The aim of this report is to provide a foundation for Australian investors to recognise the potentially devastating consequences of nature loss and the types of financial risks affecting companies across different sectors. ACSI cites that the annual loss of capital for Australia alone could amount to US$20 billion by 2050, yet despite this, investors and companies are reported to have poor understanding on biodiversity as a core component of natural capital.

Authors note that Australia has also been slow to restore and effectively protect its natural capital. The most recent State of the Environment report found that the outlook for Australian biodiversity is largely poor. Despite having a unique and valuable collection of biodiversity, Australia is estimated to have lost more biodiversity than any other developed nation in the past 200 years.

The report articulates several major drivers of biodiversity loss in Australia. They are:

• Deforestation
• Land clearing
• Climate change-induced drought and warming oceans
• Invasive species

Biodiversity loss is said to present material risks to companies through both their contribution to biodiversity change and their dependencies on biodiversity-related benefits. These impacts and dependencies can be direct and indirect, as well as acute, chronic, or cumulative. These material risks manifest in three ways:

• Physical
• Transition
• Systemic

The report notes that nearly all companies (and therefore investors) face biodiversity related risks and opportunities, with some sectors more exposed than others. Examples of financial material risks arising from biodiversity loss include:

• Credit risk
• Risk to investments and capital
• Market risk
• Liquidity
• Insurance
• Business model

In addition to risks, ACSI highlights several opportunities that have the potential to achieve positive financial and biodiversity outcomes, these are:

• Blue/green sovereign debt
• Impact investing
• Pure-play lending
• Sustainability linked loans
• Green bonds

Other opportunities include co-benefits between biodiversity and culture. Given the important role that First Nations people play in land and sea protection/management, some of the commercially viable opportunities that arise include:

• Culturally sensitive land restoration
• Fire management for emissions reduction
• Environmental restoration projects

There are also co-benefits between climate change and biodiversity. Due to similarities between the two, investors will be able to leverage part (but not all) of their approach to integrating climate risks to that of biodiversity risks. Some opportunities that arise from aligning these two approaches include:

• Avoidance/reversal of ecosystem degradation
• Ecosystem restoration
• Development of sustainable agriculture, fisheries and forestry
• Creating green infrastructure

The report also summarises key regulatory and policy developments of several countries, which span a variety of new approaches, including:

• The implementation of strict laws on the commercial use of specific land areas
• Subsidy reforms
• Taxes and fines
• Implementation of science-based targets
• Trade directives

The piece concludes with an Investor Biodiversity Action Plan, presenting five critical actions for investors to take to begin to understand and manage biodiversity risk and opportunities and to prepare to respond to the inevitable introduction of the TNFD. These are:

1. Plan and educate
2. Corporate engagement
3. Share policy and framework development
4. Monitor and disclose targets
5. Manage portfolio risks and opportunities

1. This report should be used as a reference document and key resource for Australian investors looking for a high level introduction to the risks and opportunities associated with biodiversity and natural capital. Additionally, the report offers some great resources on measurement, target setting and disclosure tools, as well as putting forward some simple, yet critical, actions for investors to take to begin to understand and address biodiversity related risks.
2. The investor response to climate change risks and opportunities holds several lessons for the treatment of biodiversity. investors should note that biodiversity and climate change are similar in scale and urgency; we cannot consider one before or after the other, but must manage them together. As understanding of climate risks matures, management of these risks is becoming more commonplace. This work done in the climate space will support investors to respond to biodiversity loss, but there are key differences, for example biodiversity currently lacks a universal metric for impact, unlike climate change (which uses CO2-e).
3. To understand how to manage and measure nature and biodiversity related risks, it is important for investors to understand their relationship to each other, and to the services they produce. As articulated in the report, Biodiversity is the living component of natural capital stocks, with natural capital stocks being all natural resources. These resources interact to yield a flow of benefits to people, known as 'ecosystem services'. These services are classified as provisioning (food and fibre), cultural (heritage), regulating (climate) and supporting (nutrient cycling).
4. The TNFD provides the backdrop for this reports release. The launch of the TNFD signals a global
   shift in investor interest in understanding and managing the risks explored in this report. This report is an important step in ensuring institutional investors consider biodiversity-loss related risks in their investments, and prepare for the development and implementation of the TNFD. To find out more about the TNFD go to https://tnfd.global/.
   
5. The report contains some great tools on biodiversity assessment, target setting and disclosure available to investors and corporates. On the assessment side, there are tools like SEEA, IUCN Guidelines for Planning and Monitoring Corporate Biodiversity Performance, and Natural Capital/Biological Diversity Protocols. Target setting tools include the Global Apex Goal for Nature, the CBD Global Biodiversity Framework, and Science Based Targets for Nature. Finally, disclosure tools includes the GRI, SASB, and the Finance for Biodiversity Pledge. See the Appendix on page 46 for more details.
6. Risks that arise from biodiversity loss can be both direct and indirect. Within these two broad categories, risks can be further sub-classified as 'acute' or 'chronic'. Acute biodiversity impacts are event or project driven, for example land clearing for a mine or agriculture. Chronic biodiversity impacts are longer terms shifts in the way that ecosystems function or cease to function. These chronic impacts could arise from long periods of exposure to say, pesticide run off from farms, or long term changes to vegetation types and precipitation as a product of deforestation.
7. The higher risk sectors for investors to consider include: consumer staples (agriculture, fisheries, retailing), materials (metals and mining, and forestry), and real estate developments. Readers are provided with quality if disclosure scores for 11 ASX companies spanning each of these higher-risk sectors according to four pillars, as well as a chart mapping the impacts and dependencies of each sector on biodiversity.