Some 252 million years ago, volcanic eruptions across Russia’s Siberian far north triggered the most profound extinction event in the history of the planet. Ecosystems collapsed globally as elevated temperatures and ocean acidification caused marine and terrestrial species levels to plummet, eclipsing the asteroid extinction that wiped out the dinosaurs.

Worryingly, the modern Anthropocene era – defined by humanity’s destruction of the environment – is following a similar path. The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services estimates that around one-quarter of the world’s flora and fauna is today threatened by human action, while roughly one million species face extinction over the next few decades.

“Human societies and economies rely on biodiversity in fundamental ways, so we are deeply concerned about the alarming decline of biodiversity loss,” says Jo Gullhaugen, head of infrastructure investments at Nordic manager Storebrand Asset Management. He says that more than half of the world’s GDP – “$44 trillion of economic value generation” – is “moderately or highly dependent on nature and its services”.

Extensive ecosystem loss combined with climate change is already aggravating financial damage and insurance risk for infrastructure investors. Impact advisory firm Earth Security says that, over the past decade, insurance companies alone paid out more than $300 billion globally for coastal storm damages, a factor that could multiply by 10 over the next decade as global warming intensifies.

“We believe that infrastructure companies that do not pivot to a nature-positive economy are likely to face a series of transition risks, including regulatory, litigation and loss of their social licence to operate,” says Rhianydd Griffith, senior vice-president, infrastructure at US-based manager Federated Hermes. “Getting ahead of this curve by understanding the company’s current relationship with nature will empower organisations to develop more sustainable operations, products and supply chains that contribute to the protection and restoration of biodiversity.”

Biodiversity is an important but often neglected consideration in the sustainability playbook, a reality that the UN’s Biodiversity Conference (COP15) hopes to change.

“Biodiversity has gone very quickly from being a niche topic to a broad recognition that it is hugely important,” says Gullhaugen, “and we hope that member states will adopt an ambitious global framework for nature at COP15.”

Vulture venture

An East African project blends biodiversity benefits with greater renewables capacity

Pan-African renewables firm BTE Renewables, held by asset manager Actis, may be the only wind farm operator in the world to have a full-time ornithologist on its payroll. Facing the population loss of a colony of critically endangered cliff-nesting Rüppell’s Vultures, Kenya’s second-largest wind farm, Kipeto, has worked since 2021 with local Maasai communities to protect the species.

Safeguarding the birds from wind turbines is just one important aspect of the project. Together with the Bird Conservation Consortium, BTE Renewables also works with local farmers to deter retaliatory poisoning, a tactic used on livestock carcasses to kill large predators like lions and hyenas but that also harms vulture populations.

“There were instances of up to 600 vultures dying in one instance from a carcass poisoning,” explains Libby Hirshon, ESG director at BTE Renewables. “We realised that was one of the biggest causes of the decline in vulture populations, so if we could address that then we could have a really positive impact.”

Windfarm in East africa
Kipeto: wind farm works with Maasai communities to protect wildlife

In December, governments from around the world are poised to meet in Montreal for the event, aimed squarely at developing a post-2030 global biodiversity framework for countries to follow. The draft includes 21 actionable targets, which include conserving at least 30 percent of land and seas globally, and restoring at least 20 percent of degraded freshwater, marine and terrestrial ecosystems.

The challenge is that, unlike the Paris Agreement’s target of limiting global warming to below 2 degrees Celsius, there is as yet little consensus among scientists and policymakers on how to best measure biodiversity.

“We believe that infrastructure companies that do not pivot to a nature-positive economy are likely to face a series of transition risks”

Rhianydd Griffith
Federated Hermes

But even against this reality, frameworks and best practices for financial institutions are starting to emerge. The Taskforce on Nature-related Financial Disclosures (TNFD) is a global, market-led initiative designed to factor nature into financial and business decisions. The Taskforce is comprised of 34 senior executives drawn from corporates, financial institutions and market intermediaries representing a combined market capitalisation of more than $3.1 trillion.

The TNFD is scheduled to release its final recommendations and framework in September 2023, updating and factoring in market feedback from several early beta versions released this year. “The more consistent disclosure of information we get, the more knowledge exchange, which will prevent everyone from grappling with challenges in isolation,” explains James Magor, director of sustainability at London-based fund manager Actis. “We have had disclosure of information through environmental and social impact assessments. But the consistency of application and quality of information is quite different, so we really hope that TNFD will help start to address that.”

Other standards are also raising the profile of biodiversity among investors. In June, the Partnership for Biodiversity Accounting Financials (PBAF), a Netherlands-based initiative, released a new standard for financial institutions to measure the impact of loans and investments on biodiversity. Dubbed the PBAF Standard 2022, the framework describes, by way of requirements and recommendations, how institutions should measure, manage and report on the positive and negative impacts of loans and investments on biodiversity.

“Infrastructure investors need to see biodiversity as an opportunity and not just a risk,” stresses Magor, adding that “nature-based solutions are often cheaper, more sustainable, and offer superior protection than hard engineering. There is great information and expertise available to investors if they are willing to listen.”