Discussion on responsible investing has long been largely focused on climate change and greenhouse gas emissions. However, biodiversity is gaining importance in the investment arena.
Petra Hakamo, Evli's Head of Sustainability, believes that investors should take the ongoing biodiversity loss seriously and urges investors to start assessing the content of their portfolios in relation to this ongoing development. In the worst-case scenario, biodiversity loss could lead to significant losses for companies and investors alike.
Evli involved in developing biodiversity impact metrics
According to Hakamo, the role of biodiversity in investing has generally been talked about all too little. This is particularly due to the lack of consistent, comparable metrics.
"Measuring the impact of biodiversity loss is made difficult by the complexity of nature as a whole, its location-specific traits, and the interdependencies between ecosystems. Whereas climate-related greenhouse gas emissions can be measured pretty much anywhere using the same metrics, wider ecosystems require a variety of different indicators, which may be concentrated in different geographical areas and different parts of nature," says Hakamo.
"The failure to measure the link between corporate activities and the impact on nature has prevented companies from assessing its economic importance, and therefore nature has not been systematically taken into account in investment activities either."
This is about to change, as measures that reveal the impact on biodiversity are being further developed. Evli has become the first Finnish asset manager to join the Taskforce on Nature-related Financial Disclosures (TNFD) forum, which aims to develop a framework for reporting on nature.
"The aim is to help companies identify the dependencies and impacts of their own activities on nature, as well as how those effects on nature affect the risks and opportunities of their own operations. Reporting on these will also help investors in the future, as relevant nature-related data will be more readily available. Being a member also means that Evli's operating principles can be developed in the future in line with TNFD's mission and principles," says Hakamo.
Investors may find a new type of risk hidden in their portfolios
What does the evolution of metrics related to biodiversity loss mean for investors in concrete terms? According to Petra Hakamo, the time will soon come when the metrics will start to be applied to the contents of investment portfolios.
"Among others, going forward EU's Taxonomy and sustainable finance regulation will take biodiversity into account, which means that the issue can no longer be ignored. Concrete metrics will allow us to see in a whole new way what the impacts and risks of our current investments are in terms of biodiversity loss."
The Head of Sustainability warns that investors who don’t acclimate to these changes can risk losing money if current trends continue.
"When people start to analyse their portfolios, one should be prepared for the possibility of surprises. If a portfolio contains a saturation of companies in industries that are heavily dependent on nature, such as food and agriculture, the surge of biodiversity losst could pose significant risks to these companies. Consequently, investments in these companies may be exposed to financial losses."
A concrete example of this, according to Hakamo, is the decline of pollinators, which has a large-scale impact on global food production, as more than 75% of the food grown is directly dependent on pollinators.
Businesses and investors play a major role in preserving biodiversity
Hakamo believes now is the time for both companies and investors to take the situation seriously.
More than half of the world's GDP is either moderately or heavily dependent on nature and the services it provides. Biodiversity is therefore vital, for society and businesses alike.
Research shows that ecosystems are deteriorating faster than ever before, and that the loss of biodiversity is becoming a serious threat to both business and economic stability. However, not enough has been done in the investment arena to date.
"I would urge investors to monitor the evolution of these indicators and, in the future, to assess their portfolios against them. With the right actions, companies and investors have the opportunity to influence both the ongoing developments in nature and their own financial security,” says the Head of Sustainability.