In focus

An A-Z of natural capital and biodiversity terms for investors


As Schroders publishes its Plan for Nature, here’s a round-up of some common natural capital and biodiversity terms investors should understand.

Visit our dedicated website for more on the Plan for Nature here

Akaria Natural Capital

Earlier this year Schroders announced a partnership with Conservation International to launch Akaria Natural Capital, one of the first dedicated natural capital investment managers in Singapore.

Biodiversity

Sometimes the terms natural capital and biodiversity are used in ways that suggest they are interchangeable. But biodiversity applies to the diversity of living organisms. Natural capital includes living organisms but also includes the flow of ecosystem services from this biodiversity.

Circular economy

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. Schroders engages to encourage companies to minimise waste and pollution and to promote circularity.

COP15

COP15 is the United Nations’ two-week biodiversity summit taking place from December 7-19 in Montreal, Canada, this year. It is the 15th meeting of the Conference of the Parties to the UN Convention on Biological Diversity. The biggest biodiversity conference in a decade, it was originally planned to take place in October 2020 but was delayed because of the Covid-19 pandemic. A Post-2020 Global Biodiversity Framework is expected to be agreed.

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. Schroders expects companies to eliminate exposure to commodity-driven deforestation and to promote the sustainable management of forestry assets.

Read more: Q&A: why tackle harmful deforestation – and how?

Ecosystem services

Nature’s important benefits are called ecosystem services. They include food and water, pollination and carbon capture.

Finance for Biodiversity Pledge

Schroders is among the financial institutions to have signed the Finance for Biodiversity Pledge, committing to protect and restore biodiversity through finance activities and investments. The Finance for Biodiversity Foundation is calling for action and collaboration between financial institutions and is a connecting body for signatories and partner organisations.

Just Transition Finance Challenge

The Just Transition Finance Challenge is an initiative to mobilise more public and private capital into investments that support a just transition to net zero in the UK and other developed and emerging markets. It was launched by the Impact Investing Institute in May 2022.

‘Make it Mandatory’

The Make it Mandatory campaign from Business for Nature, a global coalition of more than 75 organisations, is calling for mandatory requirements for all large businesses and financial institutions to disclose their impacts and dependencies on biodiversity by 2030.

natcap research

Last year Schroders and Oxford Sciences Innovation announced their investment into natcap research, an advanced nature and climate intelligence platform which enables clients to measure, enhance, value, and report natural capital.

Natural capital

Natural capital refers to the stock of renewable and non-renewable natural assets, such as soil, forests, air, water, geology, and all living organisms. They provide vital ecosystem services, for example carbon capture, pollination or protection from soil erosion and flooding. More than 50% of global GDP, $44 trillion of economic value, depends on natural resources.

Read more: Q&A: What is natural capital and why should investors care?

Natural Capital Investment Alliance (NCIA)

The Natural Capital Investment Alliance aims to accelerate the development of natural capital as a mainstream investment theme. Schroders joined the NCIA on day two of the COP26 summit in Glasgow last year.

Natural climate solutions

Natural climate solutions are efforts to conserve, restore or improve ecosystem services in order to absorb and store carbon from the atmosphere.

Nature positive

Nature positive is a term being used to describe an approach that enriches biodiversity, stores carbon, purifies water and reduces pandemic risk. In short, a nature positive future will enhance the resilience of our planet and our societies. Civil society organisations such as the Global Commons Alliance are calling for a global nature positive goal to halt and reverse the destruction of nature by 2030 with a full recovery of a resilient biosphere by 2050. Increasingly, businesses are also adopting the term, with Science Based Targets for Nature being developed as a parallel initiative to science-based target setting on climate.

Read more: Peter Harrison: why we must make nature investible

Nature-based solutions

Nature-based solutions are actions to protect, sustainably manage or restore natural ecosystems that address societal challenges such as climate change, human health, food and water security, and disaster risk reduction while providing human wellbeing and biodiversity benefits.

Nature-related risks

Nature-related risks include disruption of activities or supply chain; raw material price volatility; adjustment or relocation of activities; stranded assets; liquidity risk and legal, regulatory or reputational costs.

Read more: How can investors assess impacts on nature?

 Nature-related risk 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. Schroders engages to encourage companies to develop strong governance on this issue, and adopt emerging good practices on nature-related financial disclosures and target setting.

Read more: Schroders’ award-winning Engagement Blueprint

Non-renewable natural capital

Examples of non-renewable natural capital include fossil fuels, soil and minerals that exist in finite amounts.

Post-2020 Global Biodiversity Framework

This draft global biodiversity framework from the UN Convention on Biological Diversity (CBD) is designed to guide actions worldwide through 2030 to preserve and protect nature and its essential services to people. It will be presented for consideration at the COP15 summit in Canada. It comprises 21 targets and 10 “milestones” for “living in harmony with nature” by 2050. Targets include ensuring at least 30% of land and sea areas, especially areas of importance for biodiversity, are conserved through equitably managed and protected. Another proposed target is reducing nutrients lost to the environment by at least half, pesticides by at least two thirds, and eliminating discharge of plastic waste.

Renewable natural capital

Professor Dieter Helm, who is a director at natcap research, points to the North Sea’s fishing stocks as an example.

“If you eat kippers or herring, you’re enjoying the benefits of a renewable bit of natural capital. Provided we don’t overexploit this renewable natural capital, people in 100 years’ time will also be able to have kippers,” he says.

As long as natural stock is not driven below critical thresholds, the assets can regenerate.

Video: what is natural capital?

 Science-Based Targets for Nature (SBTN)

Science-based targets for nature are in the early stages of development by the Science-Based Targets Network. These targets are a way in which businesses can align their individual sustainability action with globally agreed environmental goals.

Sustainable food and water

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 fertiliser and pesticides. Schroders engages to promote a food and water system that is more environmentally sustainable, healthy and better able to meet the needs of a growing population.

Read more: Sustainable food and water – why the current system needs to be transformed

Taskforce for Nature-related Financial Disclosures (TNFD)

Work has begun on a Taskforce for Nature-related Financial Disclosures with a plan to create a framework, similar to the Taskforce for Climate-related Financial Disclosures, for firms to disclose their exposure to nature-related financial risks by the end of 2023.

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