From Awareness to Action
Asset owners can play a critical role in safeguarding financial returns and natural ecosystems, according to Bruna Bauer, Research Manager at Pensions for Purpose.
The integration of nature and biodiversity into investment strategies is still in its infancy for many asset owners. This creates a hesitancy to engage with nature-related issues, stemming largely from limited internal expertise, small sustainability teams and the challenge of translating nature-related data into decision-useful insights. Yet, the financial materiality of biodiversity loss is undeniable, making proactive engagement an urgent matter of financial prudence.
Early steps and emerging trends
Our discussions with asset owners across regions reveal a fragmented approach to nature investments, with progress varying significantly.
The UK, despite having some of the most engaged stakeholders, has yet to see widespread TNFD (Taskforce on Nature-related Financial Disclosures) reporting. However, firms are investing in educational initiatives, reflecting an increasing awareness of the financial and regulatory implications of biodiversity degradation. Asset owners are, however, taking the first steps by incorporating sessions on biodiversity into broader sustainability or stewardship reports. Biodiversity is also increasingly becoming a stewardship priority alongside climate.
North American asset owners are also in the early stages, with many still focused on foundational efforts like surveying managers to understand their approaches to biodiversity, enabling them to later engage on the topic.
Latin America, with its rich biodiversity and economic dependence on natural resources, is already more advanced in incorporating nature-related metrics into investment practices.
Meanwhile, the Asia-Pacific region has seen notable progress, though engagement remains limited to a minority of asset owners. A higher demand from asset owners would increase asset managers efforts on biodiversity though.
Across all geographies, there is growing recognition of the reliance of GDP on natural ecosystems and the need to build internal capacity to assess and mitigate biodiversity risks.
Regulation and financial materiality as key drivers
The primary motivators for integrating nature into sustainability strategies are financial materiality, followed by anticipated regulatory changes. Asset owners are increasingly aware of the investment risks associated with biodiversity loss, from ecosystem fragility to supply chain vulnerabilities.
The TNFD framework is gaining traction, with many preparing for its future impact. However, a lack of standardisation across sectors and supply chains presents a challenge, with some schemes opting to focus on specific industries such as agriculture, where biodiversity risks and opportunities are more tangible.
Data challenges and the need for standardisation
One of the most pressing obstacles in incorporating biodiversity considerations into investment decisions is the challenge of data. Unlike climate-related disclosures, which benefit from relatively established carbon metrics, biodiversity data often requires qualitative insights and case-by-case analysis since it varies significantly across regions and asset classes. This lack of standardisation makes comparability difficult, particularly in private markets, which lag behind public markets in data availability.
To overcome these barriers, asset owners are turning to partnerships with academic institutions and NGOs, leveraging external expertise to bridge knowledge gaps. Many funds are also expanding internal teams and increasing training initiatives to better understand the complexities of biodiversity risks.
The urgent call for action
The rapid degradation of nature poses an existential threat to both ecological and economic stability. The recent COP16 summit in Colombia underscored the urgency of addressing biodiversity loss, with a central goal of conserving 30% of the world’s land and oceans by 2030. Yet, global progress remains insufficient, with financial constraints and limited commitment from the international community hampering conservation efforts.
For asset owners, this is not a distant issue but an immediate concern with tangible financial implications. The TNFD framework and the Global Biodiversity Framework’s Target 15 provide a pathway for integrating nature-related risks and dependencies into corporate reporting.
Recognising that nature and biodiversity are intrinsically linked to climate, asset owners are increasingly aiming to adopt an integrated reporting approach, supported by the frameworks of the TNFD and Task Force on Climate Related Financial Disclosures.
A shift from awareness to action
Nature and biodiversity can no longer be considered peripheral considerations, they are central to sustainability, portfolio resilience and long-term financial stability. The investment industry must move beyond initial awareness and into actionable strategies that embed biodiversity considerations into investment decision-making.
Asset owners have a critical role to play in safeguarding both financial returns and the natural ecosystems upon which economies depend. The time for deliberation has passed and the time to act is now.
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