Why nature matters for businesses and investors

Biodiversity is increasingly recognised as integral to economic and business stability. Ecosystem services—benefits derived from nature—support global economic activity. However, biodiversity loss poses significant risks to businesses through physical resource degradation and regulatory pressure. Investors must understand these risks and opportunities to make informed decisions. Regulatory frameworks, like the Global Biodiversity Framework, are pushing nature onto the global agenda.

Economic problem today, existential threat tomorrow

Biodiversity underpins the global economy, with US$44 trillion of economic output being moderately or highly nature-dependent. Annual costs of land degradation range from US$6-11 trillion, while pollinator loss reduces agricultural output by US$217 billion. The World Economic Forum ranks biodiversity loss among the top 5 risks over the next decade. Governments have exacerbated biodiversity decline by providing US$274-542 billion annually in subsidies harmful to nature.

Biodiversity: Why now for investors?

Major global milestones, including COP26 and COP15, have elevated biodiversity’s profile. COP15’s Global Biodiversity Framework includes goals such as protecting 30% of terrestrial and marine ecosystems and mobilising US$200 billion annually in biodiversity-related funding. Initiatives like Nature Action 100 align investor efforts to address these risks. Investors now face rising pressure to incorporate biodiversity considerations into their decision-making processes.

Biodiversity in the context of nature-related risks

Biodiversity, alongside abiotic resources, forms natural capital. Threats like land-use change, climate change, overexploitation, pollution, and invasive species are key drivers of biodiversity loss. For instance, deforestation in the Amazon has led to 30% less CO₂ absorption than in the 1990s, with further deforestation potentially releasing 90 billion tonnes of CO₂. Tackling biodiversity loss alongside climate change offers synergistic opportunities to mitigate both crises.

Nature-related risks from a business and investment perspective

Businesses face physical risks like soil degradation, which reduce output, and transition risks caused by regulatory or societal changes. Examples include stranded assets, supply chain disruptions, and reputational damage. Investors must map risks stemming from biodiversity loss and climate change to identify impacted sectors and opportunities. High-risk industries, such as agriculture and mining, face challenges from regulation, resource availability, and consumer behaviour shifts.

Identifying economic and investment opportunities

The mitigation of biodiversity risks presents significant opportunities. According to the World Economic Forum, US$10.1 trillion in annual business opportunities and 395 million jobs could be generated by 2030 through nature-positive actions. Sectors like food, land, ocean use, infrastructure, and energy offer substantial gains. Solutions include regenerative agriculture, sustainable forestry, and circular production models. Public-private initiatives, such as carbon taxes in Colombia and Costa Rica, demonstrate the benefits of integrating conservation into economic policy.

Implementing biodiversity insights at a portfolio level

Investors can assess biodiversity risks through a matrix plotting industries’ dependency on and impact on nature. High-risk sectors like agriculture and energy require close scrutiny. Case studies illustrate actionable insights:

• Constellation Brands: Addressing water scarcity risks with a goal to restore 5 billion gallons of water withdrawals by 2028.
• Iberdrola: Using AI to mitigate risks to bird populations near wind farms.
• Great Lakes Dredge & Dock Co.: Managing transition risks linked to environmental regulations.

Pressure mounts on businesses and investors

The interconnectedness of biodiversity loss and climate change requires immediate action. Regulatory, economic, and societal pressures will increasingly shape business and investment decisions. Investors must align portfolios with nature-positive strategies to mitigate systemic risks and unlock long-term value.

More like ecosystems, less like invasive species

By adopting frameworks that integrate biodiversity risks and opportunities, investors can achieve meaningful returns while contributing to global conservation efforts. Practical steps, informed by fundamental research and issuer engagement, can drive positive outcomes and ensure economic systems function sustainably, akin to natural ecosystems.