February 8, 2025

Navigating the investment landscape is incredibly complex. Supply chain issues, rising inflation, rising energy prices, rising raw material costs—the list goes on.

Increasingly, the “alarming” level of global biodiversity loss—or, in investment parlance, the permanent destruction of natural capital—must also be considered. In fact, the situation has reached a crisis point where investors now recognize the direct line of risk between their portfolios and the natural resources they rely on.

All is not lost. As investors finally begin to quantify the risk of global biodiversity loss in dollar terms, it could spark a level of change that has been sorely needed for a long time. Indeed, investment is now being billed as a key area of ​​debate at the upcoming UN COP-15 summit on biodiversity.

Along with the significant economic opportunity, of course there is also a need for climate finance companies to stop the ecological destruction of the Earth. Fortunately, these companies are beginning to notice and establish the roots of the movement to reverse the loss of biodiversity.

As momentum builds in the financial world, so does pressure on companies in other industries to set targets, publicly report the biodiversity impact of their operations, and take proactive steps to improve their total net output.

The scale of the problem has become stronger—in July, the Environment Agency published a report that found that a quarter of England’s mammals and almost 20% of the UK’s plants are threatened with extinction. Globally, the picture is not better—the UN predicts that 1 million species will become extinct by 2039.

The business requirement

Directly and indirectly, biodiversity creates significant economic value that is difficult to measure fully. Ecosystem services such as providing food, storing carbon, and filtering water and air are estimated to be worth more than $150 trillion annually — about twice the world’s GDP.

So along with the moral obligation, there is also a real business need to act. The decline of natural ecosystems costs the global economy an estimated $5 trillion annually in lost natural services. And it’s not just sectors like forestry, mining, and agriculture that are affected. Most companies rely on natural capital in some form – whether it’s fresh water for beverage companies, sustainable crops for the food industry, or ecosystems for pharmaceutical businesses. – and therefore, biodiversity has real implications for financial performance.

And yet, as things stand, there is little that has gone wrong. The UN’s COP-15 biodiversity summit tasked with addressing this issue has been postponed four times since its original date of October 2020. It has yet to take place, although the date and venue have now been confirmed (December, Montreal) .

Instead of government action, the onus is on investors and businesses to do more to directly combat biodiversity loss. However, biodiversity recovery is an industry that remains in relative infancy in the UK. Although some early adopters calculate net gains through tools like Biodiversity Metric 3.0—which converts habitats into “biodiversity units” to help improve land management outcomes -currently there is no agreed upon universal measurement system. This makes it difficult for businesses and institutions to understand where the environment is improving, or where the most help is needed.

How can we improve?

There is some good news. Despite the real business threats that accompany a shrinking ecosystem, the crisis also creates an opportunity.

As the markets begin to feel the financial impact of the loss of biodiversity around the world, finding solutions has become a top priority for investors and board members, which can provide the impetus the issue needs.

In particular, landowners and developers have real power to improve biodiversity on their sites. We have already seen some good work in this space in the UK through large scale habitat restoration and tree planting programmes. With local governments often lacking the necessary funding and expertise, it is up to businesses to support and participate in these types of projects.

Businesses without large green spaces can also build and work towards biodiversity. One way they can make early progress is through biodiversity credits – similar to carbon credits – which help businesses meet targets by leasing space to large landowners. land for regenerative investment. This is particularly popular with UK property companies, who now have to bring 10% biodiversity net income to new sites to comply with the Environment Act by November 2021.

Around the world, the UN Convention on Biological Diversity is developing the Global Biodiversity Framework, which will be developed and—hopefully—adopted as a Paris-style agreement at COP-15 later this year. Among other important measures, the framework will help investors integrate biodiversity into their portfolios by calling on businesses to measure and disclose their impact on ecosystems and natural resources.

Elsewhere, since its launch nearly two years ago, support for the Financing for Biodiversity pledge—which calls on world leaders to protect and restore biodiversity through their financial and investment activities —grew fast. It has been signed by 98 financial institutions representing 19 countries and assets worth €14 trillion. In turn, it has led to a real change in behavior among its signatories, with companies such as Aviva Plc and SLM Partners committing to invest in environmentally positive industries such as ecological farming and forestry.

It is clear that halting the loss of biodiversity is not only a responsible business practice, but has become an area of ​​increasing interest for investors and financiers. For businesses, allowing the destruction of habitats and loss of species is short-sighted that allows significant economic risk. Biodiversity net gain is now a boardroom-level topic, representing an important way to create a solid foundation for long-term growth and investment.

Jason Knights is the managing director of UK-based Ground Control.

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