Investors can influence the preservation of biodiversity

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According to the World Economic Forum, the three biggest problems of this decade are extreme weather events, failure in climate action, and biodiversity loss. The effects of biodiversity loss and the risks it poses are manifold. The narrowing of biodiversity already affects species extinction and the reduction of production materials and resources. Better ways of building profitable businesses within planetary boundaries must be developed.

Investors have a significant opportunity to impact the prevention of biodiversity loss, but first, it is necessary to understand the factors influencing biodiversity loss. In collaboration with Deloitte, we organised a workshop aimed at creating an understanding of industries and factors influencing biodiversity loss and developing best practices for mitigating biodiversity loss in investment activities in the private equity and venture capital industry.

The industries most influencing biodiversity loss

Drivers of biodiversity loss stem from climate change, but slowing down climate change alone will not solve biodiversity loss. The industries most accelerating biodiversity loss include agriculture and food production, tobacco production, transportation, and technology.

In the transportation sector, besides emissions, logistic solutions such as building roads and railways pose a risk to preserving habitats. Road construction also leads to fragmentation of forest areas, compromising the living conditions of species requiring large contiguous areas. For example, constructing a wind farm may significantly disrupt the environment for organisms in its vicinity. Maritime logistics can also spread pollutants and invasive species, creating competition for native species in the area.

Technological advancements and energy consumption continually generate new types of waste, recycling and reuse of which are still at the investigational stage. Electronic waste, such as mercury and cadmium, is often transported to Africa as landfill waste. The spread of such hazardous waste into nature hampers the reproduction of organisms.

Land-use changes are largely due to agriculture. In addition to traditional agriculture, animal husbandry occupies a considerable amount of land. Pesticides used in agriculture pose a threat to pollinators, which are vital for 35% of global food production. Oceans’ biodiversity has also significantly changed over the past 50 years due to overfishing. Behind this, agriculture plays a role, as 90% of the Baltic Sea fish catch goes towards animal feed.

Investors have opportunities for influence

Investment decisions are crucial in supporting new solutions and innovations, so there are opportunities for investors even in a grim subject. Therefore, investors should evaluate their portfolios from biodiversity perspective and pay particular attention to the industries above, as they offer significant opportunities to influence the development of more sustainable business models. In accordance with the principle of double materiality, investors should assess both the risks posed by biodiversity loss to their portfolios and the effects of companies’ business activities on biodiversity loss. Moreover, attention should be focused on opportunities within portfolio companies. Can technology companies utilize recycled materials? Can a data center be located, for example, in an old factory building in an area with existing road infrastructure?

Biodiversity loss is a complex issue with long and partly unpredictable chains of effects. Evaluating biodiversity impacts should be part of every investment decision, but it typically is not part of traditional portfolio management. Therefore, safeguarding biodiversity in the future requires increasingly interdisciplinary collaboration and unbiased skill development.

A working group responsible for the ESG toolkit at the Finnish Venture Capital Association has updated the toolkit with tools facilitating the assessment of biodiversity impacts. Explore the toolkit here.

How can investors influence the preservation of biodiversity?

In the workshop, we identified at least the following initial steps to consider and mitigate biodiversity loss:

  • Transitioning to a circular economy and more efficient reuse of resources and raw materials.
    • A broader societal and global economic change covering the entire production chain and consumption.
  • Setting sustainability goals related to biodiversity: at least ensuring that biodiversity is considered in some way in every investment decision.
  • Sharing information with portfolio companies and the market more broadly.
    • Investors play a central role in bringing information and tools to the attention of portfolio companies, as these companies may not have the resources to consider biodiversity. However, they are familiar with their own business, so the best impact comes from collaboration.
  • Openly disclosing one’s actions and goals. The subject is complex, but awareness and expertise will develop through collaboration and transparency.
  • Collaboration, for example, with universities in research. More transparency and interdisciplinarity around the theme.
  • Fund agreements can give the fund manager the right to use funds for compensation: for example, in a project where forest is being cleared, the impact on biodiversity can be compensated for.

However, the most significant action is questioning existing practices and innovating new models. Considering planetary boundaries in investment activities is not only for radical tree huggers, but also a tool for effective risk management and source for innovation and creation of new opportunities.

Scarcity also fosters creativity. Could it be that the era of squandering resources that once seemed limitless is over, and under the current constraints, we can develop businesses that create growth and genuine well-being for all living beings?

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