[Sustainability Wired] Biodiversity and Investment: There’s an $8.1 Trillion Need. But Is It An Opportunity?

Lorenzo Saa: Welcome to Sustainability Wired: the show that brings together peers and colleagues in the sustainability industry to address the opportunities and the challenges that we face, to take on sustainability issues in our investment or corporate decisions. The idea will be to kind of take the issues, from a broad perspective and a big picture perspective, but then to deep dive into some of the specifics to allow companies and investors to take home some lessons from our guests that they can use to take action in their own activities. I’m Lorenzo Saa, I’m the chief sustainability officer at Clarity AI, and I’ve been always excited to offer insights to institutional investors in my 20-plus-year career in sustainable finance, and I hope that the show will allow us to do that throughout the conversations with our different guests. So today as, the first episode, I’m really excited to tackle a topic that’s topical, which is nature and biodiversity. Nature and biodiversity has been a little bit of an ugly duckling in the investment space. It hasn’t had the sort of space and attention that climate has had, for example. But this seems to be changing. I just, came back in October from, the Cali COP, COP 16, where the PRI (the Principles for Responsible Investment) brought a delegation of about 100 institutional investors interested in the topic and wanting to actually be part of the conversation. And the TNFD, the Taskforce for Nature-Related Financial Disclosure, announced during COP 16 that they had more than 500 early adopters in disclosing on aspects, or wanting to disclose aspects, that have to do with nature and biodiversity. So, there seems to be a momentum going. But we really asked ourselves at Clarity AI if that was really the case. And so we’ve done a series of around 10 to 20, one-on-one, in-depth conversations with institutional investors. And what we’re finding is, though there is an initial movement towards looking at the issue, it seems to be more of a tiptoeing than a deep diving. And the question that I really want to tackle, therefore, is, is this real? You know, is the what is the “if” and the “why” investors and companies are looking at nature and biodiversity. And secondly is the “what” and “how”. And so how they actually do it. So, I’m delighted today to have my first guest here at Sustainability Wired, Rose Easton. Hi, Rose.

Rose Easton: Hi, good morning. Thank you very much for having me today.

Lorenzo:We’re excited. And your background is perfect for this show today. You’ve had over 25 years of experience in in the institutional investment space. You just stepped down as the chief responsible investment officer at the PRI. And, as part of that, you’ve looked at how to progress institutional investors in a number of different topics, including nature and biodiversity. And before that, you’ve had 20-plus years in a number of institutional investment firms, including 91 and AllianceBernstein. And nature and biodiversity seems to be really this topic you’re focusing on. And since you’ve stepped down, you’ve been looking at and conversation with investors of how they encourage and to look at and advise the players in the market on what they might be doing on nature and biodiversity. So, thanks for being here. I’m really curious and as a start, what was your passion, what got you into the sustainable investment field and why are you here today?

Rose: Yeah. Thank you very much. I think actually what brought me to sustainable finance really was the sort of motivation and passion around the protection of our natural world. Both the habitat and the species. And it really probably was born out of the fact that I was born down on the—and so I’ll tell you a little story. I was born on the south coast of England, and we used to go on holiday every year to this really beautiful area in Dorset called the Studland Bay, Studland Peninsula. And my father, I’ve got these lovely memories of my father taking me out into the sea. And we would walk through the sea grasses and would look for seahorses. And I’ve got fond memories of seeing these beautiful seahorses wrapped around the seagrass. Very sadly, I go back now every year with my children. But unfortunately, the seahorses are no longer there. And that’s because the motorized boats have come into the harbor and all the tourism have destroyed the seagrass, which is their habitat. Now seagrass—just a quick diversion—super plant. I don’t know if anyone, how many people know this? Not only does it provide that food and shelter for those rare, marine species, it sequesters carbon 35 times more than rainforests do. And of course, it acts as like a filtration system. So, of course it keeps the waters beautifully clear. So, by the conservation work that’s being done right now, which I’m pleased to say is happening, is bringing those seagrass is back. What you’re going to get is that clarity of water that keeps the tourism coming in. Again, here’s the financial materiality, yes. But it will then ultimately, ensure that there’s you know, revenue sources go into those kind of those different businesses in that area. But I’ve digressed onto a story before we’ve even started. So, forgive me. But yeah, this is an example as you can see, it’s something I really care about. And it’s why I’m in the space. I’m working in investment—investment is one of the greatest levers we can pull and driving change.

