The importance of biodiversity is easy to understand, but not so easy to measure. Some have tried it and their resulting conclusions are surprising to say the least. The World Economic Forum and Swiss Re estimate that the value of biodiversity exceeds $40 trillion, or roughly twice the GDP of the United States and more than half of the world’s GDP.
“If this estimate is anywhere near true, it is clear that damaging our natural capital goes against all logic and is very expensive in the long run,” says Elena Tedesco, manager of Vontobel’s Global Impact fund. Along the same lines, Dasgupta’s study points to the hidden cost represented by the liquidation of natural capital assets as an obstacle to the creation of long-term value.
According to recent studies, reducing the loss of biodiversity acts as a powerful amplifier in all orders of the UN SDG agenda, adding both what is gained and what is lost. 80% of the SDGs related to water, soil, marine life, health and poverty.
To give an idea of its potential economic value, the World Economic Forum reported in 2020 that the value generation of 44 trillion dollars -more than half of the total world GDP- depends moderately or highly on nature and, consequently, is exposed to material risks derived from its loss.
“In our view, we are just at the beginning of an important new long-term investment trend that needs to be better explored and defined,” says Generali Insurance Asset Management’s Investment, Macroeconomic and Market Research and ESG Solutions team.
the great potential
The impact of reducing the loss of biodiversity is not negligible. Biodiversity is understood as the totality of life forms that intervene in the evolution of an ecosystem, among which a balance is created and that promotes the existence of life. Biodiversity contributes to the formation of natural sources that allow survival: food, clean water, medicinal substances and shelter.
In addition to meeting basic human needs, preserving and restoring ecosystems can significantly contribute to meeting the United Nations Sustainable Development Goals (SDGs). And, just as in the case of climate change, which has already drawn the world’s attention, investors and society in general can come up with solutions that seek to protect biodiversity.
“Political attention could lead companies to change their strategies and drive EPS growth for companies that stand out in this area,” says Tedesco. It has been seen before: with the incentives for the use of clean energy, for example, and how it has promoted the change of attitude among investors.
If history is true to repeat itself, biodiversity-focused solutions could be where your money goes with a long-term perspective. “By investing in companies that focus their efforts on solving problems and working towards significant improvements, reusing, recycling and doing good waste and end-of-life management for their products, investors can reduce the loss of biodiversity while that can deepen long-term growth opportunities and solid returns”, he analyzed.
The conversation is moving from theory to action. At the 2022 United Nations Conference on Biodiversity (COP15) ial for Biodiversity in Kunming-Montreal.
“The framework aims to substantially increase biodiversity financing and leverage private financing to boost the flow of investments,” they explain from Generali Insurance Asset Management. It includes the mobilization of US$200 billion per year in national and international biodiversity-related financing (public and private), increasing international financial flows from developed to developing countries to at least US$20 billion per year by 2025 and US$30 billion per year. million annually by 2030.
An example of the impact of biodiversity on investment would be, for example, bees. They are considered an essential part of the food system, since 35% of world food production depends on a natural pollination process. The world’s annual plant production, worth between
“Their importance in achieving SDG 2 is more than evident, and it is so important that a significant reduction in their numbers would endanger the survival of the human species. In the same way, the health and quality of the soil are essential for the fertility of the cultivated areas and their productivity”, argues Tedesco. And yet, land degradation has already reduced the productivity of 23% of the world’s land areas.
For their part, mangroves are a natural containment agent, thanks to their ability to capture and store carbon dioxide, stabilize coastlines, and act as protection against tsunamis and coastal erosion. Something similar happens with coral reefs.
“The increase in the loss of coastal habitats and natural protection increases the risks of damage from floods and hurricanes to which the lives and material goods of a population of between 100 and 300 million people who live in areas of coast with a high risk of flooding and, therefore, the protection of mangroves is an obvious solution”, adds the Vontobel expert.
Thus, the biodiversity financing gap is difficult to measure, but according to a study by the Paulson Institute, for COP15 to be successful, the total flows of annual investment in biodiversity conservation must go from about 140,000 million dollars to 700,000 -800,000 million, that is, multiply by five.
“This means new responsible investment opportunities for decades to come. Governments are expected to support the private sector once the definition and monitoring of biodiversity risks and opportunities are clearer”, the Italian manager concludes.
