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How integrating natural capital in the investment process can help biodiversity bloom

a sea turtle swimming in cool blue waters
Published 2 Jul 2024

Momentum is building for mandatory nature-related disclosures, but that is only the beginning. Investors and businesses may soon be looking to integrate biodiversity in decision-making at every level.

How should we value the natural world? Recent attempts to quantify how much economies and industries rely on natural capital have delivered varied results. Consultancy PwC, for example, estimates that more than half (55%) of the world’s GDP, equivalent to USD58 trillion, is moderately or highly dependent on nature. And index-provider MSCI has ranked industries by their dependence on nature (see Figure 1).

Figure 1: Dependencies on Nature by Industry 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Agriculture Fishery and Aquaculture Food, Beverages and Tobacco Forestry Heat Utilities Construction Electricity Water Utilities Supply Chain and Transport Chemical and Materials Industry Aviation, Travel, and Tourism Real Estate Mining and Metals Retail, Consumer Goods and Lifestyle Oil and Gas Automotive Healthcare Delivery Electronics Information Technology Insurance and Asset Management Banking and Capital Markets Digital Communications Low Dependency Medium Dependency Percentage of gross value added by nature dependency category High Dependency MSCI ESG Research, “Nature Risk Rising: Why the Crisis Engulfing Nature Matters for Business and the Economy.” World Economic Forum and PwC Source:

The stark reality, however, as pointed out by environmental policy strategist Paula DiPerna in a recent episode of CFA Institute’s Sustainability Story podcast, is that without nature, GDP would be just about zero.

DiPerna is an author and special advisor to CDP (previously known as the Carbon Disclosure Project). Her latest book, Pricing the Priceless, argues that in order to stave off the climate crisis and avoid accelerating biodiversity loss, economic accounting needs to be overhauled, so that it more accurately reflects the value humans derive from nature and the impact they have on it.

“We're just trampling all over nature, and it's not economically viable over time,” DiPerna said.

The first step to rectifying this is to put a price on the ecosystem services provided by nature (see Figure 2), including the food, fresh water and clean air that is essential to life, said DiPerna. Citing the example of a baseball card that sold for over USD12 million, she argued that “valuation is in the eye of the beholder,” adding that in the financial world, it is “often in the eyes of the asset managers and owners.”

“We do understand how to value intangibles,” she said. But when it comes to valuing nature, “to some extent we denigrate it because we didn't make it.”

Figure 2: Ecosystem Services Provided by Nature Food Raw materials Medical resources Fresh water Air quality regulation Climate regulation Water regulation Erosion regulation Water purification and waste treatment Disease and pest regulation Pollution Moderation of extreme events Soil formation Photosynthesis Nutrient cycling Spiritual and religious values Aesthetic values Recreation and ecotourism Physical and mental health Ecosystem Services WWF Source:

But putting a price on nature will be neither easy nor straightforward. David von Eiff, Director, Global Industry Standards at CFA Institute, cites the example of a wetland.

“If you’re going to destroy a wetland to put in an apartment complex, how do you value that wetland?” he asked. “Is it just the value of the land itself, or also the wastewater treatment and oxygen creation performed by the wetland?”

“And then if you’re going to replace those things with modern technology, how much would it cost, and is that even feasible?” He continued: “You might replace the wastewater treatment, for example, but you can’t replace the carbon sequestration or species habitation portion very easily right now. Those are kind of un-priceable at the moment.”

Still, without some kind of effort to start valuing ecosystem services, the risk of their eventual collapse continues to rise. That has grave implications for the future of life on earth.

Biodiversity loss

Already, animal and plant life is vanishing at an unprecedented rate, with more than a million species currently on the brink of extinction. Given the complex interdependencies among species, this could lead to cascading effects.

This will be compounded by climate change, which has historically been the third-largest driver of biodiversity loss (see Figure 3) and could become the largest driver within this century.

“As climate change gets worse, you will harm biodiversity,” von Eiff said. “And as biodiversity gets worse, your ability to do climate adaptation and mitigation is also harmed, because you're losing those systems that prevent climate change in the first place.”

Figure 3: Drivers of BioDiversity Loss 100% 80 60 40 20 0 Terrestrial Freshwater Marine Land/sea use change Direct exploitation Climate Change Pollution Invasive alien species Others Direct Drivers Indirect Drivers Values and behaviors Conflicts and epidemics Demographic and sociocultural Economic and technological Institutions and governance IPBES Global Assessment Report on Biodiversity and Ecosystem Services: Summary for Policymakers Source:

Accounting for nature-related risks

Although most investors and businesses currently do not account for nature-related dependencies, impacts, risks and opportunities, they are well aware of the risks posed by biodiversity loss and the degradation of nature. The World Economic Forum Global Risk Perception Survey 2023–2024 identified the four biggest risks facing the world over the coming decade as extreme weather events, critical change to Earth systems, biodiversity loss and ecosystem collapse, and natural resource shortages (see Figure 4).

Figure 4: Global Risks Ranked by Severity Economic Risk categories Environmental Geographical Societal Technological World Economic Forum Global Risk Report 2024 Source: Misinformation and disinformation Extreme weather events 2 years 10 years 1 st 1 st Extreme weather events Critical change to Earth systems 2 nd 2 nd Societal polarization Biodiversity loss and ecosystem collapse 3 rd 3 rd Cyber insecurity Natural resource shortages 4 th 4 th Interstate armed conflict Misinformation and disinformation 5 th 5 th Lack of economic opportunity Adverse outcomes of AI technologies 6 th 6 th Inflation Involuntary migration 7 th 7 th Involuntary migration Cyber insecurity 8 th 8 th Economic downtown Societal polarization 9 th 9 th Pollution Pollution 10 th 10 th

The tide is turning

In the past five years or so, the risks to biodiversity and natural capital have finally started gaining prominence on the international stage, said Sylvaine Rols, Senior Specialist, Nature at the Principles for Responsible Investment (PRI).

The United Nations biodiversity summit (COP15), originally slated for 2020 in Kunming, China, eventually took place in December 2022 in Montreal. That meeting resulted in what was hailed as biodiversity’s “Paris moment” – a reference to the breakthrough in international climate commitments that came at the 2015 climate conference in the French capital. More than 190 countries adopted the Kunming-Montreal Global Biodiversity Framework (GBF), committing to restore and conserve 30% of ecosystems by 2030, and to scale up biodiversity-related financing from public- and private-sector sources.

“This has certainly been a much faster journey than for climate, in part benefiting from lessons learned there, but we are still a few years off from reaching a similar level of awareness, engagement and commitment from stakeholders,” said Rols of the PRI.

That gap could close quickly as countries roll out policies to support the GBF’s 23 action-oriented global targets by 2030 (see Figure 5).