Lorenzo: Great. So, have the investors seen that lever?

In other words, you seem to have recognized early in your life the importance of nature. Have the investors done that? Are they evolving or how are they looking at this issue really, and tackling it? Are they tackling it?<strong>Rose:</strong> Look, I think they are, but let’s just sort of say a couple of things right upfront: as you say, it’s been the poorer system, because what’s happened is investors have been focused on climate as a systemic risk, but they haven’t seen nature and biodiversity loss as a proper systemic risk that has financial materiality. I just gave a very small example, but it absolutely does.

There was a, the Institute of the actuaries⁴ that recently just produced a report that said it was going to cost the global economy at least $479 billion per year if we continue to see that degradation of nature. So, it really is financially material.

Lorenzo: But that’s a big number. That’s a huge number. Can you envision or tell us a bit of an example of a specific case?

Rose: So, Tesla. Tesla is a great example. So, they’ve been building out these big factories and they went to Berlin Brandenburg to build one of those. And just the process of doing that without due care and due diligence actually caused their share price to fall.

Why? Because they need water, right? And they were building in an area that already had issues of water scarcity. So, you had all the conservationists and the local authorities coming up in arms. It slowed down the process of building that plant. The investor community see that this isn’t working very well. The share price falls.
They talk to Elon Musk. He basically says, “oh, no, it’s not an issue.”

You look at their documents, how they choose their locations—they don’t even look at physical risks and location and that sort of data, or even care about nature when they choose their locations. And it’s come back in between them because it ultimately caused share prices to fall and lack of, you know, you know, poor sentiment around that stock.

Lorenzo: Interesting. It seems like, Elon has also got presence also in the nature debate. But look, maybe getting back to, to where you were going. So, already institutional investors taking this on, are there elements that have enhanced the process for which this example you’re giving now becomes a bit broader as to tackle the issue that the investors are needing to face?

Rose: I think asset owners, if I go back, actually, even before I started the PRI. So, over four years ago when I was talking to my clients. Then biodiversity and nature was a topic that they’d all identified. They wanted to do something about. And really, not that much has happened because they’ve been waiting, I think, for the finance industry to catch up. And the good news is this is what’s starting to happen now. So, I think the key things we’re starting to see, is this understanding by the financial community, that this is a financial materiality issue. This understanding that climate change, climate risk and nature are two sides of the same coin, that climate risk drives nature loss, but actually nature loss exacerbates climate change. And I think that’s critical. And if that risk needs to be mitigated in portfolios and the opportunity needs to be recognized for something to be invested in. So, that’s one thing. The other action we’re seeing is lots of different investor initiatives. So, you’ve got some of the stewardship engagement initiatives such as PRI Spring or Nature Action 100 plus. So, that’s two things. Next, regulation. Regulation is—and those disclosure frameworks are—starting to develop. Notwithstanding what we’ve just heard from some of the omnibus proposals. And then of course, you mentioned upfront COP. The COP momentums. Obviously COP 16, the momentum, the great news coming out of Rome, COP2, that again you were at. And also that run up to COP 30 in Belem. You know, Belem is right in the middle of the Amazon. Nature and biodiversity are going to be hot topics. So, you know, sorry, my final thing on all of this is I’ve got a really optimistic view that I think I’m going to call it here: 2025 is going to be the year of nature.

Lorenzo: Awesome. So, let me slightly challenge that overall optimism by just trying to reflect a little bit about the different things you talked about. You talked about materiality. You talked about action and collective action through initiatives. You talked about, basically the role of regulation. And then you talked about momentum. These seem to be the positive drivers. But we know, through a world Bank report, for example, that about 50% of global GDP is, dependent and relies on nature. But we know that less than a third of investors have structured strategies towards nature. And so, my question is your first point is materiality, but are people really looking at this materiality beyond just seeing it? Are they actually taking action around it? And if so, and if not, what is blocking them?

