The importance of biodiversity:
Biodiversity is the set of living beings and their ecosystems. It also includes the interactions of species with each other and with their environment (Source: French Biodiversity Agency). It supports our food chain, our drinking water supply, and our health. In other words, our survival depends on it. Today, biodiversity loss is a major threat to the services we depend on, but also to species and their environments. Indeed, nearly a million species of plants and animals regulating the Earth’s natural processes will be at risk of extinction by the end of the century (Source: United Nations).
Why should investors take measures in favour of biodiversity?
According to the Biodiversity Finance Initiative, the funding gap to save 30% of land and marine areas has been estimated at between $103 billion and $178 billion annually or about 0.3% of the global GDP (Source: The Biodiversity Finance Initiative). Biodiversity issues are starting to engage the business community but are not yet as important as climate change. If investors ignore the risks posed by biodiversity loss, the value of their investments could be affected in the short and long term. Biodiversity loss is a combination of physical, regulatory, transitional, and systematic risks. This is why investors should take action to protect biodiversity, as business opportunities do exist (Source: World Economic Forum).
Clear Skies Investment Management Inc.
Clear Skies Investment Management Inc. (Clear Skies) was founded to accelerate the adoption of impact investing in the financial world by offering investors the opportunity to make investments with liquidity while prioritizing the positive impact of those investments. The theory of change created by Clear Skies is aligned with the United Nations Sustainable Development Goals (SDGs) and is composed of 5 investment themes, namely:
- Sustainable energy and climate action
- Preservation of the planet
- Basic human needs
- Smart and resilient infrastructures
- Shared prosperity
Although biodiversity issues affect all five investment themes, the themes Preservation of the planet and Basic human needs are the most affected by biodiversity issues. As a result, according to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), more than 80% of the SDGs depend on biodiversity. This is why Clear Skies has made it its mission to allocate capital for the preservation of natural habitats. We support initiatives to protect and restore marine and terrestrial ecosystems from misuse, as well as innovations that promote the efficient use of natural resources and the circular economy. As impact investors, our goal is to achieve these themes through methods that allow us to preserve biodiversity. For this reason, we pay particular attention to our impact investment analysis when looking for a company. Once a company is added to our watch list, as part of our shareholder engagement, we continuously ensure that underlying biodiversity risks are always considered in critical strategic and operational decisions at board meetings.
Impact of COP15
Recently, Clear Skies attended COP15, a conference focused on biodiversity organized by the United Nations. With over 21,000 delegates, 1,000 company representatives, and a full day dedicated to finance, this was by far the most attended COP from a variety of sectors. In addition to the successful participation, the nations in attendance adopted the Kunming-Montreal Global Biodiversity Framework. This framework contains 4 goals and 23 targets, including Target 15 which aims to “require, by 2030, large and transnational companies and financial institutions to regularly monitor, assess and transparently disclose their risks, dependencies, and impacts on biodiversity, along their operations, supply and value chains and portfolios ”.
Although this framework is not legally binding, governments and regulators will need to focus on nature preservation, increase the number of policies and incentives on biodiversity protection, and standardize methodologies and frameworks (Source: Convention on Biological Diversity).
In addition, the use of the Taskforce on Nature related Financial Disclosures (TNFD) framework was widely discussed at COP15. The TNFD is an independent organization that was created to develop recommendations on the financial impacts of nature-related risks and opportunities. In addition, there are opportunities for investors and companies to participate in the creation of the TNFD framework by participating in focus or discussion groups (Source: Taskforce on Nature).
Shareholder approaches to biodiversity
Biodiversity is a vital issue, yet shareholder proposals on this issue are not frequent. Biodiversity issues such as deforestation and the impact on the supply chain are beginning to be discussed among some shareholders. An example is Metro Inc. which received a proposal in 2022 on biodiversity preservation. The Mouvement d’éducation et de défense des actionnaires (MÉDAC) asked that Metro specifies, in a Code of Relations with its suppliers, its requirements with regard to the commitments it wants from its suppliers to preserve biodiversity. According to MÉDAC, Metro is working on a code of conduct to govern its relationship with suppliers. The board and management recommended voting against the proposal, but it received 37% of the votes 33 in favor. As with proxy voting, there is little shareholder engagement that focuses specifically on the issue of biodiversity. An example of shareholder engagement in biodiversity is that of Aviva. This insurance company has engaged with companies in the agriculture sector on the issue of pollinators, specifically the dependence of supply chains on pollination. In particular, Aviva has asked for more transparency on governance, strategies, risk management, targets, and more. In Canada, NEI Investments is in contact with Empire Company, Loblaw Companies, and Canadian banks on two issues: deforestation and the assessment of biodiversity impacts and dependence (Source: NEI Investments).
To contribute to the development of the TNFD framework: https://tnfd.global/consultation-and-engagement/
More than 1,000 companies were present at COP15 (H&M, IKEA, McCain, Orsted, LVMH, to name a few). Many of these companies are active in this area because they are aware of the threats to their supply chain posed by the collapse of biodiversity. This number will only increase as leaders become more aware of the natural processes on which their businesses depend. Shareholder engagement, through impact investors who are exposed to potential biodiversity risks and opportunities, represents a unique opportunity for management when these investors speak up in votes and coalitions. In the economic landscape in which we find ourselves in 2023, greater attention to biodiversity at the decision-making tables is in favor of a long-term sustainable future for all. In 2023, when we vote for shareholder proposals, we will keep biodiversity in mind.
This is an excerpt from a complete publication prepared by GIR on 2023 Environmental, social and governance issues. See GIR’s full ESG trend report here.