Biodiversity refers to the variety of all forms of life on Earth, ranging from genes and bacteria to entire ecosystems such as forests or coral reefs. Biodiversity loss refers to declining species diversity and abundance, which may lead to the disruption of these ecosystems.
Quantifying the problem of biodiversity loss
The current rate of global biodiversity loss is estimated to be 100 to 1000 times higher than the (naturally occurring) background extinction rate, faster than at any other time in human history. A recent IPBES report concluded that nature is declining globally at rates unprecedented in human history with grave impacts on people around the world. Specifically:
1 million animal and plant species are now threatened with extinction, many within decades, more than ever before in human history (there are1.7m classified animal species* and 380,000 species of plants)
Three-quarters of the land-based environment and about 66% of the marine environment have been significantly altered by human actions.
More than a third of the world’s land surface and nearly 75% of freshwater resources are now devoted to crop or livestock production.
In 2015, 33% of marine fish stocks were being harvested at unsustainable levels; 60% were maximally sustainably fished, with just 7% harvested at levels lower than what can be sustainably fished.
* It is possible that there are potentially 8.7m animal species in total of which 7m have not yet been classified.
The IUCN Red List of Threatened Species (website) estimates that 42,100 species are threated with extinction - which is about 28% of the total species they assessed.
What are the drivers behind biodiversity loss
These primary drivers of biodiversity loss are, in descending order: (1) changes in land and sea habitats; (2) overexploitation of organisms; (3) climate change; (4) pollution and (5) invasive alien species.
Why biodiversity matters for investors?
Biodiversity provides a number of important services to human society, including: regulating local climate, decomposing waste, storing carbon, buffering against natural hazards, maintenance of soil fertility, regulation of pests and diseases, pollination of plants and crops, provision of food, raw materials and health care products.
The UN EP FI conducted research on which sectors depend on biodiversity services and which sectors are most at risk at influencing biodiversity loss (link).
The impact of biodiversity loss can be significant to investors. 13 of the 18 sectors that comprise the FTSE100 Index of UK company shares are associated with production processes with high or very high material dependence on nature. One-third of global crop production depends on animal pollinators and three-quarters of crops are partially dependent on them. Roughly 60% of medicines are based on natural organisms.
Measuring biodiversity and setting goals
Investors exposed to these sectors will want to measure and manage them, and as such there are a number of frameworks and tools to help them achieve this.
COP15 30x30 goals (link)
The public and private sectors have both recognized biodiversity’s importance. At the United Nations Biodiversity Conference (COP15) in December 2022, representatives from 188 governments adopted the Kunming-Montreal Global Biodiversity Framework (GBF). As described in a previous paper, the GBF targets (known as 30×30) include placing 30% of the planet and 30% of degraded ecosystems under protection by 2030.
Members of the financial sector have also committed to tackle biodiversity loss by signing pledges such as the Finance for Biodiversity Pledge and adopting reporting frameworks such as that of the Taskforce on Nature-related Financial Disclosures (TNFD).
TNFD ( website)
The Taskforce on Nature-related Financial Disclosure follows a very similar approach to the TCFD and has issued a framework to support investors report and disclose on their impact on biodiversity.
Aichi Biodiversity Targets (link)
20 biodiversity targets were set by the UN Convention of Biological Diversity in 2011 to offer a framework in which the world and individual countries can address the growing rates of biodiversity loss. Unfortunately it seems that we are only on track to meet 4 of the 20 targets.
UN EP FI
The report outlined earlier highlights a list of frameworks and tools to support investors with goal setting (which can be access here).
ISS ESG Biodiversity Impact Assessment Tool (link)
BIAT considers a direct set of corporate environmental impacts on species and habitats, throughout a company’s entire value chain and its geographic revenue footprint. The tool is built on a robust and proven Life Cycle Impact Assessment (LCIA) methodology (IMPACT World+) that incorporates recognized databases such as EXIOBASE, Ecoinvent, and company‐specific revenue data, while also drawing on ISS ESG’s proprietary biodiversity performance data. The tool outputs:
Potentially Disappeared Fraction of Species (PDF or Absolute PDF) metric, which quantifies the potential loss of species richness due to adverse environmental pressures, relative to species richness in undisturbed ecosystems, often referred to as the pristine state, and
Mean Species Abundance (MSA) metric, which quantifies the mean abundance of original species relative to their abundance in undisturbed ecosystems.
BIAT can also identify the principal individual drivers contributing to biodiversity loss, known as the midpoints. The ten tracked midpoints are Climate Change Ecosystem Quality, Marine Acidification, Freshwater Acidification, Terrestrial Acidification, Freshwater Eutrophication, Marine Eutrophication, Freshwater Ecotoxicity, Water Availability Freshwater Ecosystem, Land Transformation, and Land Occupation.
Thoughts around next steps
There are a number of next steps for improving the impact investments have on biodiversity:
Mapping current biodiversity state and desired end goals
Overlay corporate operational blueprints and supply chain maps to understand key interdependences
Using systems thinking to understand the interplay between nature, industry and citizens and develop a theory of change framework
Create a strategy involving key actors to drive change through incentive, regulation and more
Useful resources
IUCN Red List of Threatened Species: https://www.iucnredlist.org/
The Taskforce on Nature-related Financial Disclosure: https://tnfd.global/
UN EP FI report: https://www.unepfi.org/wordpress/wp-content/uploads/2020/06/Beyond-Business-As-Usual-Full-Report.pdf
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