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Tracking biodiversity’s emergence in the U.S. and what it means for investors

  • 05 May 2023 (5 min read)

The rise of climate change awareness has caused investors to become more conscious of biodiversity – and all its potential benefits.

In the fight against climate change, investors have long focused on finding ways to reduce carbon emissions. But recent developments in the U.S. have thrust a new priority into the spotlight: biodiversity loss.

Climate change has caused 33% of all biodiversity loss so far, and, if current trends hold, is poised to overtake land use change by 20501 as the single largest contributor to biodiversity loss. As a result, the Biden administration has outlined ambitious targets to restore biodiversity domestically by the end of the decade.

By recognizing that climate change and biodiversity can be tackled hand-in-hand, investors have an opportunity to reduce risk, reverse biodiversity loss, and accelerate the progress of sustainability efforts.

Protecting our planet, securing our future

Moving forward, biodiversity conservation will play a starring role in the fight against climate change. Land and marine ecosystems today absorb over half of man-made carbon emissions2 - biodiversity reversal and regrowth could therefore increase carbon capture and reduce global warming. On the other hand, further biodiversity loss could force us to say goodbye to valuable ecosystem services like timber production, crop pollination, carbon storage, and more.

More directly, biodiversity loss could also impact the health of Americans. U.S. drug manufacturers often rely on natural bioactive modules from the plants, animals, and microorganisms in our ecosystems 3 for inspiration when designing synthetic molecules. On top of that, biodiversity loss can increase our exposure to new and established zoonotic pathogens.

Another example: Further decline in biodiversity could also strengthen wildfires in the U.S. Wildfires have been on the rise in recent years, especially in places like California, Oregon, and Montana.4 These natural disasters are going to increase in intensity and frequency5 if the current rate holds. And, more areas across the U.S. might become susceptible to forest fires if severe droughts continue. This means poorer air quality – also related to health issues and costs – and natural resource depletion.

Bringing it stateside: Biodiversity loss – and its impacts – in the U.S.

Biodiversity loss doesn’t just impact our planet’s health and ours; it also has economic effects. Over half of the global GDP relies on high-functioning biodiversity6 . On the other hand, the high rate of biodiversity loss presently costs the global economy 10% of its annual output7 . In fact, the global economy is currently losing over $5 trillion8 each year due to lost ecosystem services. If wild pollination, timber supply, and fish supply eventually erode to a certain degree by 2030, the global GDP would be expected to contract roughly 2.3%9 .

Restoring nature to prevent ecosystem collapses and lost ecosystem services won’t come easy – or cheap. By 2050, we’d need to invest $8.1 trillion10 to protect and restore natural habitats. Despite the heavy cost, this also presents potential opportunity for U.S. investment. By prioritizing biodiversity as a long-term investment opportunity, U.S. investors might avoid reputational and regulatory risks more effectively, overcome business and market disruptions, and see potential to boost long-term portfolio resilience.

While the forestry, fishing, mining, manufacturing, and agriculture sectors11 are especially intertwined with biodiversity loss, the truth is that biodiversity remains the lifeblood of myriad industries. Nearly all businesses rely on natural resources and raw materials, whether directly or indirectly. Biodiversity loss limits the availability of these materials – driving up costs and creating new business risks for countless American companies that rely on natural resources in some form or another.

As financial regulators in the U.S. adopt more policies centered on preserving biodiversity – including the Task Force on Climate-Related Financial Disclosures (TCFD) and the Taskforce on Nature-related Financial Disclosures (TNFD) – U.S. companies are similarly beginning to follow suit and implement new biodiversity stances. John Deere,12 Ball Corporation,13 and other major U.S. companies now assess, monitor, and disclose their impacts on biodiversity. In doing so, these businesses aim to develop initiatives, products, and services that prevent – and even reverse – biodiversity loss.

Until now, the lack of uniformity and standardization surrounding biodiversity has left investors struggling to accurately measure the net footprint American companies leave behind on biodiversity. While there is still work to be done, the increase in corporations actively sharing their impact represents a move in the right direction.

It’s worth noting that American consumers have also become increasingly aware of biodiversity and its impacts. More and more, the average U.S. consumer prefers to spend money on brands that prioritize environmental issues — look no further than the rise in demand for sustainable consumer products14 . As Americans’ buying behaviors evolve, so too does the larger U.S. economy, creating new potential opportunities for sustainability investors to tap into.

U.S. lawmakers are now starting to draw a harder line in their attempts to support biodiversity efforts domestically. The United States Agency for International Development (USAID) set FY 2022 biodiversity funding at $385 million15 – up roughly 20% from FY 2021. In addition, the Biden-Harris Administration launched the America the Beautiful Challenge with the goal of conserving at least 30% of U.S. lands and waters by 2030. President Biden also recently signed Executive Order 14072 to combat deforestation and protect forests on federal lands16 .

Why biodiversity’s long-term outlook might be turning over a new leaf

As biodiversity’s role in our economic system draws into clearer focus, investors are now seeing biodiversity as a way to mitigate corporate risk. At AXA IM, we believe investing in biodiversity presents potential opportunities, particularly for investors that maintain a long-term view.

The growth drivers in place support this promising long-term outlook. From extracting raw materials to preserving safe water and high-quality soil – a variety of sectors rely on the plants, insects, and animals that make up our natural world. Add in the growing health risks posed by biodiversity loss, and the stakes are clear. Without significant progress, our current extinction crisis projects a series of negative ramifications for both U.S. businesses and investors.17

The bottom line: Long-term prosperity and overall economic growth require a sufficient baseline of biodiversity. Further biodiversity losses could impact millions of Americans – let alone investors – and lead to industry disruptions, potentially wiping out trillions of dollars from the U.S. economy.

Plus, there’s the consumer component – people are increasingly aligning their consumption patterns with brands that they philosophically align with. Moving forward, if U.S. lawmakers continue to introduce more regulations focused on safeguarding biodiversity – and if similar consumer trend lines hold – businesses will become increasingly incentivized to adopt business models that prioritize and promote biodiversity.

Go deeper: Understanding AXA IM’s biodiversity outlook

As we see more U.S. investors put biodiversity on par with climate change, the tide is starting to change. Renewed investor interest coupled with recent U.S. legislation has created financial incentives for American corporations to report transparently on their biodiversity efforts.

As an asset manager at the forefront of the larger sustainability landscape, AXA IM understands that focusing solely on climate change is too narrow a view. We incorporate biodiversity into our broader sustainability mission – using Iceberg Data Lab’s Corporate Biodiversity Footprint (CBF) metric to measure a company’s fundamental impact on biodiversity. By applying data that measures the negative impacts of economic activities on mean species abundance to our sustainability analyses, AXA IM aims to better understand companies’ effects on biodiversity and make more informed investment decisions.

References to companies are for illustrative purposes only and should not be viewed as investment recommendations.

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    This document is being provided for informational purposes only. The information contained herein is confidential and is intended solely for the person to which it has been delivered. It may not be reproduced or transmitted, in whole or in part, by any means, to third parties without the prior consent of the AXA Investment Managers US, Inc. (the “Adviser”).  This communication does not constitute on the part of AXA Investment Managers a solicitation or investment, legal or tax advice. Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

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