The Australian Council of Superannuation Investors (ACSI) has released a report outlining the significant financial risks of biodiversity loss and how investors can respond.
Biodiversity loss presents physical, transition and systemic risks to Australian businesses according to the report, which was commissioned by the ACSI and authored by EY Australia.
More than half of the world’s economic output, or about $60 trillion, is currently dependent on nature and the World Wide Fund for Nature has estimated that biodiversity loss could cut Australia’s GDP by $27 billion annually by 2050.
“Loss of biodiversity, the living component of natural capital, not only erodes economic, social and cultural value, but presents a material financial risk for investors,” ACSI CEO Louise Davidson said.
“It can disrupt the availability of raw materials, the flow of supply chains, the ability to develop greenfield projects and the growth of sectors such as tourism when biodiversity systems collapse.”
According to the report, Australian companies have not yet fully assessed the magnitude of risks and opportunities within their biodiversity disclosures, which were found to be limited in scope and depth.
A new framework from the Taskforce on Nature-related Financial Disclosures will be introduced in 2023 and is expected to become the standard of the Australian financial sector.
In response to biodiversity risk, the report recommends that Australian investors take steps to plan and educate, undertake corporate engagement, manage portfolio risks and opportunities, shape policy and framework development and monitor and disclose targets.
“Biodiversity risk should be tackled with the same level of urgency, ambition and momentum as climate change,” said Ms Davidson.
“Biodiversity loss is accelerating, and this creates material risks and opportunities for investors based on companies’ dependencies and impacts on biodiversity.”
Industries with high dependencies on biodiversity in their operations as identified by ACSI include fisheries, forestry, agriculture and aquaculture, food, beverages and tobacco, heat utilities, and construction.
Meanwhile, the industries that have high impacts on biodiversity include food, infrastructure and mobility, energy, and fashion, which combined, account for an estimated 90 per cent of biodiversity loss globally.
The ACSI said that while the measurement of biodiversity loss and its financial implications is still in its early stages, particularly in comparison to climate change, it is expected to continue to evolve rapidly.
“Australian investors do not need to wait for this to begin the work to understand and manage biodiversity loss-related risks,” said Ms Davidson.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
