The financial services sector plays a key role in halting biodiversity loss

The global financial services industry is playing a key role in halting biodiversity loss as investors become more aware of the major risks such a loss poses to businesses.

Federated Hermes argues that there is an $800 million global biodiversity funding gap that the financial community can help bridge through capital, allocation and better governance.

Speaking at Mercer’s Pacific Global Investment Forum in Melbourne last week, Ingrid Kukuljen, Federated Hermes’ Head of Impact Investing, said: “The negative impacts of biodiversity loss pose a systemic risk to the global economy and we need to stop looking at the persistence taken for granted in nature.”

Kukuljen found that if humans killed each other at the same rate as animals, we would be extinct in 17 years. Protecting biodiversity, she said, “offers critical mitigation of climate change.”

The $640 billion Federated Hermes teamed up with Britain’s National History Museum in March to launch a biodiversity fund with $30 million under management. The museum has created the Biodiversity Trends Explorer to enable users to compare the state of local ecosystem biodiversity between countries and compare how different potential economic futures will affect nature in both developed and developing countries in the coming will have an impact for decades.

The Hermes startup fund invests in companies including its biodiversity champions, including US-based wood alternatives provider Trex and Australian pallet supplier Brambles.

The Taskforce on Nature-related Financial Disclosures – a risk management and disclosure framework for companies to report and respond to nature-related risks – will help investors better understand biodiversity risks. She is currently seeking market feedback for a draft framework that borrows many similar concepts from the Taskforce on Climate-related Financial Disclosures.

avoidance of losses

The conference heard from EMM Consulting’s Nathan Garvey, who supported the concept of biodiversity offsets but stressed that the best solution is primarily avoidance.

This confirms the prevailing view in the industry with the 2020 Federal Environmental Conservation and Biodiversity Act Report stating that “real change requires a paradigm shift where environmental damage is part of the cost of the project and influences decisions about whether it is profitable”.

Transparency is important, but the concept of biodiversity credits worries some, in part because it would be better to stop the loss in the first place rather than allow companies to circumvent the rules by buying credits. Building permits could be granted on condition that biodiversity projects compensate for any losses.

Project avoidance is a powerful tool for protecting nature, and mitigation should be factored into the cost of the project: so a $1 billion mine that causes $5 billion in biodiversity loss is actually a $6 billion Dollar project that significantly changes yield dynamics.

The difficulty in combining offset credits with carbon credits involves measurement, and Garvey noted that may not be the most efficient measure. “It’s like riding a bike while you’re still designing it,” he said.

Measurement of natural loss

To overcome the measurement difficulties, Adrian Ward, Chief Executive of Accounting for Nature, has worked for more than a decade to create a framework to measure the loss of a specific parrot or bandicoot breed and how to compensate for it.

It’s a global campaign, but given the obvious difficulties in measuring soil carbon levels, measuring the loss of freshwater in a marine environment goes a long way.

Already, a premium is paid for carbon contracts, which have the benefit of offsetting emissions and creating, for example, new habitat for rock wallabies, meaning regular carbon credits sell for $26 per tonne, but credits made through earned from restoring wallaby habitat are worth $56.

This is an example of what Garvey called the “double dividend” from protecting biodiversity, where good land management also helps conserve plant and animal species.

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