Written by Rodolfo Fracassi (pictured), Managing Director and Co-founder of MainStreet Partners
Whilst the discussions around climate change and the solutions to halt it, continue apace, the debate around ‘biodiversity’– often fails to garner the same political and public attention. This is easy to understand as the statistics around the change in climate are certainly eye catching and are more easy to measure, such as CO2 emissions or the extent of water pollution. The simple fact is, ecosystems are vital for the earth’s capacity to soak up C02.
Biodiversity – that is, the coexistence of different animal and plant species in balance within the same ecosystem – is interlinked with climate change. Biodiversity is affected by climate change, but biodiversity also makes an important contribution to both climate-change mitigation and adaptation.
The issue of measurability has marked the whole path of sustainable investments, from the early days when ESG investing was a more niche or specialised skill. As new and more precise indicators have emerged, investment managers have been able to integrate them into their investment processes, with positive effects on the environment as well as better expected returns.
The urgency to put biodiversity at the centre of the debate can be writ large in numbers, which show a worrying trend. For example, we have already caused the loss of 80% of all wild mammals and half of the planet’s plants. And it is clearly being taken more seriously also at a political level. The European Union is at the forefront of this change and has recently launched the Biodiversity Strategy for 2030 with the ambitious aim of protecting 30% of land and seas.
How can biodiversity be effectively measured in investment processes?
A great deal of help comes from the United Nations Sustainable Development Goals (SDGs): Goal 14 and Goal 15, in particular, aim to protect and preserve life underwater and on land respectively. We have been incorporating the SDGs in our sustainability analysis since they were published in 2015 using relevant indicators as a guide to build a framework that combines data, policies, objectives and the actions of companies operating in any sector in order to scrutinise their positioning and contributions towards biodiversity issues.
Few companies can be classified as “Pure Players” in this field, i.e. with revenues derived directly from products or services related to biodiversity. It is therefore more important to evaluate how companies can contribute to conservation by judging their genuine commitment to transitioning to a more sustainable business model. To do this, we evaluate, for example, the presence of concrete initiatives aimed at reforestation, the reduction or elimination of environmental pollution phenomena and the reduction in the use of plastic in all parts of the production and distribution processes. We also assess the use of timber or other certified raw materials, examine whether any animal testing is used and then, of course, whether any legal disputes at various levels are present in all of these areas.
A wide set of these parameters allows us to give each company a quantitative score to measure the level of impact on natural resources, water, seas, rivers, land, forests. A reduction in CO2 emissions alone is not enough for sure to consider a holistic assessment of the effects on biodiversity.
We believe instead that the comparison and integration of the SDGs in line with the objectives of the EU 2030 biodiversity plan helps to measure companies’ contribution to biodiversity which forms one of the technical parameters that participants in capital markets will have to communicate from 2023 onwards.
The simple truth is that conserving the world’s last surviving ecosystems and restoring the failing ones will not only address the biodiversity crisis but also tackle the threat of climate change.