In an opinion piece published in Barron's China, Pictet Asset Management CEO Laurent Ramsey explains why protecting biodiversity should be a priority for both businesses and investors
Written by
Laurent Ramsey
Managing Partner
Share this article
Nature has always been critical to human health.
The people of ancient Mesopotamia used hundreds of plants, such as poppy and myrtle, to treat injuries and illnesses; many such nature-based treatments remain in use today.
Indeed, by some estimates, more than one-third of modern drugs are derived from flora and fauna and the pharmaceutical industry uses as many as 70,000 different species of plants.
So when nature thrives, humans are healthier too. Unfortunately, the opposite is also true.
Thanks to biodiversity degradation caused by rapid economic development, the world is already losing one potentially critical drug every two years.1
For example, a species of Himalayan yew tree that is used to produce Taxol, a chemotherapy drug to treat cancer, is on the brink of extinction due to overharvesting and collection for fuel.2
But medical therapies represent only a fraction of what humans stand to lose from the depletion of the Earth’s biodiversity.
A healthy biosphere ensures the world is sufficiently supplied with food, clean air, water and fertile soil; it also creates the conditions under which crucial processes such as pollination, flood protection and carbon capture and storage take place.
All of this is threatened by biodiversity loss.
Attempts have been made to quantify the risk.
One model, developed by the United Nations, treats the planet’s resources as “natural capital”, an asset much like any other that appears on a company’s balance sheet.
Under this framework, the Earth’s supplies of clean water, fertile soil and minerals form the capital stock from which humans gain three essential “ecosystem services” – provisions, regulations and culture (see chart).3
The economic value of these services is estimated to be as much as USD140 trillion a year – or 60 per cent more than the global GDP.4
By rapidly drawing down on this natural capital while also failing to invest to preserve its value, humans have already severely degraded an estimated 60 per cent of the world’s ecosystem services.
Given the magnitude of the threat, you’d think reversing biodiversity loss would be a priority for both businesses and investors, particularly in the era of responsible capitalism.
But it isn’t.
Global warming and carbon emissions remain the top non-financial concerns. While an increasing number of companies are committing to net zero emission plans, few consider the loss of natural ecosystems a corporate responsibility.
To be fair, it is easy to see why.
Biodiversity is complicated. Unlike climate change, which has an extensive research infrastructure and well-defined physical targets, biodiversity is a messy and dynamic system that doesn’t lend itself easily to practical analysis. For example, more than 80 per cent of the world’s species – and therefore their habitats – remain undiscovered by science.5
However, given the intimate relationship between climate and the biosphere, the two crises can only really be tackled together.
Nothing makes that point more emphatically than a recent study showing that ocean and land ecosystems remove around half of anthropogenic CO2 emissions from the atmosphere every year.
Put it another way, half of our “climate debt” is removed, for free, by the biosphere every year – a vast subsidy to the world economy.6
The rise of green accounting
How might corporations respond to the problem of biodiversity loss?
To begin with, companies should acknowledge the threat that biodiversity loss presents to their bottom line.
These risks can manifest themselves in a number of ways.
Physical risks are the most obvious and immediate. For example, deforestation could trigger floods or reduce local rainfall, raising operational and insurance costs for various industries. Food producers may face a long-term decline in production and revenues as nutrient-rich soil disappears as a result of intensive farming.
Then there are liability risks. These include legal and reputational costs arising from lawsuits filed against companies allegedly causing ecological damage.
There are already a number of risk models businesses cans use. The UN, for instance, has developed a framework of internationally comparative statistics and accounts which allow investors to compare environmental accounting to make informed decisions – just as they compare economic accounts on gross product, trade or expenditure. The System of Environmental Economic Accounting (SEEA) is now used to calculate a progress towards Sustainable Development Goals.7
Then there are science-based models such as the Planetary Boundaries framework, which helps businesses quantify their contribution to species loss for every USD1 million of revenue they generate.8
Such models could form the basis for nature-related financial disclosure, such as the inclusion of biodiversity footprint data in quarterly reporting, as well as for business targets on issues like species protection or habitat restoration.
Some firms are moving faster than others. Luxury conglomerate Kering has developed Environmental Profit & Loss (EP&L) accounts to measure and quantify the impact of its activity on biodiversity and the environment. It is committed to reduce its EP&L footprint by 40 per cent across its supply chain by 2025.9
For other companies, biodiversity disclosure is legal obligation.
