July 15th – The Impact of Diversity on the Global Economy

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Investing in Nature through the Public Equity Markets

Over half of global GDP is moderately or highly dependent on nature. Nevertheless, most human economic activity undercuts the sustainability of nature by altering how land and oceans are used and by exacerbating climate change, pollution, animal exploitation, and the spread of invasive non-native species. Since the dawn of civilization, scientists estimate that humanity has eradicated 83 percent of wild mammals, 80 percent of marine animals, 50 percent of plants, and 15 percent of fish. In fact, the combined biomass of humans and livestock now far outstrips that of wild mammals and our planet is facing an unprecedented crisis of biodiversity loss. Since, these impacts on nature are largely byproducts of the human progress and business innovation that were spawned by the Agricultural Revolution and Industrial Revolution, it therefore stands to reason that we will need to look to the business community to identify and implement solutions that will help reverse the planet’s biodiversity loss. Governments can help establish legislative and regulatory regimes to address these issues, and civil society and philanthropy can encourage investment in promising, cutting-edge, nature-forward technologies, but the business community must be at the vanguard of this all-hands-on-deck effort if we are to succeed in addressing this planetary crisis.

Businesses directly impact biodiversity through their operations and supply chains. According to the World Economic Forum, three socio-economic production and consumption systems — food, infrastructure, and energy — are responsible for the largest pressures on biodiversity. In fact, approximately 80% of threatened and near-threatened species are currently endangered by these three systems with the impacts from food, land, and ocean use posing by far the greatest biodiversity threat. Accordingly, those companies that recognize the biodiversity-related risks to their companies and our planet, and actively work to transform their business models to support the regeneration of nature, can provide compelling investment opportunities for capital market participants. Through investment in solution-oriented companies operating in these three socio-economic systems, investors can help transform individual industries, build a more robust global economy and, ultimately, ensure the vitality of our planet.

Conservatory with plants

This type of investment approach requires investors to integrate biodiversity impacts and dependencies into their investment decision-making by accurately assessing the related risks, evaluating the efforts companies are making to manage those risks, and identifying new nature-forward business opportunities. The size and scope of the business operations of publicly-traded companies make them a ripe target for this type of analysis. Even seemingly small improvements to the business models of large companies can significantly move the biodiversity preservation needle and enhance the outlook for sustainability of the planet. This is especially true since public equity is the biggest asset class in the sustainable investment universe, representing 51% of assets under management, compared to annual impact investments in biodiversity conservation, which make up less than 0.5% of the total private equity impact investment market. The demand for differentiated, triple bottom-line investment opportunities is also expected to rise with the ongoing intergenerational transfer of wealth. To meet this demand for green equity, investment managers will need to develop strategies that thoroughly evaluate public equities against both financial and sustainability criteria.

By 2030, nature-positive business opportunities within the three socio-economic systems previously noted could be worth more than $10 trillion dollars and create 395 million jobs.

The finance industry therefore has an especially important role to play in galvanizing efforts to reverse the key drivers of biodiversity loss. While much of the world’s focus recently has been on the COP26 meeting in Glasgow, Scotland, that meeting mostly highlighted the real-world limitations that governments face when their parochial interests conflict with the need to address an urgent global concern. The finance industry, on the other hand, is well-suited to quickly reallocate needed capital for transformational change by assessing risks and uncovering new business opportunities. The Biodiversity Finance Initiative of the United Nations Development Programme and the Finance for Biodiversity Pledge are just two examples of promising new efforts to mobilize financial resources and develop innovative financial solutions. The Finance for Biodiversity Pledge is a commitment of financial institutions to protect and restore biodiversity through finance activities and investments. Pledge signatories engage with companies, assess the environmental impacts of corporate actions, and set nature-based targets. Currently the Pledge has been signed by 75 institutions that together represent €12 trillion in assets across 17 countries.

Plant in snow

By 2030, nature-positive business opportunities within the three socio-economic systems previously noted could be worth more than $10 trillion dollars and create 395 million jobs. Technological innovation will be critical in aiding this transformation. For instance, Google offers satellite imagery to map natural resources and prevent exploitation, while Intel has deployed smart grid solutions to lay the groundwork for sustainable cities. The Group on Earth Observations (GEO) and Google Earth Engine (GEE) have announced 32 projects to tackle some of the world’s greatest challenges using open Earth data. Together with the United Nations Environment Programme (UNEP) and the United Nations Economic and Social Commission for Western Asia (UNESCWA), the GEO-GEE Programme is supporting projects over the next two years that use the Google Earth Engine to address climate change and conduct disaster monitoring activities. Stakeholders around the world are also using Google Earth Engine to better understand environmental changes and to tackle some of the most pressing global issues that range from forest degradation and flood monitoring to natural resource management and global climate change. The sustainability of infrastructure is another area of high concern. The Intergovernmental Panel on Climate Change (IPCC) estimates that cities consume 78% of the world’s energy and produce more than 70% of greenhouse gas emissions. Seven of every ten people are projected to live in cities by 2050, so urban areas can offer unique contributions to address climate and biodiversity challenges. Intel and their partners are leading the shift to open-software-defined smart city solutions that can run on off-the-shelf hardware. The Intel® Partner Marketplace includes hundreds of smart city products, solutions, and service providers that can drive the growth of sustainable cities.

Polar Bear in Arctic

Within the finance sector, Karner Blue Capital seeks to play a role in this much needed transformational change by serving as a force for nature through the incorporation of ESG and biodiversity criteria into its investment decision-making process. KBC’s mission is to earn competitive returns for its clients by investing in publicly-traded companies that use innovative business models to generate industry-leading impacts regarding biodiversity preservation, climate change mitigation, environmental stewardship, and animal welfare. By identifying those companies that are leading their industries with respect to nature-positive policies and practices, Karner Blue Capital seeks to harness finance as a force for good and lay the foundation for a more sustainable and resilient society.

Vicki Benjamin is a co-founder of the Adviser and has been its Chief Executive Officer since it commenced operations as an investment adviser in 2018. Vicki maintains a 57% ownership stake in KBC. Ms. Benjamin was a partner at KPMG from September 2005 until February 2015, when she joined Calvert ... Read more
Andrew Neibler is a co-founder of the Adviser and has been its Executive Vice President, General Counsel, and Chief Compliance Officer since it commenced operations as an investment adviser in 2018. Andrew maintains a 43% ownership stake in KBC. From January 2006 through June 2019, Mr. Niebler served in progressively ... Read more
Robert Clapham is an equity Research Analyst with Karner Blue Capital LLC, an asset manager based in Bethesda, MD that specializes in biodiversity-focused portfolios. He holds a BBA in Finance and Statistics from George Washington University and is responsible for the Pharmaceutical & Biotechnology, as well as Chemical industries.
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