Should you care about biodiversity ? Investors have a role to play in habitat and species protection

The term refers to the variety of plant and animal life or a specific habitat, and is vital to the functioning of our ecosystems and society. It confers a wealth of benefits, from protecting water resources and improving soil fertility to absorbing carbon emissions and ensuring climate stability. Many businesses are directly or indirectly dependent on these ecosystem services, for example, for the production of raw materials and supply chains.

Ineffective government response

A new global plan for biodiversity was scheduled to be adopted in October 2020 at the fifteenth Conference of the Parties to the UN Convention on Biological Diversity (COP 15) in Kunming, China. However, given the global Coronavirus crisis, COP 15 has been postponed to 2021. The targets set to halt the biodiversity loss by 2020 will not be met, according to a recent assessment by IPBES (Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services).

Countries have been unable to identify the main drivers behind biodiversity loss, implement adequate legislation or gather the necessary financial resources to stop the exploitation of species, the report concludes. The IPBES report paints a worrying picture, with more species than ever before threatened by extinction and many ecosystems changing rapidly. Calculations show that approximately 1 million of the world’s 8 million species are at risk of extinction within a few decades unless powerful measures are put in place to stop the negative development.

Effective investor response

In a world of limited budgets, economic resources and slow economic growth, the already limited public financing for biodiversity could be difficult to sustain, let alone expand. Building on public private partnerships to invest in natural wealth can help transform biodiversity conservation into an engine of growth, a growth that is more inclusive and greener.

Stakeholders in the private sector are coming to appreciate the value of ecosystems and the role they play in accelerating economic growth. The private sector invests in biodiversity conservation to create value, ensure supply chains and improve their business models. Governments and SSAs invest in biodiversity conservation because it is part of national wealth and economic activities. Financial institutions and banks are also ramping up to provide financing, knowledge and long-term funding for biodiversity conservation.

Nordea’s STARS products

While Nordea’s STARS strategies do not invest into forestry or farmland directly, we do invest in companies that could have a material impact on biodiversity depending on which sector they operate in. We believe that biodiversity is a fundamental component of long-term business sustainability since businesses rely on natural resources as inputs and depend on healthy ecosystems. We integrate biodiversity in our company ESG analysis and consider whether biodiversity is a material issue that needs to be addressed either in their operations, including the supply chain or via their products.

Case study: Palm oil plantations

In the consumer staples sector, we consider risks related to palm oil production and we have a separate position on palm oil sourcing. We are concerned that the environmental and social issues associated with unsustainable palm oil production could have a material impact on companies across the palm oil value chain. Unsustainable palm oil production is associated with deforestation and land and labour rights issues, which we believe represent significant risks to our investee companies. Companies may be exposed to climate-related risks due to the association between unsustainable palm oil production and deforestation, a significant contributor to greenhouse gas emissions. Deforestation, as well as land and labour rights, can present significant reputational risks to investee companies, which can lead to a loss of their license to operate if not managed properly. We support the Roundtable on Sustainable Palm Oil’s (RSPO) role in promoting a more sustainable palm oil industry, and we encourage investee companies with material exposure to the industry to become members of the RSPO and apply the RSPO’s Principles and Criteria. However, as a minimum first step, we expect companies across the palm oil value chain, including producers, refiners, traders, consumer goods manufacturers, retailers and banks, to adopt and implement a publicly available No Deforestation, No Peat and No Exploitation (NDPE) policy.