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Sustainable investing
August 31, 2021
4 mins

Biodiversity loss: the silent threat to business

August 31, 2021
4 mins
Citi GPS: Global Perspectives & Solutions
SUMMARY

The variety and number of living species on Earth is shrinking. Businesses and their investors need to play their part in stopping this alarming trend.


In 2019, an area of primary rainforest equivalent to a soccer field was lost to the world every six seconds. Global wildlife population sizes have fallen by an average of 68% in just 46 years.

These developments are just two examples of how biodiversity – the variety and number of living things on Earth – is under threat.

At a time when many of us have been digesting the chilling statistical reality of accelerating climate change, data on deteriorating rainforest cover and depleting wildlife may seem difficult to take on board.

However, the reality is that the COVID-19 pandemic has exposed an urgent but silent crisis of nature as large as the climate emergency.

This is not an abstract concern, as a new Citi Global Perspectives & Solutions (GPS) report on biodiversity sets out.

Biodiversity underpins our daily lives and matters to society, human health, business operations, supply chains, and economic growth, say the report’s authors.

 

$44 trillion of economic value generation is either moderately or highly dependent on nature.

 
 
 

Businesses rely on nature for resources and ecosystems to produce their products and services. Their operations also create direct and indirect impacts upon nature that could ultimately affect their business.

The Citi GPS report cites an estimate that about $44 trillion of economic value generation is either moderately or highly dependent on nature, underscoring the importance of nature to business operations, their investors, and to society.

However, according to the UK government-commissioned Dasgupta Review of 2020, the first comprehensive economic framework of its kind for biodiversity, current species extinction rates are undermining nature’s productivity, resilience, and adaptability. In turn, this is fueling extreme risk and uncertainty for our economies and well-being.

To illustrate this in terms relatable to daily life, the global food system is the world’s largest driver of biodiversity loss, and agriculture is the most widespread form of land use change – much of this involving deforestation on an industrial scale. Agricultural practices alone use up half of the total habitable land, while a staggering 77% of agricultural land is used for producing livestock – only supplying 18% of global calories. Almost 75% of tropical deforestation is driven by four forest-risk commodities: cattle products, soybean, palm oil, and forestry products.

 

43% of the 500 assessed companies and financial institutions do not have a commitment to deforestation.

 
 
 

The use of forest-risk commodities is widespread across industries and supply chains. Their trade is only on the rise too with richer countries driving deforestation in poorer economies, often where vital biodiversity hotspots are present.

As the Citi GPS report reveals, all of this presents material business risks for corporates in consumer goods, apparel, energy and utilities, and industrials.

Still, an annual assessment of the most influential companies in forest-risk commodity supply chains found that 43% of the 500 assessed companies and financial institutions do not have a commitment to deforestation.

Unfortunately, this has triggered an even larger problem.

Nature’s value is not reflected in market prices and many institutions have failed to manage the use of natural assets, the report outlines. Moreover, governments continue to aggregate the biodiversity crisis by paying people more money to exploit nature than to protect it, with annual harmful subsidies estimated at $4-6 trillion.

 

84% of respondents are very concerned about biodiversity loss, but as many as 91% of respondents did not have measurable biodiversity-linked targets.

 
 
 

By not analyzing dependencies and the impact on nature and biodiversity, corporates open themselves up to material risk of the profitability of their businesses and shareholders.

While a recent survey carried out by Responsible Investor found that investors are becoming increasingly concerned about biodiversity – with 84% of respondents very concerned about biodiversity loss – this is not yet reflected in their actions. As many as 91% of respondents did not have measurable biodiversity-linked targets.

Scientists are now calling for the need to bend the curve on biodiversity loss. Put simply, we need to halt and reverse the decline of biodiversity.

One approach is to shift financing away from harmful activities responsible for driving biodiversity loss and other negative impacts. With annual government spending on subsidies that harm nature up to six times higher than spending on conservation, we also need to direct capital toward activities that are restorative and regenerative to nature.

Specifically, on forest-risk commodities and food, addressing key supply chains will go a long way toward tackling deforestation. Corporates and investors have the ability to improve the sustainability of how commodities are produced, traded, and consumed.

What’s more, current economic analysis does not account for the depreciation of natural assets, so there is now a pressing need for new measures of economic output beyond GDP. For example, the Dasgupta Review calls for the inclusion of natural capital into accounting systems.

The Citi GPS report sums up the challenge bluntly:

Our economic development has come at the expense of the natural world, and we need to recognize and value its true worth and what it provides.

Individuals, businesses, governments, and international organizations all manage natural assets through spending and investment decisions. However, there has been a collective failure to manage that global portfolio of assets in a sustainable way.

The year 2021 is being referred to as the super year for sustainability. It is a crucial year for not only climate action but also the wider sustainability agenda, including biodiversity. Neither will be successfully resolved unless both are tackled with the same sense of urgency. As the Dasgupta Review puts it, we are all asset managers now.

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