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Jupiter urges systematic approach to biodiversity

As escalating climate risks deplete the world’s natural assets, investors need to factor biodiversity into their strategies, says Jupiter Asset Management (Jupiter AM).
Schools of colorful tropical fish swimming around corals on a tropical reef in Asia.

While investors are sharpening their focus on climate change as part of their asset allocation decisions, they also need to integrate biodiversity into the investment process in a structured way.

This is becoming more urgent given the interconnectivity of the various elements of natural capital, which represent the world’s stocks of air, water, geology, soil and all living organisms.

For example, air pollutants such as sulphur dioxide and nitrogen oxides emitted by fossil fuel electricity generation and petrol vehicles ultimately degrade soil and aquatic systems and their biodiversity as acid rain.

“Climate change and natural capital depletion, of which biodiversity is one component, are closely interconnected,” explained Rhys Petheram, head of environmental solutions at Jupiter AM. “It is key for investors to understand this dynamic to ensure coherent integration into their investment strategies.”

Being more aware

A recent joint workshop report by the Intergovernmental Panel on Climate Change and the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services emphasised the role that investors and policymakers can play.

In short, realisation of the need for greater attention to this is growing, given climate change and biodiversity loss share common drivers through human activities.

“Failure to address them both carry the risks of sudden, irreversible impacts due to positive and negative feedback mechanisms, which continually amplify or reduce a given effect,” said Laura Conigliaro, analyst, environmental solutions at Jupiter AM.

She cited permafrost melt as an example of a positive feedback: the melting releases methane, bringing about more warming, which then melts more permafrost, and the cycle continues.

“Climate change poses a direct threat to nature and its contributions to people, with the extent of the impacts depending on our choices today,” added Conigliaro.

Another example is the impact of ranchers deforesting the Amazon. This exacerbates climate change and degrades areas of high biodiversity value, which in the long-term puts in peril a main water source for themselves and their livestock.

In response, some companies have developed solutions to address this challenge, such as advanced location-based software solutions for satellite and geo-positioning including GPS, laser, optical and inertial technologies.

Investing in biodiversity

Jupiter AM believes that effective actions to address climate and nature carry social benefits, and efforts to address biodiversity frequently have climate benefits.

However, according to Petheram, measures that address one factor in isolation – whether climate, nature, or social – tend to result in non-optimal solutions and this is particularly true for measures narrowly focused on climate mitigation.

“A case in point is deriving biofuels from crops such as corn or palm, which provide a cleaner fuel for vehicles than petrol, but come at a high cost to society and nature.”

These findings result in the firm integrating material biodiversity issues into its investments, alongside other stewardship priorities. “It also compels us to mainstream biodiversity issues, as well as social factors, into our climate-related stewardship activities,” added Petheram.

Part of the Mark Allen Group.