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BLOG: We cannot ignore the biodiversity threat any longer

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Written by: Darius McDermott
16/08/2021
Climate change made the headlines again last week after a UN Secretary General called a recent report a ‘code red for humanity’.

The report was clear – human activity is changing the climate in both unprecedented and, on occasion, irreversible ways. It highlighted the increasingly extreme heatwaves, droughts and flooding, and a key temperature limit being broken in just over a decade.

It was the ultimate call to action. But today, I want to talk about the impact of climate change on biodiversity, an area which has not had the championing to seep into the consciousness of the masses.

What is biodiversity and why should we be worried?

Simply put, biodiversity means the variety of life on Earth. It includes variation at three levels: genetic, species and ecosystem.

It captures the diversity of plants, animals, insects and other organisms in land, ocean and freshwater ecosystems.

Biodiversity enables adaptation to the changes in external conditions that a species may experience, ensuring the resilience of individual species and whole ecosystems.

This capacity – both within species and within ecosystems – will become increasingly more important as climate change alters temperatures, precipitation patterns and the frequency of extreme weather events.

But it is under major threat – particularly when you consider some of the numbers associated with it. For example, about one million plant and animal species face the threat of extinction. And The Living Planet Index shows an average 68 per cent decrease in mammal, bird, amphibian, reptile and fish population sizes between 1970 and 2016.

I want to give you two examples of this threat. The first is tied to resource efficiency – a major element of the biodiversity theme. In this case water – it is amazing to think that it was only a couple of years back that Cape Town, a major global city, was running out of water, with residents potentially having to queue for daily rations.

The second is that some of the damage done to our most biodiverse regions – think of known forests like the Amazon, the Congo and the Taiga – can now be viewed from space.

At present, we would require 1.6 Earths to maintain the world’s current living standard – a shocking statistic.

The Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services points to five specific drivers of biodiversity loss. Alongside climate change the others are – changes in land and sea use; invasive alien species; direct exploitation of organisms and pollution.

What is being done to tackle this threat?

I recently had a chat with Sonya Likhtman, engagement and stewardship assistant manager at Federated Hermes, who says biodiversity has unfortunately sat in the “slightly too difficult to handle bucket” adding that although people always knew there was a crisis they had not made the link between investors and their responsibilities.

She says companies are now paying closer attention by pinning biodiversity to a more specific focus – like plastic in the ocean or deforestation. Crucially, she feels we need to recognise that we do not have the 10-year timeframe we had for climate change to meet biodiversity challenges.

Likhtman says there are efforts in place to build a post-2020 global biodiversity framework. This is in the shape of the COP15: UN biodiversity summit, which has already been cancelled twice due to Covid and is now set to take place in China this October. She says people are hopeful around the ambitious framework and that it can be an equivalent to the Paris Agreement on climate change.

Covid has, inadvertently, also done some good by highlighting how the loss of biodiversity can impact human health. Likhtman points to the impact of zoonotic diseases (an infectious disease that has jumped from a non-human animal to humans). She says scientists have been perennially warning us about how the destructions of animal habitats brings them into closer contact with humans – and the diseases they can also transfer. You can’t get a more relevant example than a pandemic which brought the world to a standstill!

The economic threat is also phenomenal. There are estimates that the value of ecosystem services and natural capital stands between $125-145 trillion per annum – research suggests half of global growth is highly or moderately dependent on nature.

So, while there is genuine fear about biodiversity, there is also an opportunity to invest in companies which are actively turning this trend around. Investors may want to consider the likes of the BMO Responsible Global Equity fund, for example, which invests in Xylem, US-based water infrastructure business. Co-manager Nick Henderson says its Flygt brand provides de-watering products and services (pumps and other devices) to address droughts and flooding related challenges.

Another is the Pictet Global Environmental Opportunities, which invests in Smurfit Kappa, a sustainable packaging and recycling solutions business to replace plastic packaging and minimize waste. Investors may also want to consider the Federated Hermes Global Emerging Markets SMID Equity fund.

Darius McDermott is managing director of Chelsea Financial Services

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