The global financial services industry has a key role in helping to mitigate biodiversity loss amid growing investor awareness of the major risks such loss imposes on businesses.
Federated Hermes argues there is global biodiversity funding gap of US$800 million which the finance community through capital, allocation and better stewardship can help overcome.
Speaking at JANA’s annual conference in Melbourne last week, Federated Hermes’ head of impact investing Ingrid Kukuljen said “the negative impacts of biodiversity loss pose a systemic risk to the global economy and we must stop taking nature’s permanence for granted.”
Kukuljen noted if humans killed each other at the same rates as they kill animals, we would be extinct in 17 years. Protecting bio diversity she said “offers critical mitigation against climate change”.
The US$640 billion Federated Hermes in March created a biodiversity fund with US$30 million under management, together with the UK’s National History Museum. The museum has created the “Biodiversity Trends Explorer” to enable users to compare the state of local ecosystem biodiversity among countries as well as how different possible economic futures will affect nature in developed and developing countries over the coming decades.
The Hermes startup fund invests in companies including its biodiversity champions including US-based wood alternative supplier Trex and Australia’s pallet supplier Brambles.
The Taskforce on Nature-related Financial Disclosures − a risk management and disclosure framework for companies to report and act on nature-related risks − will go some way to help investors better assess biodiversity risks. It is currently seeking market feedback for a draft framework which borrows many similar concepts from the Taskforce on Climate-related Financial Disclosures.
Avoidance of loss
The conference heard from EMM Consulting’s Nathan Garvey who supported the concept of biodiversity offsets but stressed the best solution is avoidance in the first place.
This backs up prevailing wisdom in the sector with the 2020 report on the Federal Environment Protection and Biodiversity law, noting “real change requires a paradigm shift in which environmental damage forms part of the costs of the project and influences decisions about whether it’s viable”.
Transparency is important but the concept of biodiversity credits has some worried, in part because it would be better to stop the loss in the first place rather than allowing companies to sidestep the rules by buying credits. Planning permits could be granted on the condition biodiversity projects balance any losses.
Project avoidance is a powerful tool to protect nature and mitigation should be factored into the cost of the project: so a $1 billion mine which causes $5 billion in biodiversity loss is really a $6 billion project which changes the return dynamics significantly.
The difficulty with combining offset credits with carbon credits includes measurement and Garvey noted they may not be the most efficient measure. “It’s like riding a bike while you are still designing it,” he said.
Measuring natural loss
To overcome the difficulty with measurement, Accounting for Nature chief executive Adrian Ward has worked for more than a decade on establishing a framework to measure the loss of a particular breed of parrot or bandicoot and how it can be offset.
It is a global campaign but, given the difficulties evident in measuring the carbon content in soil, it is a whole step further to measure the loss of fresh water in a marine environment.
Already a premium is paid for carbon contracts which have the benefit of offsetting emissions and creating a new habitat for rock wallabies for example, which means regular carbon credits sell for $26 a tonne but credits earned where wallaby habitat is restored are worth $56.
This is an example of what Garvey called the “double dividend” from biodiversity protection with good land management also helping maintain plant and animal species.
