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The relationship between nature and finance can no longer be ignored: almost 50% of world GDP is based on biodiversity. Only, even few economic actors are aware that they will be directly affected by their damage to the ecosystem. Clotilde Patarin, Data Consultant at Square Management, discusses the consideration of biodiversity risk by companies and investors.
Biodiversity refers to all living things on Earth: their diversity, their genetics, their environments and their lifestyles. It is only 30 years since this concept entered an international text, The Convention on Biological Diversity during the Earth Summit in Brazil, which made it a matter of common interest.
In 2019, the IPBES clarifies the idea that the production system on a global scale needs biodiversity to carry out its activities in a sustainable way. More specifically and according to an estimate of the Banque de France“42% of the securities portfolio held by French financial institutions, issued by companies, would be very or very dependent on at least one ecosystem service..
Biological diversity therefore represents both a source of risks and a source of opportunities, which must be reduced or encouraged.
The economic value of the services provided by nature
According to a UNEP studythe GEF and the Earth Degradation Economy Initiative released last year, more than $500 billion will be needed to cover the current loss of ecosystem degradation, while only $133 billion dollars they are dedicated to it.. However, according to figures published by the OECD in 2019, our society would have everything to gain knowing that the value of the benefits provided by biological diversity to society would be about 135,000 billion dollars..
Explanation of risk losses for companies and their investors
For organizations, taking into account this biodiversity risk must be considered from three angles: physical risk, transition risk and reputational risk.
The physical risk is linked to the supply of resources made up by the ecosystem: pollinators for agriculture, water for the chemical and food industries, etc. We also remember that five of the nine planetary boundaries defined in 2009are already exceeded, including that of the integrity of the biosphere, on April 6 a study published in Nature Reviews Earth & Environment, revealed that that of the water cycle was also just crossed. If one of the upstream products and services in the value chain is destabilized, economic activity is disrupted. This economic destabilization leads to financial fragility at the level of the company (difficulty of supply, reduction of margins, etc.) and therefore of its ability to meet obligations (credit repayment, more recurring debts and more unpaid debts, devaluation of guarantees). .). This ultimately impacts the financial institutions for which it is then more risky to invest in these activities.
To specify the risk of the transition, let’s take the example of an agricultural enterprise that would have a strong impact on biodiversity. This is then directly exposed to possible changes in production, distribution and consumption, both for a context of regulatory reforms that go in this direction and for a change in society. In terms of production, it could be prohibited to use pesticide agents that reduce the diversity of species in a given territory. Another example regarding distribution, the law of the circular economy, passed in February 2020, bans from January 1, 2022 the sale of fruit and vegetables packed in plastic. Finally, there is an increasingly marked trend towards consumption patterns that respect the environment. Consequently, if the company is not able to respond to these developments, then it loses solvency for a bank, and this is where it constitutes a risk.
Finally, reputational risk corresponds to the image that a company and all its stakeholders project on its environmental practices. If these are considered harmful by the public, the company may suffer from boycotts, blockades, stock losses., also legal action. We are thinking in particular of The Affair of the Centurya French campaign led by the Foundation for Nature and Man, Greenpeace France, Notre affaires à tous and Oxfam France on December 17, 2018 aimed at suing the State for inaction in the fight against global warming.
Manage risk to better predict and react
Economic actors are therefore exposed to the degradation of natural capital, biodiversity and ecosystem services in many ways. Thus, in France, article 29 of the energy-climate lawwhich entered into force in November 2019, extends to the preservation of biodiversity the “climate” framework of article 173 of the energy transition law for green growth., in particular through the publication of an alignment strategy with international objectives for the preservation of biodiversity. The European regulatory framework, for its part, encourages investors to integrate the impact and dependence of their investments on environmental dimensions.
To limit the risks, it is also necessary to be able to quantify them. Various indicators, metrics and scores have thus been developed to measure their impact on biodiversity. In particular, there is the CBF and the BFFI, approaches to assess the biodiversity footprint of companies on the one hand and financial institutions on the other. In any case, it is difficult to determine a single indicator such as the carbon equivalent, due to the complexity of the functioning of living organisms and the associated social multiples. In addition, there is no scientific consensus around the existing indicators to date and none prevails.
There is still much to do
Even if the law develops together with developments in the methodology for measuring the impact of activities on biodiversity, efforts are still to be made, especially for the awareness and involvement of all the organization’s stakeholders. When it comes to eliminating funding harmful to biodiversity and investing instead in companies and projects that benefit it.
1 Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services
2 The Global Assessment of Biodiversity and Ecosystem Services Report, IPBES, 2019.
3 Biodiversity loss and financial stability: a new frontier for central banks and financial supervisors?,
Banque de France Bulletin 237/7, September – October 2021.
4 Bonds and shares of non-financial companies held by French financial institutions.
5 Direct or indirect services that humans derive from nature.
6 United Nations Environment Programme.
7 State of Finance for Nature, UNEP, WEF, ELD, Vivid, 27 May 2021.
8 Organization for Economic Cooperation and Development.
9 Financing biodiversity, acting for the economy and businesses, prepared by the OECD for the French Presidency of the G7 and
the meeting of the G7 Environment Ministers, 5-6 May 2019.
10 Planetary Frontiers: Exploring Safe Operating Space for Humanity. Rockström, J., W. Steffen, K. Noone, Å. person,
et al. 2009. Ecology and Society 14(2):32
11 A planetary boundary for green water, researchers from the Potsdam Institute, associated with the Stockholm Resilience Center, April 6
12 LAW n° 2020-105 of 10 February 2020 relating to the fight against waste and the circular economy (1)
13 3 risks that the collapse of biodiversity poses to funding, AFD (Agence Française de Développement), 14
15 All natural resources directly useful to humans.
16 LAW No. 2019-1147 of November 8, 2019 regarding energy and climate (1)
17 LAW No. 2015-992 of August 17, 2015 on the energy transition for green growth (1)
18 Corporate Biodiversity Footprint developed by Iceberg Data Lab and I Care Consult.
19 Financial Institutions Biodiversity Footprint developed by ASN Bank, PRé Sustainability and CREM.