Species conservation as a megatrend

Biodiversity is gaining significance among investors and is becoming increasingly crucial in risk management. But the growing number of strategies and funds bear the markings of a fashion wave.

Species conservation as a megatrend

Copepods, collembolans, or springtails: they are tiny and mostly unknown. Yet they are crucial, not just for soil fertility. The diversity of species in our soils is just one example of biodiversity. It includes ecosystems, such as soils, forests, and oceans. Biodiversity is not new, and neither is species extinction. However, this trend has now reached a level of momentum that could be threatening. Not just for animal life but also for the environment and humans.

The numbers are alarming: a quarter of mammals and nearly half of amphibians are already on the endangered species list. The United Nations, pioneers in biodiversity preservation, have warned about grim prospects for habitats, with catastrophic consequences for agriculture, climate change, and the spread of diseases. Currently, biodiversity has a very low priority among the companies engaged in this field. Nevertheless, investors have discovered biodiversity as a 'playground.' More and more stakeholders are exploring financial solutions and investments, aiming to do good and generate returns.

Biodiversity-focused strategies and funds

Biodiversity is playing an increasingly significant role for asset managers and investors. It is also becoming increasingly important for risk management in companies. There are now several biodiversity-focused strategies and funds, most of which were launched just last year. Institutional investors are also placing this topic high on their agenda, which attracts financial product suppliers. There are now nearly a dozen funds, from providers like Axa, Fidelity, and Robeco, with the word 'Biodiversity' in their name. In addition, there are numerous indices that have selected stocks related to the topic.

Clearly, biodiversity has become a trend and fashionable topic, without diminishing its ecological importance. Not a week goes by without conferences and symposia discussing species conservation and its connection to the financial industry. While the first green investment products were launched about 25 years ago, the topic of biodiversity and investment portfolios only started gaining attention three years ago.

Investors lack a holistic view

The enormous interest is understandable. The economic impacts of a declining variety of animals and plants are enormous and will affect many industries, from agriculture to tourism. According to experts, massive investments in the trillions are required to stop the decline in biodiversity and preserve existing biodiversity.

It's one thing that biodiversity is gaining focus and importance. The other question is whether it is suitable as an investment and a topic for the financial sector. Certainly, many investors lack a holistic view due to their focus on carbon neutrality and climate change. In the environmental debate, much revolves around renewable energies, while the decline in biodiversity plays a subordinate role. Nevertheless, it cannot be said that biodiversity has no advocates. Last year, at the summit in Montreal, 200 governments came together. The goal was to halt the net loss of nature by 2030, or in other words, bend the curve of biodiversity loss.

Comprehensive sustainability must be practiced

From the financial industry's perspective, narrowing down ESG to one phenomenon is not an adequate approach. It should not be the case that climate is pitted against biodiversity, and relying on trends with individual products is not very helpful either. On the contrary, the financial sector should adopt a holistic ESG approach, where the three letters are taken seriously – or in other words: comprehensive sustainability must be practiced. This is already being done in many cases. ESG and sustainability naturally encompass broad criteria through the taxonomy and the UN's SDGs.