What is ESG investment?
Let’s start with the fact that ESG represents the Environmental, Social and Governance guidelines that are subscribed to by a growing number of companies. Of course, E for Environment really covers a diverse range of interests: climate change, pollution, resource management and limiting humanity’s ecological footprint.
Both the concerns of an efficient business and its footprint have expanded over the years and the establishment of ESG as a central tenet of many businesses is a reflection of this. Unlike its predecessor, Corporate Social Responsibility, ESG requires the company to produce metrics that demonstrate the impact of its progress. This leaves companies open to criticism and shareholder activism if standards fall short of promises.
ESG marks a serious commitment by companies to alter their practices and is no passing fad or fashion. It mirrors the changing face of big investors: pension and mutual funds as well as large institutional houses now account for the vast majority of investment on both sides of the Atlantic.
This is beneficial in two ways as investors are more interested in pursuing an ESG agenda that sits comfortably with an approach favouring longer-term and sustainable investments. Also, they are more inclined to use their influence. These structures are large enough to push the concerns of their investors onto companies, who are compelled to respond.
This affects not just the type of company they choose to invest in, but can also alter future strategy to better promote their agenda. Taken together, the entire ESG concept covers a vast array of possible investments. Among the most popular are those providing good quality data, regular feedback and, of course, a decent return on investment.
What role does ESG play in promoting biodiversity and conservation?
Conservation has not received the prominence it deserves when investors decide how they can best make an impact. A large part of this revolves around the lack of reliable data in the sector. It is far easier to measure the output generated by a new wind turbine than it is to establish the value of maintaining the habitat crucial for several endangered creatures.
Investors who consider engaging in conservation projects typically speak of a lack of suitable opportunities with the right risk profile and an attractive rate of return. Surveys of those same investors highlight the unfulfilled demand for so-called ‘impact investments’ that generate profit or an agreed return, while having a measurably positive impact on the ecosystem or natural resource.
A new urgency has developed amongst investors in recent years as the effects of climate change have accelerated and the problems driven by humanity’s expanding footprint come into sharper focus. This has added to the momentum generated earlier this year at the World Economic Forum (WEF), when the loss of biodiversity was recognised as a top risk for 2020. The WEF considered “how destabilising tipping points in nature could exacerbate the social and economic consequences of climate risk. At the same time, understanding nature’s benefits could help societies leverage opportunities to stem the planetary emergency.”
It is widely recognised that current methods of valuing biodiversity do not accurately convey the full value of our natural habitat. The rating system used to assess the ‘greenness’ of various operations does not capture the extent of the impact being made by the investment. It offers a grade for how well intentioned the project in question is without placing a monetary value on the actual impact. So many projects could be graded A for effort, but how do you measure the result unless you know the monetary value of what is being achieved?
Biodiversity Solutions International’s Biodiversity Impact Valuator offers a comprehensive evaluation of the environment’s value by accounting for all its fauna or flora.
To properly assess any creature or plant’s value to its surrounding habitat, an in-depth survey of its interactions is needed to reveal the degree to which other species depend on or interact with it.
Our IP protected methodology identifies the complex interdependencies between life forms that, in turn, produces a truer evaluation of their crucial role in holding so much of the local – and global – environment in place.
This cannot have come a moment too soon. The WEF estimates that USD 100bn a year is needed just to preserve the world’s key ecosystems as they stand today, without any money for restoration. Such huge sums require that public funding and private investment work hand-in-hand. For this to happen, a solid method of valuing ecosystems and accounting for natural capital needs to be established, one that fully appreciates the interdependency of life in any given area.
Taken together, these initiatives amount to a new direction in ESG investing. By tackling the acknowledged weaknesses in the data available and establishing a true value for the Earth’s biodiversity, we can raise the profile of biodiversity within the broader ESG movement.