Rose: Look, so as I just said, I think that progress is kicking off with some of the things we’ve just described. But there are there’s probably, I’d say, three key things that are really holding investors back. And actually these are probably the same things we saw for climate a few years ago. So, it’s that knowledge and skills gap. So, the asset owners, the asset managers and the investment consultants importantly, they’re all having to play catch up on this subject and really begin to understand it. The good news is, because of all the lessons learned through going through that process for climate change, they can kind of look for this. So, they’re coming on board and that knowledge and skills are developing far quicker. That’s first one. Second one is, if investors are to be able to really map these risks of their portfolio, they need to have the right data. And there’s a data gap, again, same issue as we saw before. But unlike climate, where there is one singular key metric, GHG emissions that can be used as a proxy, right. And can be used and used across portfolios. When it comes to nature, it’s way more complicated. So, you’ve got, all these different indicators for all the different types of biodiversity loss. You’ve then got to overlay that with the types of ecosystems on which that nature sits. Then you’ve got to think about the seasonality. You can imagine, then the location. You can imagine all these layers of data—super, super complicated. And you’ve got to find a way to combine all that information into some sort of metric that can be comparable, that can help portfolio managers. The good news is there has been really rapid development in the nature data space. In the last ten years, we’ve seen huge advances: satellite imagery, the geolocation data that’s needed, which is so important, that is now much higher resolution, much better quality. You’ve then got the AI large language models. So, you’ve got that increased speed and processing of all of that data. That’s going to play a hugely important role in this. Then the third point is around actually having the right vehicle. So, what’s holding investors from putting—they’re not just managing the risks and then you talk about the opportunities and committing capital. Well, some of those are really in very nascent and stages. So, a lot of them are private market type vehicles. So, you’re going to have issues around liquidity. You want to ensure that those vehicles have got the right risk adjusted returns. The fees aren’t too high. They always look for track records. There are no track records. So, you know, and if they want to allocate certain amounts again, due to those structures, it can be, you know, you can get restrictions around size. So, there’s lots and lots of barriers holding investors back that need to be resolved..

Lorenzo: Yeah, I mean look it’s interesting because you’re talking about vehicles. And basically product opportunities also that investors can take on. And what we found very interestingly in the conversation with the investors has been that, most of those that we spoke to are looking at this less from a product design, but much more across the portfolios as a risk management tool. You can even see that if you look globally, there’s less than 30 dedicated biodiversity and nature focused funds. And their AUM is petty compared to the size of everything else. So, when we talk about the opportunity side and here, you know, I was looking at a UN report, but it basically says that there’s an $8.1 trillion need by 2030 to meet the biodiversity and nature needs. What I feel is that need is not converting into opportunity. Actually, Robert Eccles really stated this a lot in his analysis of the SDGs. There is a need, but that doesn’t necessarily convert into an opportunity. So, is there a set of opportunities really here for institutional investors to tackle? And what do they look like, and is there a reason or what is the driver that the investors don’t see. Is it the same that we just discussed? Is there something else?

Rose: I think the most important thing to say is, like it always is: in order for flow of money to happen easily, investors have to be able to either make money from this, or they’ve got to be able to mitigate their risks.

And so, this is all around pricing natural capital. Until you can price natural capital, you don’t appreciate its value truly. And once you’ve appreciated its value, you can see the risks on the other side and money will flow automatically..

Lorenzo: Great. So, look, we know that investors are starting to tiptoe into the risk and the opportunity side, but there seems to be, and this is what I saw in Cali, that there is a movement of these initiatives, you mentioned. And there’s quite a lot of them. So, if you were sitting in an investment house and you’re like, “should I take one of these or all of these on?” How would you? What would you recommend an investor to kind of navigate the challenge or the challenge or the opportunity?.

Rose: Yeah. So, look, I think what’s helpful actually in some of these strategic initiatives or different initiatives is they’re all actually quite complementary. The idea is they’re not overlapping on each other. So, my guidance really would be to say, okay, choose the one that has got engagement with the companies where you’ve got the most high-risk exposure in your mandate. So, you’re matching your exposure and your risk there and engaging in the right places. And, or, investors set their own investment policies and investment beliefs. And if there are certain things that align very much, say, with your pension trustee board people due to the interests on that board and you’ve set that as an investment belief, then again, you can engage in the initiatives that relate to that…

Lorenzo: And is there one that you particularly like?

