In environmental, social and governance (ESG) investing, biodiversity protection is not as widely talked about as climate, but both are closely interlinked and evolving in sophistication, industry insiders said.
“The key question here really is what other solutions can simultaneously address both the climate change and biodiversity crises? And the answer in short, is nature-based climate solutions – the protection and restoration of important natural habitats, but also the management of working agricultural lands, where we get to work with nature, rather than against nature.,” Kelvin Chiu, founder and principal of family office Silverstrand Capital said at the Bloomberg Sustainable Business Summit, held in Singapore on Wednesday (July 27).
“Two things that stand out is that only 2% of climate finance goes to B2B solutions. So that's very low. And we need that to increase. And that's because we need an enabling environment. We also need better understanding of the science,” he said.
For example, he said that when using seagrass to remove carbon, many people did not know that chlorophyll was a better indicator of how much carbon is sequestered “because if the seagrass is brown, it might be emitting carbon. So understanding the science better is very important,” he said.
The Singapore-based family office has dedicated itself to biodiversity, and Chiu said that many solutions are not yet suitable for large institutional investments.
“I think it's our job as impact investors to fund the viable models, because a lot of them are still very nascent. And at the moment, they're not ready for institutional investors,” he said. “So ultimately, impact investors have to lead the way and then hopefully, make these scalable solutions because that's a big problem - a lack of bankable projects to invest in, and not the lack of financial capital.”
Still, he observed that the situation has improved from a decade or two ago when “conservation was entirely a philanthropic endeavour”.
“Now we have financially sustainable models, so it is changing in the right direction,” he said.
His fellow panellist Anderson Tanoto, managing director of manufacturing company Royal Golden Eagle (RGE) agreed that nature-based solutions are key, adding that his company has been working closely with the National University of Singapore (NUS) on a project that builds a digital twin of forests to track their biodiversity.
“You can open up this platform for funders and other investors to actually have access to, so really using technology building on the carbon market, and at the heart of it, really protecting the forests to stay as what it is at this point,” he said.
He also echoed Chiu’s point that the financing world has come a long way since a decade ago.
“When I was at COP21 in Paris in 2015, I was speaking about biodiversity, and there were literally 30 people, all practitioners, not a single from finance or other industries. And now seven years later it is being spoken in this Bloomberg conference. So that shows the importance of biodiversity,” he said.
Investors have a strong incentive to ensure biodiversity protection, Laura Bosche Ferrete, sustainable investing specialist at Robeco, said at the same panel.
“Companies are exposed to nature-related risks. There are two main channels in which they are exposed to these risks, one being through the exposure of physical risks. Let's think about the power producer, they need good quality of the soil, low level of land degradation and availability of water to irrigate the crops,” she said.
“The other angle is through transition risks. So that's more looking at how companies are actually impacting the key drivers of biodiversity loss. For example, land use change is one of the key issues in eroding terrestrial ecosystems,” she said.
“Companies in the agricultural sector will really have to take into account how they are managing the risks around exposure to deforestation in the supply chain, to make sure that they don't face issues in selling their products in countries that have implemented restrictions on importing commodities that lead to deforestation,” she explained.