Investing sustainably

How to invest “in” our planet

09 May 2023

Damian Payiatakis, London UK, Head of Sustainable & Impact Investing

Key points

  • Biodiversity is falling fast due to human activity – and investors can play their part by factoring in biodiversity into their investment processes
  • Climate change is also one of the main drivers of biodiversity loss – and governments are committed to tackling both problems head on
  • Portfolios that are designed to limit environmental risk while protecting returns – and the world at large – are increasingly in vogue, given their potential to damage long-term performance
  • Investors should try to understand how their portfolio holdings are managing biodiversity issues – these risks are potentially significant in many sectors, including forestry, farming, cosmetics and pharmaceuticals

The choice of language for the theme of the 2023 Earth Day, an annual event to inspire individual action to protect the environment, was specific and intentional. For a second year, the call was to “Invest in our Planet”. 

From a financial perspective, investing “in” the planet points to valuing and providing finance to manage, preserve and restore the environment and biodiversity. This article analyses why and how biodiversity can feature when building investors’ portfolios to manage risks and find opportunities through nature-based solutions.

From protest origins to proactive protection 

The first Earth Day in 1970, followed a devastating oil spill off the coast of California that inspired 20 million Americans to protest against the human-driven damage to our planet and communities1. Subsequently, the event has become a global movement for positive, individual action for the environment.  

Earth Day this year reminds us of two environmental challenges investors face – climate change and the loss of biodiversity. While climate change has been the most visible environmental concern, the destruction of natural ecosystems poses its own threat to the planet. 

The two challenges are also inextricably linked2. Global warming can lead to significant loss of biodiversity. Loss of biodiversity, particularly through changes of land use, can boost greenhouse gas emissions. And with little sign of the ravaging of nature slowing, this is likely to amplify the effects of climate change.  

Understanding the value of biodiversity

So, what does biodiversity mean? Biodiversity was coined in 1985 as a contraction of “biological diversity”3

One useful, and poignant, definition, explains it as “the complex web of varied and interdependent ecosystems that sustains all life on Earth.”4 the last five words highlight how critical biodiversity is. In all parts of the world, human activity is altering biodiversity, and more broadly the planetary boundaries5 we need to survive. 

Human activities are damaging or eliminating nature habitats on land and in the water. They are also reducing the ability of the planet to absorb and store, or sequester, carbon through natural processes. For example, natural carbon sinks, such as forests, peatlands, saltmarshes, mangroves and seagrass meadows, are being removed to make way for agricultural or commercial development.  

Impact of global warming

Indirectly, climate change is also damaging biodiversity6. For example, climate change-induced warmer water temperatures and higher acidity levels are killing coral reefs7 This, in turn, reduces biodiversity, carbon sequestration and even exposes coastal communities more to the effects of increased storm intensity8

To appreciate the scale of these effects, the Living Planet Index provides a simplified, quantitative illustration of biodiversity changes (see chart). While there are caveats to the data, overall, it finds that between 1970 and 2018, on average, population size plunged by 69% across the more than 30,000 populations studied9

And while differences exist within regions and species, and in some cases, populations are increasing, the direction and scale of biodiversity loss is obvious.  


Finally, there is an important distinction between the challenge of biodiversity compared with climate change. Greenhouse-gas emissions can be halted or reversed, eventually finding a level (hopefully in line with the Paris Agreement10) at which people will have to adapt. However, once a species becomes extinct, there is no return. Therefore, preserving and restoring biodiversity should be a preventative measure rather than a problem to be adapted to later.

Global commitment to preserve biodiversity

As part of the global response to biodiversity challenges, the fifteenth United Nations Conference of the Parties (COP-15) to the Convention on Biological Diversity, made important progress in December 202211

At its conclusion, four goals and 23 targets were agreed by more than 190 global governments for achievement by 2030. Among the global targets, these included: cutting global food waste in half, raising financial flows from developed countries to at least US$30 billion per year and mobilising at least $200 billion per year in biodiversity-related funding from public and private sources. 

Most importantly, they pledged to conserve 30% of the world’s land and 30% of the ocean by 2030. This “30x30” rallying cry12 is akin to “1.5 degree” of the 2015 Paris Agreement. If the 30x30 ambition follows a similar pattern, then having clear national commitments and mandates, will lead to increased legislation, regulatory enforcement and public capital.  

Managing investment risks from biodiversity

As a starting point to integrate biodiversity into portfolios, investors can get to grips with, and understand, how well their portfolio holdings are managing biodiversity risk. Damaging biodiversity loss poses significant financial risks for many sectors. Obvious primary industries, or those involved in producing or obtaining raw materials, are extractives, forestry, farming and fishing. But even cosmetic or pharmaceutical companies rely on raw materials derived from nature.  

More generally, investors will need to recognise and account for companies impact on the environment. Businesses can’t exploit the planet without potential damage to their reputation or subsequent legal action which might hit profits. 

In addition, previously externalised environmental impacts and costs will have to become part of companies’ costs as governments impose greater regulation and duties on industry to try and protect biodiversity. 

Adding exposure to nature and nature-based solutions

Additionally, investors who want to use their capital to make a positive contribution to biodiversity have a small but growing range of potential opportunities. “Nature-based solutions” are “actions to protect, sustainably manage and restore natural or modified ecosystems, that address societal challenges effectively and adaptively, simultaneously providing human well-being and biodiversity benefits”13

For example, instead of building man-made infrastructure to reduce flooding, coastal erosion and storm-surge risks, or planting mangroves offer a viable alternative14. Not only can they achieve these aims, but they also provide a natural habitat for fish, birds and other life. 

Thus far, governments and philanthropists have primarily been funders of such solutions. Many projects are difficult to access in terms of size, business model and investment structure. However, an increasing range are scaling up the number of investments and maturing to absorb more private investment.  

More broadly, there are more companies that address biodiversity issues through efforts such as reforestation, regenerative agriculture, supply-chain monitoring and product certifications.

Investing in nature to make a difference 

Most public awareness and action have been centred on limiting the effects of, and increasingly adapting to, climate change. However, managing, preserving and restoring nature is just as critical. 

Moreover, investing “in” nature can help to address both climate change and biodiversity on Earth Day, and every day. It can also uncover new opportunities able to boost portfolio diversification, to protect and grow your assets while making a positive contribution to our world. 


Market Perspectives May 2023

Welcome to our May edition of “Market Perspectives”, the monthly investment strategy update from Barclays Private Bank.