Active ownership tackles natural capital and biodiversity
The services that nature provides often go unpriced, resulting in their excess use and we are seeing ecosystem decline and degradation as well as rising ecological scarcity.
Why do we engage?
The services that nature provides often go unpriced, resulting in their excess use. This contributes to why we are seeing ecosystem decline and degradation as well as rising ecological scarcity. In 2022 the World Economic Forum (WEF) identified biodiversity loss as one of the top three most severe risks on a global scale over the next 10 years.1 The WEF estimates some $44 trillion of economic value generation, over 50% of global GDP, is somewhat or highly dependent on nature.2
What are the implications of inaction?
The potential economic impacts of inaction are large: the World Bank estimates that a partial ecosystem collapse could cost 2.3% of global GDP (or $2.7 trillion) per year by 20303.
In practical terms this could mean businesses, banks and investors face increased insurance risks, higher costs of capital and a loss of investment opportunities. Sectors such as agriculture, food and marine, which are heavily reliant on ecosystem services that are either currently not valued or undervalued, may see company valuations affected when these are eventually accurately valued. Furthermore, regulatory and policy pressures, which could have direct revenue impacts, are already beginning to build and crystalize.
What is Schroders’ response?
We prioritize four key engagement sub-themes within the broad topic of natural capital and biodiversity. These reflect the key natural capital and biodiversity issues faced by our investee companies.
Schroders’ natural capital and biodiversity sub-themes:
- Natural-related risk and management: The degradation of natural capital, including the loss of biodiversity and depletion of renewable stocks, poses a risk for businesses, their earnings and their value. We engage to encourage companies to develop strong governance on this issue, and adopt emerging good practices on nature-related financial disclosures and target setting.
- Circular economy, pollution and waste: Creating a circular economy that limits pollution and waste, such as plastic pollution, and promotes re-use and recycling is critical in reducing the intensity of natural resource consumption and alleviating environmental pressures. We engage to encourage companies to minimize waste and pollution and to promote circularity.
- Sustainable food and water: We believe the world’s food system must transform to meet population growth and address malnutrition and other health risks. Moreover, the food and water system is both at risk from climate change and is a significant contributor to greenhouse gas emissions and other environmental pressures; for example, through the use of fertilizer and pesticides. We engage to promote a food and water system that is more environmentally sustainable, healthy and better able to meet the needs of a growing population.
- Deforestation: Forests are an important carbon sink and they also play a critical role in the earth’s water cycle and sustaining biodiversity. Deforestation is a major contributor to greenhouse gas emissions and biodiversity loss. We expect companies to eliminate exposure to commodity-driven deforestation and to promote the sustainable management of forestry assets.
Deep dive: how do we engage?
In blue are the five priority natural capital and biodiversity actions for our engagement with large and medium companies. 4 Where appropriate, we will seek to align our engagement expectations with those of major collaborative initiatives such as the Taskforce on Nature-Related Financial Disclosures, Science-Based Targets for Nature and Nature Action100+
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4There is no standard definition for large and medium companies and significant regional variation in what is considered large, medium or small. We recognize that smaller companies face greater resource and financial constraints than larger companies and therefore may need more time to meet our desired outcomes. When assessing company progress against our expectations, we generally compare the progress of similarly sized peers based in the same region.
The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.