Rose: I’m going to be biased, right. So, the PRI spring I think is good. I like it because it’s very focused. So, it’s really focused around forest loss and land degradation. So it’s engaging with the companies who can exert the greatest influence in the geographic locations where this is happening. So, places like Brazil, for instance. So, yeah, I like it for that focus. And then FAIRR is also something, again, because it’s very unique. It’s very much around, the intensive, farming production methods for the food system. And so FAIRR does a lot of engagement around some really niche areas that have some of the issues, like, you know, agricultural waste, mismanagement and things like that. So yeah. So, that would be the two…

Lorenzo: Great. Now look, I think so we covered the materiality piece. We covered a little bit of the investment engagement actions. So, what investors are doing. But the context, both the carrot and the stick for investors to act. What about disclosures and regulations? At Cali there was a lot with TNFD, the task force for nature related financial disclosures. They had an entire section there, but it’s voluntary. So, is that really moving the dial for investors? And if that is not, what other regulatory settings on disclosure might push investors to look at nature and biodiversity.

Rose: I think TNFD has really got the conversation started. I think it’s been a game changer. And I think it’s really helpful because they’ve aligned it with TCFD. We said right upfront nature, climate risk, highly interrelated. So, aligning the way in which they’re structured. Then they’ve worked closely with GRI. They work closely with ESB. And so you have got an alignment. They haven’t just come in, in their own way. So, I think that’s really, really good. I would agree that so far what they’ve produced is very helpful for companies looking at their own disclosures and how they disclose their own risks. Helpful probably for financial institutions. Not sure quite how helpful at this stage it has been for actual investors. But I think what will push it—and you just touched on this—is making it from being voluntary to mandatory, just like we’ve seen for TCFD. So, that’s one thing. But again, to answer your question, what else is, out there? And that’s kind of being the, the stick and not just the carrot. So, you’ve already got, under SFDR, PAI number seven, which quite specifically, requires disclosure of your….

Lorenzo: PAI is principal adverse indicator..

Rose:Exactly. So, that one there, is asking for disclosure around any companies you’ve got that are negatively impacting on biodiversity and nature. Then we’ve got the IFRS’ ISSB Standards 1. That one actually incorporates nature. Standards 2 incorporates climate. But there’s within that, again, nature is an aspect of that.

So, that’s already there. And you’ve also got the mitigation and adaptation parts of that, which again nature-based solutions are going to be part of that. And quite interesting, they’re working on a project right now in biodiversity, looking at whether there should be an S three, a standard three, specifically on nature and biodiversity.

CSRD is already there, although, you know, given the omnibus changes, I think that’s going to really slow down progress for a bit, which is a bit of a shame.
And then there’s the EU deforestation regulation, which will come into force December 2025. And that’s going to require the companies who are trading in those highest-risk commodities to disclose where their source are, their due diligence on their corporate value chains, etc..

So, there’s a lot there’s a lot there. Of course, as always, this with regulation.

Lorenzo: I think what’s been interesting for us on the TNFD has been that, when we speak to investors, the disclosure element is not really what’s driving them to look at it. However, their risk framework, which is quite sectoral base is where investors find it’s particularly useful. And a lot of them are using LEAP, which starts with locate and evaluate. And the “L-E” of LEAP is where a lot of people are really focusing right now. They’re not ending the sentence, but at least then the progress is there. And that’s a lot of where the TNFD seems to impact institutional investors. All right. Well, look, I think we’ve had a lot of chats. I’d like you to give me a go and rapid fire questions about nature and biodiversity. So, first, biodiversity credits: game changer or greenwashing risk?

Rose: As much as I think they could be a solution, I do think there’s greenwashing risk, right. Because we’ve said how difficult it is to measure the impact if we haven’t got the right metrics. And something like biodiversity, you know, the permanence of any form of carbon sequestration is debatable. So, I think, it’s going to be very hard to certify these carbon credits. So, I’m going to say greenwashing risk.

Lorenzo:TNFD stepping-stone or end game?

Rose: End game. I really like what they do. I think it’s super small. I love the way they’ve kind of, already had a go at literally trying to match some of these metrics per indicator, per sector. And, well, I just hope though, as, as I said earlier, that it does become mandatory, like TCFD.

Lorenzo: More impactful policy pressure or investor engagement with companies?

Rose: Time is not on our side. Policy.

Lorenzo:Nature or biodiversity?

Rose: They’re not the interoperable, as people keep using them as. So, nature is my answer. Because biodiversity is a subsection. The natural world is all the habitat, the species, and the ecosystems around it, biodiversity is the variation of the species within its ecosystems. So, it’s a subset. Answer’s nature.

