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Biodiversity: A Relatively New Theme for ESG-focused Investors

Biodiversity: A Relatively New Theme for ESG-focused Investors
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Thematic investing, as it pertains to the environmental, social, and governance (ESG) investing spectrum, is a niche space that has gained momentum in recent years. Thematic ESG investing can reflect an institutional investor’s interests and/or financial goals in a specific area. Examples of themes include gender diversity, affordable housing, clean water, or community initiatives such as access to health care.

A relatively new entrant to the thematic spectrum is biodiversity, broadly defined as the variety and variability of all biological life on Earth: plants, animals, bacteria, and fungi, and the ecosystems in which they reside.

The importance of biodiversity was highlighted at the November 2022 Conference of Parties meeting (COP27), referring to the 27th United Nations’ climate change conference, with this statement: “For many years the climate crisis and the biodiversity crisis have been treated as separate issues, but the reality … is that there is no viable route to limiting global warming to 1.5°C without urgently protecting and restoring nature.”

In December 2022, the 15th U.N. Biodiversity Conference was held in Montreal. Significantly, nations adopted 23 targets to hit by 2030. These included protecting 30% of Earth’s land and waters; cutting global food waste in half; restoring or beginning to restore at least 30% of degraded lands and waters; and phasing out harmful subsidies that impair biodiversity.

From a financial perspective, the World Economic Forum’s 2020 Nature Economy Report highlighted that “roughly $44 trillion in value creation is moderately or highly dependent on nature and its services. Environmental crises are all connected through the ecosystem of supply and demand which means if we don’t reform how we approach biodiversity, the interconnected system that forms life as we know it, these issues will inevitably hit where it hurts most—economically.”

Biodiversity Investing Options

Biodiversity investing objectives could be financially motivated or values-based, or both. Biodiversity investments include companies that support the sustainable use of natural resources and ecosystem services or technologies, or products or services that reduce biodiversity threats or restore natural habitats. These may include “nature-positive” investments such as green roofs, clean water, hazardous waste management, carbon capture, eco-friendly products, environmental remediation, or sustainable/regenerative agriculture.

Currently, the options available in the U.S. for investors interested in thematic biodiversity investing are limited, but they are growing in both private and public markets, and we expect that trend to continue. More generally, biodiversity is a theme that is gaining traction in many broader impact-oriented strategies across public equity, fixed income, and private equity.

Disclosures

The Callan Institute (the “Institute”) is, and will be, the sole owner and copyright holder of all material prepared or developed by the Institute. No party has the right to reproduce, revise, resell, disseminate externally, disseminate to any affiliate firms, or post on internal websites any part of any material prepared or developed by the Institute, without the Institute’s permission. Institute clients only have the right to utilize such material internally in their business.

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