Study by Antje Biber, Dr Tobias Raffel, Prof Klement Tockner, produced in collaboration with Senckenberg Nature Research and the FERI Cognitive Finance Institute
Executive Summary
Biodiversity, underpinning more than 50 % of global economic services and human livelihoods, provides essential goods and services for ecosystems, human food, health and well-being, economies and innovation.
The interdependence of biodiversity and human health as the natural basis for pharmaceuticals and well-being is obvious, but often underestimated in its magnitude. 50 % of medicines approved in the last 30 years are either directly or indirectly derived from natural products, and 70 % of medicines used to treat cancer are derived from or inspired by nature. Over 4 billion people are estimated to depend primarily on natural remedies.(1)
The link between biodiversity and food security is also fundamental. Over 75 % of food crops depend on pollination. The genetic diversity of plant species is crucial for feeding more than 8 billion people. Increasing plant diversity by rotating crops over time, diversifying agricultural landscapes or using pest-resistant plants can increase agricultural production and reliability.
Biodiversity and climate are inextricably linked and highly interdependent. Marine and terrestrial ecosystems sequester 60 % of global anthropogenic carbon emissions.(2) Simultaneously, ecosystem degradation such as deforestation, peatland drainage, urbanisation or pollution can reduce carbon stocks and diminish thermal buffers.
Meanwhile, climate change is increasingly becoming a major driver of biodiversity loss. That is resulting in the reduction of suitable habitats, causing range shifts and displacements of species, and furthermore pushes species beyond their tolerance and adaptation limits. In addition to climate-related negative impacts, global biodiversity loss is exacerbated by agricultural land use and degradation, direct overexploitation (e.g. overfishing), pollution and invasive species.
These drivers do not act in isolation, but interact and have additive, cumulative or synergistic effects on both nature and humans, leading to non-linear changes and multiple feedback loops.
A key requirement for a successful paradigm shift to end human caused mass extinction is a focus on ecosystem multifunctionality through a mix of conservation and restoration measures.
The global shift towards an economy that protects and sustainably utilises nature and biodiversity require comprehensive political action. The recently launched and ground-breaking Global Biodiversity Framework (GBF) will provide the basis for slowing or even halting biodiversity loss. Its importance cannot be underestimated, and its significance for the future of humanity is certainly on a par with the 2015 Paris Agreement.
“We often talk of saving the planet, but the truth is that we must do these things to save ourselves.”
David Attenborough, biologist & naturalist
The European Union is a global leader in biodiversity ambition and regulation, despite recent headwinds to sustainability policies and narratives. Three initiatives – the European Green Deal, the EU Biodiversity Strategy and the new EU Nature Restauration Law – highlight European efforts to set nature and biodiversity policy goals and translate them into legal requirements for businesses and the financial sector.
Financial regulation is evolving at a rapid pace worldwide, alongside multilateral agreements and national implementation in legislation and taxation. All these measures are intended to redirect financial flows and will lead to profound changes in many economic sectors. This will create new incentives, revenue streams and investment decision-making principles.
The broad and complex issue is implementation: how to find solutions that have a positive impact on biodiversity, prevent destruction and deliver the necessary economic benefits? The key is to implement solutions such as nature-based solutions (NbS), which use nature to sustainably manage and restore natural ecosystems, or technology-based solutions (TbS), which use innovative technologies to protect, restore and enhance biodiversity and the services provided by ecosystems. There is also a third approach, hybrid solutions, which are a combination of nature-based and technology-based solutions.
The footprint, handprint, heartprint is a pragmatic approach for companies to start taking action on biodiversity while applying a comprehensive and positive narrative that goes beyond risk analysis and regulatory compliance: Reduce negative impacts (footprint), increase positive impacts (handprint) and create transformative impacts (heartprint).
Financial institutions are on the one side directly affected by the physical risks arising from the economy’s dependence on nature. On the other side, the same financial market participants are exposed to long-term transition risks due to the negative impacts of economic activities on nature. Driven by investor demand and the need for practical action, an ever-expanding field of diverse investment opportunities across asset classes is emerging.
Biodiversity credits can be a promising tool for bridging the funding gap for nature and environmental conservation. They can be used, for different purposes, to enhance carbon credits for better nature outcomes, as a business driver to demonstrably improve the environmental impact of products, and as a corporate commitment and contribution. However, a key success factors will be future global standards and reliable verification systems to avoid greenwashing and questionable offsetting practices.
Blended finance is another well-known way of investing in targeted conservation and restoration activities. Collaboration between public institutions and private investors in blended finance has the advantage of economies of scale and risk mitigation of the invested projects.
A promising investment opportunity that also meets the expectations and constraints of large investors in particular are labelled bonds. It is expected that national development banks and supranational institutions, as well as corporations, will increasingly issue these bonds with a dedicated environmental funding purpose.
Technology-based innovations in Private Markets offer high-return investment opportunities attractive to yieldoriented investors. By investing in blue and green technologies, investors can not only generate sustainable returns, but also improve soil health, optimise water use, reduce carbon emissions, and help restore nature and the oceans.
So-called novel dual-use infrastructure projects can be a promising way to enhance biodiversity combined with clean energy, which not only helps to mitigate climate change but also has a positive impact on ecosystems. Combining offshore wind with low-trophic aquaculture can provide sustainable energy, nutritious seafood and restorative ecosystem services.
Direct investment in farmland and forestry should focus on regenerative forms of use. This form of cultivation focuses on regenerating the ground, improving the water cycle and promoting bio-storage, thereby increasing resilience to climate change and strengthening the health and vitality of the soil.
"In view of escalating species loss, the protection and preservation of planetary ecosystems is essential. The global financial industry can make an important contribution to this."
Dr Heinz-Werner Rapp, Founder & Director of the FERI Cognitive Finance Institute
To address measurement and data challenges, there is a growing need for standardised methodologies and reporting frameworks that explicitly capture the biodiversity impacts of financial instruments.
In principle, a large number of scientifically based measurements already exist. Using modern technologies, such as AI blockchain and satellite data, these measurements can and will be improved on an exponential scale. The most important guidance for companies and investors is the Taskforce on Nature-related Financial Disclosures (TNFD) as a global framework for disclosing their nature-related dependencies and impacts.
However, a hugely important driver of change in traditional industries, particularly agriculture, has been a shift in priorities in political culture and regulation.
In the light of the targeted orientation of national legislation towards the implementation of the GBF, the SDG and even concrete guidelines for sustainable investment (EU taxonomy), the field of strategic investment decisions needs to be reorganised.
In addition to emerging conservation initiatives, banks, insurers and investors are increasingly aware that their financial activities have a major impact on the health of nature, as everything is interconnected – from the economy to ecosystems, from industry to biodiversity.
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