.
The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.