Lorenzo: Great.
All right. What I wanted to introduce in this series is, a concept of, basically handing over the torch. Every single guest that I have will bring forward an art concept that is linked to sustainability and judge the previous recommendation and pass on and present and pass on the recommendation that they have, in each episode. So, obviously Rose is the first guests. So, what I thought is I could be the first one handing over the recommendation. And in fact, the piece that I have is a music piece of the Four Seasons, by Vivaldi. And it’s, coming from a project called the Uncertain Four season, which basically has taken on the music of, Vivaldi and converted it through using AI to show the impact that nature and biodiversity and climate change is having on our world, and therefore the music gets altered to show how there would be greater thunderstorms or greater loss of species. So, less birds and less sounds, or that the overall intensity of the music might be slower or harder due to what is going on in our world. So, I’ve loved it, and I think it’s a great way to sit there and say, “something is wrong,” as you think about nature and climate. So I’d like to see what Rosa thinks about it.

Rose: So for me. You’re missing… So, if I remember the original right, you’re missing that sense of flight. The insect buzzing the music with violins. In the original, you get the sense of, like, little birds and insects hovering a flight at the beginning of spring and that lightness. And this has just been replaced by this sort of dirge of thunderstorms. There’s nothing predictable about it. And it’s. Yeah. Made it less. It’s less springy, less happy. It’s pretty sad.

Lorenzo: Well, I saw it live in Milan, actually. And it’s quite disturbing when you walk out of it, so, All right. But so, you don’t like it, which is good. In a way. So, what are you going to bring to us today?

Rose: Okay. So, I have had a think about this, and there’s lots of things we could have chosen. But, the World Wildlife Foundation, WWF has launched a campaign, and it’s called, Art for Your World. And they’ve since done one for oceans as well. And the idea is to unite the art world around the issues of climate change and to really raise attention to it. So, what’s happening is artists can sort of get on board and then they can, donate pieces effectively into the system. And when those participating pieces get sold proceeds of that get used for certain—they’ve got about 5 or 6 different—key projects. Nature and biodiversity projects that the WWF will go on and fund and do. And one of those actually, which I’m very pleased to say, is the replanting of seagrass around the coastal areas of the UK.

Lorenzo: We’re going full circle.

Rose: Yeah, it’s funny, I didn’t quite mean it to be this way, but I couldn’t help but pick up on this one. So, here is a piece of art that was donated. It’s called “What the Seagrass Says” by Heather Phillips. And this is a drawing which hopefully you can see has been drawn onto just a piece of cardboard. But, what she’s done… So, number one, it’s reusing materials. Right. So, it’s using a waste piece of cardboard. Next. What she’s done is what you can see. She’s actually picked the piece of cardboard. You know, the ones that have got fragile. This way up. And she’s drawn the seahorses onto that. And effectively what it’s saying is handle them with care. They are fragile, as are the delicate seagrasses in which they live. And they need protecting. So, that’s my piece of art to share with you.

Lorenzo: Thanks, Rose. I thought that was a great way to close today. And, I hope the next guest will like the piece. But look, I hope everybody has enjoyed the show. I’ve certainly loved Rose’s perspective. I think, what I’ve taken away is primarily, first, is that there is a materiality element to nature and biodiversity. It’s growing, and it’s up for investors to move beyond just, getting the mapping of the risks and going into acting on those risks and looking at the opportunities that are out there. And the second conclusion is that TNFD is a useful tool, maybe not necessarily for reporting and disclosing, but certainly from a risk management perspective. Third, the great thing about nature and biodiversity today is that it’s a field that leaves a lot of space for creativity. We still haven’t gotten things down. And because of that, you know, people can decide what is important or not. Is it, you know, asset location data or not? Is it the specific, MSA versus PDF? This is up for the investors to explore and provide that differentiation and value add for their clients. And then ultimately, I think the momentum is clear. As Rose said, this is the year of biodiversity. And with COP16 having finished with a glorious conclusion and with COP30 coming up where nature and biodiversity are coming together, we are in a space where investors will just see more and more the gear is going up. So, I hope you enjoyed the first episode of Sustainability Wired. We’re certainly excited about it. And there’s a number of other episodes coming. And for each one of those episodes, we expect to have guests that can bring added value to you. I want to thank Rose again for being here. Please like, subscribe and comment, below. Anything good or bad things, ideas that we didn’t pick up on or missed? And any suggestions on future episodes. So, please take on these where it’s relevant to you. And in the meantime, please stay wired.