Systemic risk of biodiversity loss has deep roots

In Spring 2022, the news are overwhelming: we read or listen about the Russian-Ukrainian war - a conflict in the European continent that reminds us of a past we thought we left behind. Next to this, the fear of escalation, nuclear threats, and scarcity of energy provision are our daily concerns. This comes on top of the global pandemic which exposed us to scarcity of goods, riots, and polarization in our society.

In such hard times, it is fundamental to react fast and ensure help and assistance to the people in need. However, short-term solutions are not enough. Events such as the emergence and spread of zoonotic diseases, geopolitical tensions, and refugees crises are not random, casual incidents- they have deep roots.

As a long-term investor, PGGM looks at these roots and works to address systemic risks meaning those phenomena that are likely to lead to disruptive events and thus, to social and market failures. This is why we are working with peers to learn about and address the challenges of biodiversity and nature loss- the dramatic decline in the variety of all living things on our planet and the decline in natural resources.

Healthy ecosystems provide us with many essentials that we take for granted such as fresh water, clean air, or good quality soil. When ecosystems get compromised, the likeability of zoonotic diseases and conflicts to arise increases.

From a financial perspective, large parts of our economy are dependent on healthy ecosystems which provide “ecosystem services” – services that support economic activities. Examples include providing direct physical inputs (e.g., timber), enabling the production process (e.g., filtering water), and protection from disruption (e.g., flood control).

Luckily, momentum to address the large-scale loss of biodiversity appears to be building. The UN Convention of Biological Diversity (CBD) is expected to set global goals related to this topic, following the steps of the UN Climate Change Conference of Parties (COP). This will follow the commitment that 100 world leaders pledged in November 2021 to end and reverse deforestation by 2030.

At PGGM we are engaging with our investees on a major driver of both climate change and biodiversity loss: deforestation. Together with peers, we are speaking to companies on how to improve their sourcing practices and overall transparency. Besides exercising our influence, these conversations also provide the basis for informed voting during shareholders’ meetings.

Despite the positive progress, there remain two core challenges. The first is data availability. Currently, there is little information on biodiversity in the data available from non-financial rating agencies and major data producers. Another important challenge concerns the lack of biodiversity and nature-related metrics and targets, which are still being developed by building on the approaches of successful climate change-related initiatives. However, compared to climate change, which has an overarching objective of GHG emissions reduction, biodiversity is a much more complex topic that will require a multitude of goals and pathways.

We expect more data to become available in the coming years thanks to the multitude of promising market-led initiatives that are taking place such as The Taskforce of Nature-related Financial Disclosures and The Partnership for Biodiversity Accounting Financials.

This is just the beginning of our journey to gain a shared understanding of this topic as a financial community. While continuing to work on related topics such as ESG integration and climate action, we find it important to contribute to addressing the complexity of biodiversity and nature loss.