Biodiversity

The Ecosystem at the Heart of Business

An unexpected positive outcome from the COVID-19 pandemic is related to climate change — after decades of steady increases, global carbon dioxide emissions actually fell. A combination of declining manufacturing and social activities in 2020 — factory shutdowns, a fall in air travel, and work from home which eliminated many commutes — led to global carbon dioxide emissions falling by almost 7% from 2019 levels. This unexpected result brought renewed focus on efforts to lower global emissions, as it provided proof that carbon dioxide reductions could be achieved and the Earth wasn’t beyond help in terms of climate change.

In 2021, governments across the globe started shifting their focus from providing COVID-19 economic life preservers to providing fiscal stimulus to drive economies out of pandemic-induced recessions. As stimulus packages are being worked out, there are renewed calls to ensure large portions support “green” initiatives. 2021 is being referred to as the “super year” for sustainability, and looks to be a crucial year for not only climate action but also the wider sustainability agenda. The year ends with two scheduled critical global summits — the UN Biodiversity Summit (COP15) in October and the UN Conference on Climate Change (COP26) in November.

We have already written a lot in 2021 on climate change in the Citi GPS report series — most recently in Hard-to-Abate Sectors, Financing a Greener Planet, Natural Gas Transition, and Electric Vehicle Transition. The report that follows takes a deeper look at the twin crises of climate change and biodiversity loss, and advocates for applying the same sense of urgency to both issues. With an objective to closing the gap between academic and policy literature and the perspective of the business and investor community, the report focuses on one question: Why should businesses and investors care about biodiversity loss?

Businesses are inherently reliant on nature for resources and ecosystems to produce their products and services. At the same time, their operations also create direct and indirect impacts on nature that could ultimately affect their business. By not analyzing dependencies and the impact on nature and biodiversity, corporates open themselves up to material risk to the profitability of their businesses and shareholders.

From an investor perspective, recent years have seen record levels of engagement in sustainability-related issues as demand for sustainable investment strategies rise. From 2016 through 2020, sustainable investment strategies saw a 50% increase in assets under management. With biodiversity loss putting over half of the world’s GDP potentially at risk, integrating the protection of biodiversity into the fiduciary duties of institutional investors and assets managers increases in significance.

We hope you find this report convincing in its argument on why biodiversity matters for corporates and investors. Follow up reports will expand on recommended actions, data, and frameworks businesses and investors can use to minimize risk to their operations and investments from biodiversity loss.

Using the adage of “every dark cloud has a silver lining”, COVID-19 may have opened a window of opportunity to build a sustainable future for humanity by aligning the climate and nature agendas.