In France, new regulations introduced in 2019 require financial institutions – including banks, investors and insurers – to publish such information in their statements.
Benefits from investing in efforts to halt biodiversity loss could be considerable.
New net zero: biosphere and finance
Corporations’ role in halting biodiversity loss should not be limited to risk mitigation and transparent reporting. Businesses’ capital expenditure can also be re-directed to repair the damage caused to the ecosystem.
The benefits from such investment could be considerable.
This is where models such as the Species Threat Abatement and Recovery (STAR) metric can help. Developed by the International Union of Conservation of Nature, one of the most influential organisations on biodiversity, the STAR metric quantifies the impact a business’s investments can have in reducing species extinction risk.
It can do so before investments are made (ex-ante) and can also measure the impact of conservation interventions on extinction risk over time (ex-post) for a particular manufacturing site, land management unit, region or country.
Investment in natural capital will be crucial.
Currently, public and private investment to protect biodiversity amounts to estimated USD78-91 billion per year, about a tenth of what is deemed necessary10 and half of what the world spends in fossil fuel subsidies.11
But the mood is changing. Policymakers will discuss a set of ground-breaking biodiversity targets for 2030 at next year’s UN summit – the biggest in a decade – in Kunming, China.
Establishing a new net zero target on biodiversity loss that corporations should adhere to may be a Herculean task. But it is what we need to heal nature and achieve sustainable transformation of our economy.
Laurent Ramsey has been a Managing Partner of the Pictet Group since 2016. He oversees the Group’s Human Resources, Risk & Compliance and is responsible for Pictet Trading & Sales. In addition, Laurent is Chairman of the Pictet Group Sustainability & Stewardship Board and sits on the Board of the Pictet Pension Fund. He joined Pictet in 1993 and has held various senior management positions at Pictet Asset Management in Geneva, Hong Kong, Singapore and London. Laurent holds a Master’s in International Management and a degree in Business Administration from HEC Lausanne School of Business and Economics. He also serves as Vice-President of the Geneva Financial Centre and is a Board member of the Asset Management Association Switzerland.
Share this article
Important legal information
This marketing material is issued by Pictet Asset Management (Europe) S.A.. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The latest version of the fund‘s prospectus, Pre-Contractual Template (PCT) when applicable, Key Information Document (KID), annual and semi-annual reports must be read before investing. They are available free of charge in English on www.assetmanagement.pictet or in paper copy at Pictet Asset Management (Europe) S.A., 6B, rue du Fort Niedergruenewald, L-2226 Luxembourg, or at the office of the fund local agent, distributor or centralizing agent if any.
The KID is also available in the local language of each country where the compartment is registered. The prospectus, the PCT when applicable, and the annual and semi-annual reports may also be available in other languages, please refer to the website for other available languages. Only the latest version of these documents may be relied upon as the basis for investment decisions.
The summary of investor rights (in English and in the different languages of our website) is available here and at www.assetmanagement.pictet under the heading "Resources", at the bottom of the page.
The list of countries where the fund is registered can be obtained at all times from Pictet Asset Management (Europe) S.A., which may decide to terminate the arrangements made for the marketing of the fund or compartments of the fund in any given country.
The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments or services.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. The management company has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested.
The investment guidelines are internal guidelines which are subject to change at any time and without any notice within the limits of the fund's prospectus.
The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a specific security is not a recommendation to buy or sell that security. Effective allocations are subject to change and may have changed since the date of the marketing material.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares.
Any index data referenced herein remains the property of the Data Vendor. Data Vendor Disclaimers are available on assetmanagement.pictet in the “Resources” section of the footer.
This document is a marketing communication issued by Pictet Asset Management and is not in scope for any MiFID II/MiFIR requirements specifically related to investment research. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any products or services offered or distributed by Pictet Asset Management.
Pictet AM has not acquired any rights or license to reproduce the trademarks, logos or images set out in this document except that it holds the rights to use any entity of the Pictet group trademarks. For illustrative purposes only.
Cookie Policy
This website uses cookies to enhance user navigation and to collect statistical data. To refuse the use of cookies, change your settings or for more information, please click on the following link: Cookies policy. By continuing to browse this website, you accept the use of cookies for the above purposes.