The United Nations’ biodiversity conference COP15 is set to take place in Montreal, Canada, from 7 to 19 December.
Take a look at our Plan for Nature to learn more about our approach, progress to date, and future priorities. Schroders considers accounting for nature risk as part of its fiduciary duty to clients.
We are “at war with nature”, UN chief warns
As delegates gather in Montreal, Canada, to discuss and agree on a global deal on nature, Inger Andersen, Executive Director of the UN Environment Programme (UNEP), has summed up the stress the planet’s biodiversity and natural resources are under.
She is reported as saying: “We’ve just welcomed the eight billionth member of the human race on this planet. That’s a wonderful birth of a baby, of course. But we need to understand that the more people there are, the more we put the Earth under heavy pressure.
“As far as biodiversity is concerned, we are war with nature. We need to make peace with nature. Because nature is what sustains everything on Earth… the science is unequivocal.”
What are the five key themes – the five horsemen of the biodiversity apocalypse – for investors to be aware of?
According to Andersen, the five core areas to be addressed in any final agreement – which she described as “the five horsemen of the biodiversity apocalypse” – are:
1. Land-use change
4. The climate crisis
5. The spread of invasive species
Catherine Macaulay, Sustainable Investment Analyst, says: “The hope is that COP15 is really a landmark summit. The ambition for COP15 is that it will be analogous to the Paris Agreement, but for biodiversity. Paris was the first ever legally binding international treaty on climate change in which global leaders reached consensus to limit global temperature rises to 2 degrees Celsius, and 1.5 degrees if possible.
“Since then we’ve seen a host of countries set national targets to contribute to achieving this ambition, so we can really see how this international agreement has paved the way for policy and action at the national level.
“The hope for COP15 is that it will provide that same landmark international agreement for nature and biodiversity, which will catalyse action in the years to come.”
She adds: “COP27 also saw recognition of the role that nature-based solutions will need to play to meet our climate goals, with a big focus on voluntary carbon markets and ending deforestation, building on momentum from COP26 in Glasgow last year. This acknowledgement of the crucial role of nature in climate progress sends a powerful message ahead of the biodiversity COP15 summit.”
Niall Smith, ESG Models and Data Analyst, explains some of the implications for investors. He says: “Companies urgently need to start considering the impacts they are having on the natural environment – and counting your carbon emissions just won’t cut it any more. As biodiversity loss continues to come into focus on the global stage, the bar will be raised in terms of company disclosure and mitigation of operational impact.
“Companies should also consider to what extent they are dependent on ecosystem services and natural capital assets. Many industries are materially underpinned by ecosystem services as inputs, which will be compromised in the event of ecosystem collapse.
“Investors by extension need to determine their levels of impact and dependency on natural capital, in order to safeguard investments and ensure consistent returns in the face of this systemic risk.
“In light of COP15 and the draft Global Biodiversity Framework, there is no better time for investors to start analysing nature-related risk exposure and developing enhanced investment strategies.”
Doubling finance flows into nature-based solutions by 2025
Meanwhile new research from the UN this week has suggested climate, biodiversity, and land degradation goals will be out of reach unless investments into nature-based solutions quickly ramp up to US$384 billion a year by 2025, more than double the current US$154 billion a year.
Nature-negative flows from public sources, which are three to seven times larger than investments into nature-based solutions, need to be phased out, repurposed, or reformed, according to the UNEP.
Private capital only represents 17% of total investments into nature-based solutions and the report argues for combining “net zero” with “nature positive”.
Inger Andersen, said: “This requires governments, business and finance to massively step up investments in nature-based solutions because investments in nature are investments in securing the future for generations to follow.”
Peter Harrison, Schroders’ Group CEO, summed up his attitude to investing in nature during a visit to one of Schroders Greencoat’s offshore wind farms in the north of Wales earlier this year.
"The world's waking up to the importance of nature, and we've got to not just get to net zero, but we've also got to get to a world that's nature positive,” he said.
“So the two things need addressing side-by-side.
"And I think what we need to do is move from a world where nature was addressed simply through philanthropy, to a world where nature is addressed through bigger forces and we can start to understand how finance can come to really help nature in a positive, constructive, consistent way. And it's that unlocking of the power of finance that, to my mind, is the really exciting next step in addressing nature.
"Nature-based solutions can perhaps hit 30% of what is required to hit our Paris targets.
"We've got to really address local issues in local places. But if we can unlock the power of nature to be transformative, that becomes a really big accelerant into hitting some really demanding goals, both in 2040 and in 2050."
- Read more: Peter Harrison: why we must make nature investible
As sustainable investing matures and evolves across asset classes and geographies, Andy Howard, Global Head of Sustainable Investment, has considered the future of ESG and impact.
“The role of natural capital and wider biodiversity threats are central,” he says.
“Climate threats are symptomatic of the structural and growing tensions between escalating demand from a larger, wealthier and hungrier global population and the world’s finite resources to support that population.
“Today we use resources equivalent to those provided by 1.7 Earths every year, pushing us further into natural capital deficit and intensifying the threats that result from degrading global ecosystems.
“By some estimates, roughly $10 trillion of natural capital value is lost every year, underlining the hidden liabilities building in the global economy.
“The reality is stark: nature risk is fast becoming an integral factor to investment risk and returns. That’s why we released our first company-wide Plan for Nature in late 2022, drawing together our action to date and setting a future direction for the action we are taking to tackle the causes and implications of nature loss.”
- Watch: What is natural capital?
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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.