Biodiversity to be Focus of Attention for investors in 2023

Ingrid Kukuljan Head of Impact and Sustainable Investing at responsible investment firm Federated Hermes, says the biodiversity crisis, which has largely been ignored by investors and corporates, is about to take centre stage.

In her comments in the Federated Hermes 2023 Outlook, Kukuljan said she believes that in the wake of upcoming COP15 in Montreal in December, which will focus on protecting nature and halting biodiversity loss around the world, 2023 will put the deserved spotlight on nature and biodiversity.

“The invisible crisis has become an everyday occurrence, showing its fangs through fires, droughts, floods and is forcing the society, policymakers, corporates and investors to wake up to the fact that we are beyond the tipping point,” says Kukuljan. “We have already altered 75% of the earth’s surface and 66% of the marine environment, just to satisfy our consumption and energy needs.

She points out that with the global population set to reach 10 billion in the next 20-30 years, this will lead to an increase in food demand of around 60% and energy by around 80%. This will be difficult to achieve, as we are already using resources which are scarce so we need to focus on halting and reversing biodiversity loss through conservation and replenishment.

Kukuljan adds that looking ahead, we are likely to see a continued increase of physical risks highlighting the urgency for action. The continued droughts, flooding and wildfires have enormous impacts for food production and water security. The alarming situation should help raise awareness of our dependence on nature and ecosystem services.

This should translate to policy and regulation implementation by national governments on a range of different areas such as deforestation, sustainable agriculture, waste and water.

“We would hope to see a potentially mandatory disclosure of impacts and dependencies on biodiversity across counties, especially those ones which are biodiversity rich such as Australia. Brazil has already taken steps forward - at COP27 in Egypt President-elect Luiz Inácio Lula da Silva vouched to fight illegal Amazon rainforest deforestation, a stance he took during his leadership between 2003-2010,” Kukuljan adds.

From an investment perspective, the final draft of the Taskforce on Nature-related Financial Disclosures (TNFD) to be published in the latter half of next year will guide reporting on biodiversity by companies. Whilst it may take some time to produce a high standard of reporting, this is a positive step for investors as it helps them to assess companies with more clarity.

Kukuljan also expects biodiversity to be a key engagement issue addressed alongside climate change. As with Finance for Biodiversity and FSDA deforestation commitments, continued industry collaboration will be key to solving ongoing challenges.

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