The impact of economic activity on the natural world has long been ignored. However, governments, companies and investors can all play a role in helping to protect nature.
Despite important breakthroughs in science, there are still many mysteries in the natural world. Indeed, we know comparatively little about a world in which a single millilitre of sea water – the size of a sugar cube – might contain one million bacteria and ten million viruses. But we do know Earth needs diversity to exist. Yet species are currently dying out at an alarming rate, undermining millions of years of evolutionary research and development.
Because nature is so interlinked, there may be costs for future generations from the failure to care for living things. Certainly, the benefits from the natural world have been undervalued and underappreciated for years.
Nature’s role in economics
Nature has, for example, been excluded from conventional economic analysis. The error of failing to see human societies as part of the natural world or price the damages arising from human actions is becoming increasingly obvious. The failure to price in the cost of exploiting nature has contributed to a world in which humans are using too many resources and are creating mountains of waste.
Humans are using too many resources and are creating mountains of waste
However, there is increasing appetite to address the issue, with governments, companies and investors all able to play a role. Wider swathes of society seem to be waking up to the fact that it is impossible to keep clearing, burning, building, consuming, and dumping waste without being more mindful about the consequences.
Investors can help by allocating capital to leaders in their respective industries – companies that are moving in the right direction in terms of their management of natural capital (defined as the stock of natural assets, including living things, geology, soil, water and air) and environmental risk, and engage with them to move further and faster. Companies doing the right thing now should outperform in the long run, as measured both by financial returns and by their impact on nature.
There are specific opportunities in agri-food production, one of the areas most responsible for carbon and methane emissions, biodiversity loss, soil depletion and heavy water use.
Measuring and comparing nature-risk: A portfolio manager’s perspective
Comparing the actions taken by different companies is challenging. A single greenhouse-gas emissions figure can show meaningful variations between companies in different sectors, but with biodiversity (quite simply, the variety of life on Earth) every sector has very different impacts, which are not easily measurable or comparable.
Comparing the actions taken by different companies is challenging
For example, a beverage company’s main impacts on nature relate to its packaging, the sourcing of ingredients like coffee or cocoa, and water use, while a bank’s will be associated with its policies on lending to high-impact industries like fossil fuels and palm-oil and soy plantations. It is currently neither possible nor meaningful to compare a bank’s impacts on nature with a beverage company’s using a similar set of metrics.
Investors therefore need to gain a picture of the risks that are relevant on a sectoral basis, using data from a variety of sources. Independent or non-profit groups, such as the World Benchmarking Alliance, CDP, Forest 500, the Zoological Society of London’s Sustainability Policy Transparency Toolkit, the Farm Animal Investment Risk and Return Initiative, and the Fashion Transparency Index have all carried out research into sector-specific biodiversity impacts.
Three points to remember
- Earth is highly complex and interconnected, yet species are currently dying out at an alarming rate, undermining millions of years of evolutionary development
- Until recently, little attention was paid to the harmful impact of economic activity on the natural world and the problems this is storing up for humanity and the planet
- However, governments, companies and investors are increasingly aware of the role they can play in limiting the risks to nature