CEO says 2023 will mark a “turning point” in how investment world treats biodiversity risks.
(Bloomberg) — Schroders Plc wants investors to allocate a lot more money to biodiversity, as the asset manager tries to make 2023 a “turning point” for how the financial industry treats natural capital.
“Nature and biodiversity are in the spotlight like never before. We may be mobilizing billions today, but that has to become trillions –- and fast,” Peter Harrison, Schroders’ chief executive officer, said in a note to clients seen by Bloomberg News. “That’s non-negotiable for a world looking to chart a course towards a nature-positive future.”
The client note builds on goals set out by delegates at last month’s United Nations biodiversity summit, known as COP15. If the summit’s stated ambition of shielding 30% of the world’s natural assets by 2030 is to be achieved, then capital flows need to change now, Harrison said.
“Failing to take account of nature risk is a liability for companies and their investors,” he said. “This issue matters for business.”
That means investors who have been used to treating nature essentially as a free resource will have to wake up to a new reality. An estimated 69% of animal populations have already been wiped out since 1970, representing a huge cost. The World Economic Forum says that more than half of global gross domestic product, or about $44 trillion of economic value, relies to some extent on nature.
Nature risk has become “an integral factor to investment risk and returns,” said Harrison, and investors and companies will be increasingly required to measure and disclose their dependency and impact on nature.
For now, asset managers offering biodiversity strategies account for just a tiny fraction of the investment universe, with Schroders, Lombard Odier Investment Managers and Axa Investment Managers among the few providing such products.
A study by Morningstar Inc. last month identified only 14 funds with $1.6 billion of combined assets that have strategies targeting biodiversity, compared with roughly 1,100 funds holding more than $350 billion in climate strategies. Morningstar said Schroders stands out for its focus on the food and apparel sectors as being particularly exposed to biodiversity risks.
Asset managers trying to blaze a trail in biodiversity investment strategies are now building data reserves to inform their allocations. Last year, Schroders invested in Natural Capital Research, which measures assets such as forests and mangroves using satellite data and machine learning tools.
And portfolio companies are under growing pressure to provide more data due to frameworks such as the Taskforce on Nature-related Financial Disclosures, or TNFD, the Science Based Targets for Nature project and the International Sustainability Standards Board.
“Better data is how we can bridge between science and practice, between policy and deploying capital,” said Harrison. “With it can come more sophisticated disclosure of impacts, more active engagement with companies and new products and solutions dedicated to supporting natural capital in private assets.”
COP15 was “a major milestone in efforts to protect nature,” Harrison said. And it will become a catalyst for drawing greater investor and regulatory focus on the topic, he said.
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