By Piers Hugh Smith, Investment Stewardship Manager and Monika Dyndo, Climate Data Scientist at Franklin Templeton
Governments from around the world are currently convening at the UN Biodiversity Conference to agree a new set of goals to achieve an equitable and Nature Positive world by 2030.
Ahead of Finance Day, it is important to highlight that biodiversity and climate change are inextricably linked – there is no solving one without the other.
Currently we are experiencing a major loss in biodiversity due to human activity, which has affected 97% of the world’s ecosystems and consequently impacted us and our economy.
The impact of climate change and biodiversity combined pose a risk to the value of investors’ portfolios. This is due to both companies’ reliance on natural capital and also the systemic failure in the event of adverse climate conditions or ecosystem collapse. However, investors are well positioned and incentivised to address these risks given the threat to long term investment value and the dependency of global supply chains on natural capital.
Understanding the biodiversity challenges
Whilst good progress is being made on restoring biodiversity, there are still important obstacles to overcome for stakeholders across the financial system. One challenge is data accuracy and availability.  Investors require comparable, verifiable and consistent data to price their investments accurately and allocate capital in the most effective way. Nature-related information is a long way from this goal and significant progress is still needed on company disclosure for investors to better understand where these risks are concentrated. Investors cannot ‘offset’ biodiversity impact in the same way one can emissions, but increased information will enable investors and companies to set targets and manage their portfolios’ impact on natural capital.
Additionally, investors require regulation that allows us to perform our fiduciary responsibility over the long term. This means policies that provide economic incentive for private capital to actively be deployed to protect natural capital, alongside the limitation of the exploitative development of natural resources that harms the long term capital stock.
The important role investors play in helping to restore biodiversity
Biodiversity preservation and net zero are mutually exclusive. Therefore, it is important that investors continue to advocate for the right regulatory standards, engage investee companies to reduce their negative impact on biodiversity, as well as support communities’ efforts in protecting nature. With the right information and economic incentives, investors can drive positive change on biodiversity. Moving forward, the industry needs to focus on getting better disclosure and making clear what the private capital markets need.
Overall, we hope that the COP15 conference results in an advance towards policy goals, with commitments from governments providing frameworks the markets need to deploy their strength effectively and quickly.
