Although less well understood than climate change risk, biodiversity and its associated risks is an integral part of the “E” component in an ESG investment framework.
Despite the justified increased focus on climate change, there is growing awareness of the importance of preserving biodiversity – a trend which is only set to accelerate as we draw closer to the UN Biodiversity Conference taking place in December 2022.
The conference will see the negotiation of the post-2020 Global Biodiversity Framework for a nature positive world by 2030. The draft framework has 21 action targets for 2030, which includes conservation of at least 30% of land and sea areas globally and restoration of at least 20% of degraded freshwater, marine and terrestrial ecosystems.
Government and policymakers’ increased focus on biodiversity is predicated on the knowledge that biodiversity and ecosystems underpin many national and global economic activities, including those related to agriculture, forestry, fisheries and aquaculture, energy, tourism, transport and trade.
Vital role of water in biodiversity
Natural capital assets provide ecosystem services such as water purification and water supply, which support the production of goods and services. Globally, these services accounted for more than one and a half times global GDP in 2011.
However, the deterioration of biodiversity affects the stock of natural capital and the associated ecosystem services, which has severe consequences on business and society.
Investment opportunities linked to biodiversity
Considering the importance of preserving natural capital, and water’s intrinsic role in creating a sustainable biodiverse world, water funds can be a critical plank in the broader mandate of biodiversity investments.
There are three principal areas to invest to maintain and develop water biodiversity: pollution, invasive species and change in land/sea use.
Pollution
At current rates, plastics are expected to outweigh all the fish in the sea by 2050, representing one of the most immediate challenges to ocean health and biodiversity globally.
Veolia is one such company targeting this and is among the global market leaders in offering water and waste management services to municipalities, cities and industry.
It also runs the European research project MEDITPLAST to assess the performance of wastewater treatment plants in reducing microplastics
Invasive species
Oceans are not only affected by external human pollution such as plastics and chemicals. The invasion of non-native species allowed by humans is also an issue. One example is the zebra mussels which were brought by boats’ ballast water systems to the great lakes in the late 1980s.
The mussels can even incapacitate power plants which, in some cases, have been required to spend millions of dollars each year to remove them from clogged water intakes.
Swedish group Alfa Laval (among others) has a UV disinfection-based ballast water solution for the marine industry which allows flow through UV systems to kill zebra mussels and prevent them from attaching to downstream surfaces.
Changes in land and sea use
When looking at changes in land and sea use, environmental consultants such as Stantec and Aecom are examples of companies that contribute positively to biodiversity through the creation of better and more sustainable infrastructure.
A key, recurring business stream is the production of biodiversity impact assessments, to provide clients with an iron clad guarantee that the activity they will undertake is compliant from a biodiversity standpoint.
This activity measures and quantifies the potential negative impacts of large scale projects which the consultants typically then oversea from feasibility to commissioning.
Two sides of the same coin
Water’s intrinsic importance in creating a sustainable biodiverse world is as critical to global health as drinking the resource itself.
Considered investments in the water value chain can provide a solution to one of the greatest challenges we currently face. It is too narrow a goal to simply pursue a low-carbon future as the climate crisis and unprecedented rate of nature loss are intrinsically interlinked.
To this end, sustainability-focused investors should consider broadening the scope of their investments into those that cover both topics – with climate change a direct threat to biodiversity, and with biodiversity a hugely important sink for carbon, can we afford one without the other?
