Point of No Returns – Biodiversity
An assessment of asset managers’ approaches to biodiversity
The unprecedented technological change and economic growth achieved over the last few decades, while bringing prosperity to many, has come at a heavy cost to natural systems. Some 75 per cent of terrestrial and 66 per cent of marine environments have already been severely altered by human activity. One million species face extinction – many within decades.
Biodiversity loss is considered one of the greatest risks facing society today. The destruction of nature is not only affecting business bottom lines, but also bringing ecosystems closer to destabilising tipping points, which may have serious consequences for human health, global food security and the efforts to contain catastrophic climate change.
The challenge is complex, and tackling it requires a broad collective commitment. But the financial sector has a key role to play. The influence it wields through the ownership and financing of companies means it potential for change should not be underestimated.
The asset management sector’s approach to biodiversity is critically underdeveloped
Not one of the world’s largest asset managers has published a dedicated policy on specific biodiversity risks and impacts, and only 11 per cent reference a need to mitigate the negative impacts on the natural environment in their investment policies. 86 per cent of asset managers still make no reference to ecosystem protection, natural capital or biodiversity in their policies.
The vast majority of policies, even where they do discuss biodiversity-related risks, lack concrete commitments.
Collectively, the industry is failing to integrate biodiversity into corporate engagement and financial decision-making. Only 46 per cent request better disclosure of the impacts of company value chains on biodiversity; only 46 per cent discuss corporate strategy on biodiversity; and less than a third engage with portfolio companies on certifications guaranteeing minimum sustainability standards in the sourcing of palm oil and other soft commodities.
Deforestation is the most common theme for engagement, with other vital issues such as fresh water, over fishing and ocean health getting less air time. Only three survey respondents mention instances of engagement on company impact on pollinator populations.
On top of that asset managers’ voting policies lack specific commitments on biodiversity. 36 per cent indicate that they have a voting policy that covers biodiversity, but only around 7 per cent commit to supporting resolutions asking for increased transparency on corporate impacts in this area.
Asset managers are not yet identifying biodiversity risks – and have even less understanding of their impact
While the understanding of climate change as a systemic risk to portfolios is relatively well established within the industry, the identification of biodiversity-related risks is still limited. Only around half (56 per cent) of those surveyed identify examples of biodiversity-related risks to their investments. This is largely with regard to environmental regulation.
Similarly just 51 per cent of asset managers report biodiversity-related opportunities, most commonly focused on agricultural practices and circular economy solutions.
Still fewer managers identify any positive and negative impacts of their investments on biodiversity (33% and 32% of managers respectively). When it comes to negative impacts, respondents tend to talk in general terms – i.e. the threat of deforestation – or focus on high profile case studies, such as the BP Deepwater Horizon oil spill.