Stockholm (NordSIP) – ‘Strategy for Breakfast’ might be a bite too much to accompany your first cup of coffee, but the theme of the dialogue proposed on this grey February morning is attractive enough to gather a good portion of Stockholm’s sustainable investment community and academia. To discuss how biodiversity can be strategically managed in investments, the hosts from Meander Capital have invited an impressive trio of panellists, too: Gunnela Hahn, Senior Sustainable Investment Specialist at Nordea; John Howchin, Transition Inc., and Allan Emanuelsson, Chief Expert ESG and Sustainable Investments at Danske Bank.
The moderator, Martin Persson from Meander Capital, frames the conversation by explaining why he and his colleagues find the topic so fascinating and highly relevant for investors. Upon conducting an analysis using the recommendations of industry standards, such as those suggested by the Taskforce on Nature-related Financial Disclosures (TNFD), Meander discovered that the consequences, risks, and opportunities linked to biodiversity were significant for about a third of the companies they considered for inclusion in the portfolio. According to Persson, this outcome was much greater than what they envisioned before initiating the analysis.
Is biodiversity finally going mainstream in investing?
Meander Capital’s experience is, perhaps, symptomatic of a recently increased awareness among asset managers about the importance of biodiversity, including for the long-term returns and sustainability of a portfolio. Post-COP15, the United Nations biodiversity summit in Montreal in December 2022, the topic has finally risen in priority and is gradually taking its rightful place alongside net-zero climate targets.
There is a palpable positive momentum, manifested in many ways: from initiatives like Finance for Biodiversity and Business for Nature to policy measures such as the EU’s deforestation regulation or standardisation efforts like TNFD or the Science Based Targets initiative (SBTi). Tools for screening and assessing investor portfolios for biodiversity risks are being developed by organisations such as ENCORE, IBAT, and WWF Risk Filter Suite, to name but a few.
So, is this biodiversity awareness here to stay? “There are so many SDGs and sustainability issues for companies and investors to prioritise among, all competing for the same finite resources,” warns Howchin. “Let’s hope that the recent focus on biodiversity can be sustained,” he adds, wondering whether companies and investors could afford the boost in expertise this highly specialised field requires, given today’s challenging market environment.
Hahn is more optimistic, pointing out that we shouldn’t treat biodiversity as an entirely new area within sustainable investing. The issues are intrinsically interconnected with climate change and pollution, for instance, which have long been on everyone’s radar. Companies and investors can use existing frameworks and processes, adding just a few specific issues.
A report by Danske Bank finds that although 71% of the Nordic companies the analysts looked into are exposed to material biodiversity risk, less than 15% have set a target to reduce their impact or to restore nature. Despite the report’s gloomy results, Emanuelsson is eager to highlight the many positive examples of companies doing pioneering work on biodiversity and embracing SBTi and other scientific standards.
Where should an investor start?
From mapping the material risks biodiversity poses to their portfolios to engaging thematically on specific topics like deforestation or fishing, the panellists share many concrete ideas on how investors can approach this relatively new area. The most important thing, however, is to start somewhere, they all agree. “Steal with pride,” recommends Howchin, who points out that investors still not versed in the subject can gain a lot of insights by simply looking at what has already been done by their peers.
Scientists and NGOs have also much to contribute, given their detailed knowledge of the specific issues, according to the panellists. Meanwhile, academia, too, can benefit from the collaboration with practitioners. As universal owners, many investors have a good overview of this evolving landscape and know what constitutes ‘best practice’. Emanuelsson takes up the example of Sustainable Finance Lab, where leading scientists actively seek to apply their research in the business world.
Time to step up
Ending on a positive note, the panellists discuss some of the opportunities the biodiversity theme offers investors. Leading companies in the area are well-positioned to be tomorrow’s winners, according to Hahn. Investing in innovative solution companies is another way to go, offers Emanuelsson. Howchin brings up the subject of ‘bio credits’, still a nascent market dogged by many of the same challenges faced by carbon credits, yet with the potential to provide much-needed financing solutions.
Although biodiversity poses fresh challenges to investors by being highly localised and encompassing a vast array of issues that cannot be boiled down to a single metric, the panellists seem eager to step up from broad commitments to the nitty-gritty of implementation. Their message is loud and clear: it is time to dig down, start measuring and documenting, and doing it on the ground, in the local communities, farms and forests.
