Financial products that have real world solutions and synergies linked to ‘environmental good’ are now incredibly sought after. From the prominence of the UN’s Sustainable Development Goals (SDGs) to COP26, the way business is conducted and the impacts of modern business have changed for the better with an emphasis on protecting, managing and restoring the environment. This will help our transition to a green economy. But why has restoring biodiversity been overshadowed as a primary goal and why is biodiversity so important and central to this transition?
The same way that each part of a business interacts with each other and each department is vital in some way, whether it is management, marketing or sales, every living organism has a role to play in its environment.
When a species population dwindles suddenly, either another species can pick up its ‘niche role’ (which can happen although it is never guaranteed and is rarely as effective), or that role within the environment disappears, affecting all organisms that interact there and rely on that role. As this trend continues, key organisms may bottleneck and disappear, along with the natural resources that they maintain - the resources we rely on.
Planting trees won’t restore these biodiversity networks. As good as it is to continue to manage our tree population to increase our buffer against the effects of climate change, this will not fix the problem alone; trees need time to mature to become productive in their niche. Financial instruments such as taxes, permits and environmentally motivated subsidies are incredibly helpful in creating the shift needed to protect biodiversity, however impact investment also has a huge part to play.
In 2020, domestic and international public finance and private finance for global biodiversity finance was estimated to be at around USD 78-91 billion per year which shivers in comparison to the approximate USD 500 billion per year spent by governments in ways that are potentially harmful to biodiversity (OECD 2020).
The impact investment industry is making waves in contributing to this change but work needs to be done in ensuring that a higher proportion of investments relate to biodiversity as a primary target.
Around USD 9 billion of the 235 billion handled by the leading investors was invested into forestry. However, it is unclear how much of this went specifically towards restoring, managing or protecting biodiversity, as opposed to other social or environmental aims.
This is a particular vice for impact investment. Often, investment products are aimed at creating a multitude of synergies across the SDGs that feature different types of environmental and social impacts, rather than focusing on one impact. Therefore, it is not known how much impact investment truly gives to biodiversity. Equally, unless the effect of an investment on biodiversity is being measured by at least population size, genetic health, through ecosystem interactions, and by other ecological standards and markers, its true impact will also remain unknown. Regenerative agriculture projects and initiatives, for example those shown through the work of Fair Trade, are great examples of where investing in our the regeneration of our environment gives a plethora of other synergistic benefits.
It should be noted that due to the very nature of biodiversity, increasing funds for biodiversity related investments will create a wealth of other benefits from economic, environmental and social perspectives, including human health (Sumaila et al. 2017). However, current global biodiversity finance needs to increase up by four times its current standing in order to meet conservation needs.
The consequences of allowing biodiversity to diminish are brutal; it was estimated in 2002 that failing to protect and maintain levels of biodiversity may cost around USD 140 billion per year in terms of irreplaceable resources lost (Balmford et al. 2002). Furthermore, the economic devastation will fall on those who live in rural areas and rely on natural resources for employment and survival, whether through soil or sea.
Biodiversity is vital to sustainable development and is pivotal in moving towards a green economy.
Author: Charlotte Macdonald
Editor: Neil Sandy
References
A. Balmford, et al. 2002. Economic reasons for conserving wild nature. Science, 297, pp. 950-953
OECD, 2020. A Comprehensive Overview of Global Biodiversity Finance. [online] OECD. Available at: <https://www.oecd.org/environment/resources/biodiversity/report-a-comprehensive-overview-of-global-biodiversity-finance.pdf>.
OECD, 2020. Tracking Economic Instruments and Finance for Biodiversity 2020. [online] OECD. Available at: <https://www.oecd.org/environment/resources/tracking-economic-instruments-and-finance-for-biodiversity-2020.pdf>.
Sumaila, U., Rodriguez, C., Schultz, M., Sharma, R., Tyrrell, T., Masundire, H., Damodaran, A., Bellot-Rojas, M., Rosales, N., Jung, T., Hickey, V., Solhaug, T., Vause, J., Ervin, J., Smith, S. and Rayment, M., 2017. Investments to reverse biodiversity loss are economically beneficial. Elsevier, [online] 29, pp.82-88. Available at: <https://www.sciencedirect.com/science/article/pii/S1877343518300071>.
Wellers Impact is a UK-based, FCA-Regulated Impact Investment Manager which works to unlock community-focused impact through SDG-focused impact investing. Through innovative investment models that utilise fair economics, Wellers Impact originates investment opportunities across three core business activities; real estate developments in partnership with local land-owning not-for-profits in East Africa, financial support for agriculture firms and supply chains globally through sustainable development finance and direct investment into private water, sanitation and plastics recycling firms globally. Investment involves risk. Suitable for Sophisticated, Professional and High Net Worth Investors only.