While Australia is home to over 10 per cent of the world’s biodiversity, it is second globally for biodiversity loss and boasts the highest rate of decline among developed nations, according to Federated Hermes.
As biodiversity destruction threatens to inflict a staggering cost of over US$2.7 trillion on the global economy by 2030, Ingrid Kukuljan, head of impact and sustainable investing at Federated Hermes, has highlighted the pivotal role corporations must adopt. She emphasises the emergence of corporations as “biodiversity champions” in steering towards a sustainable future.
“The reason why we coined this is because we decided to really look for those companies that are taking biodiversity into account,” Kukuljan told InvestorDaily.
“What we routinely found in our engagement with companies is that biodiversity is not being viewed either as a part of risk or as a part of strategic decisions. We wanted to try and identify those companies that are actually doing this because we think that they are going to be the long-term winners.”
Earlier this month, global asset managers JPMorgan Chase and State Street both pulled their investment arms out of the global investor coalition Climate Action 100+, the investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. Once the news broke, BlackRock also said it would be limiting its involvement.
The firms’ departures closely coincide with the climate action coalition’s introduction of “phase 2” requirements in June last year, expanding signatories’ obligations to enhance corporate disclosure and implement climate transition plans, which expand the coalition’s initial push for comprehensive climate-related disclosures by companies.
Noting the divisiveness that sustainability tends to ignite in financial markets, Kukuljan reiterated that biodiversity is “here to stay” and must be taken seriously given that nature underpins the global economy.
“We have to learn how to live sustainably in harmony with nature, and that will also require corporations to change their behavour,” she explained.
“This data is not hokey pokey. This is all scientifically backed data and we can all see it.”
Namely, Kukuljan explained that back in the 1980s, the United States would experience a natural disaster that cost in excess of a billion dollars on average every four months, however, the frequency of such disasters has now escalated to occurring once every two weeks.
“This is something that needs to be part of every asset manager and asset owner’s fiduciary responsibility, ensuring that they’re analysing impacts and dependencies properly.”
Kukuljan highlighted the work of the Taskforce on Nature-related Financial Disclosures (TNFD), a group of senior executives from financial institutions, corporates and market service providers with a market capitalisation of over US$2.3 trillion. The TNFD sets out disclosure recommendations and guidance for financial institutions to assess and report on their nature-related dependencies, impacts, risks, and opportunities.
“It’s great because I think what the TNFD offers companies is really a kind of handbook of what they should be focusing on, to start incorporating biodiversity into their strategies, into their risk management, and into their policies.”
Moreover, Kukuljan emphasised that the drive to report disclosures on biodiversity will significantly enhance the availability of quantifiable data across the market.
“With the emergence of biodiversity champion, I think which we will also see with the TNFD, is that it’s going to become more prevalent as companies are understanding how important this is to their business operation, especially given the supply chain risks from all the natural disasters, from all of the volatility that we have seen around commodities,” Kukuljan said.
“The way that [biodiversity] should be viewed is that this is a tool that we need to develop as an asset class in order to reduce what we believe is the biggest systemic risk that our planet is facing.
“If you want to ensure long-term returns, you have to take care of nature, because we depend on it for everything.”
Late last year, Robeco’s annual climate survey of 300 global investors revealed that the importance of biodiversity in investment policies has surged, with nearly half (48 per cent) indicating that it is now “significant” or “central” to their strategies – up from just 19 per cent two years ago.
The firm suggested that this growing interest is not just a passive inclination but that investors are actively seeking opportunities in biodiversity-oriented strategies within the next year.
