Biodiversity in the Balance

How Nature Poses Investment Risks and Opportunities

January 10, 2024
2 min read

What You Need to Know

Biodiversity is gaining prominence in fundamental investment analysis across asset classes, based on a deeper understanding of its importance as a potentially material issue for investors. By using a coherent analytical approach, we believe it’s possible to incorporate nature-related risks and opportunities in research and investment processes that support the efforts of capital allocators to harvest meaningful returns over time. 

30%
Of the world’s lands, inland waters, coastal areas and oceans targeted for conservation and management by 2030, under the UN’s Global Biodiversity Framework
US$722 billion‒US$967 billion
Estimated annual shortfall in the financing needed to reverse biodiversity loss by 20301
US$10.1 trillion
Annual business value that could be created by nature-positive actions in food, land and ocean use by 20302
Authors
Sara Rosner| Director—Responsible Investing Research
Patrick O'Connell, CFA| Director—Fixed Income Responsible Investing Research
David Tsoupros, CFA| Senior Research Analyst—Concentrated Growth

From South Africa’s endangered black rhinoceros to the shrinking Amazon rainforest, threats to the variability of life on Earth are mounting. Protecting biodiversity—animals, plants and other living organisms, and the ecosystems they are part of—is vital to maintain the health of our planet and the products, services and economic activity that sustain our daily life. Yet until recently, biodiversity hasn’t ranked highly among investors’ priorities.

This may seem surprising, given biodiversity’s importance as the living component of the natural world. Together with abiotic resources—the nonliving components of the natural world, such as land, water, air and minerals—biodiversity comprises natural capital, the world’s stock of natural assets. Natural capital provides the building blocks that enable ecosystem services—the positive benefits that societies and economies derive from nature—to sustain life and create wealth (Display).

Biodiversity and Nature
The Building Blocks That Sustain Life and Economic Activity
Illustrative display defines biodiversity, and key related terms including abiotic resources, natural capital and ecosystem services, which all add value to society and businesses.

Source: Integrating Biodiversity into Natural Capital Assessments, Capitals Coalition and Cambridge Conservation Initiative, 2020;  Biodiversity Resource Guide, AllianceBernstein (AB), August 2022.

For many years, governments and investors have focused mainly on the material impacts of climate change, with little consideration for the role of the natural world. But now there is a growing recognition of the high degree of interconnectivity and myriad feedback loops between climate change, people and nature.

Gaining Prominence in Investment Analysis

Consequently, biodiversity is gaining prominence in fundamental investment analysis across asset classes, based on a deeper understanding of its importance as a potentially material risk and opportunity for investors. Nature-related risks are defined by the Taskforce on Nature-related Financial Disclosures (TNFD) as the potential short- and long-term threats posed to an organization linked to its direct, upstream, and downstream dependencies and impact on nature. 

With resources becoming scarcer, the human population growing and regulatory activity increasing, investors must be able to make informed judgments about how companies are exposed to the causes and effects of biodiversity loss—and to the opportunities that may arise from attempting to mitigate this loss. Depending on how these risks are managed, they could hurt portfolio valuations or be the basis for new investment opportunities. By using a coherent analytical approach, we believe it’s possible to invest in a way that’s more aligned with biodiversity and that supports the efforts of capital allocators to harvest meaningful returns over the long term.

Growing Focus on Biodiversity to Create Opportunities

This paper provides a comprehensive survey of biodiversity for investors. Our report defines biodiversity and presents the scale of its global economic impact. We discuss the regulatory frameworks that are pushing biodiversity onto the global investment agenda as well as the nature-related business and investment risks that deserve closer attention.

The growing focus on biodiversity will also create economic and investment opportunities. We illustrate this through case studies and provide a conceptual framework to help investors map out biodiversity risk across sectors and companies. Finally, we discuss what we’re doing at AB to begin incorporating biodiversity considerations across the firm.

1 Financing Nature: Closing the Global Biodiversity Financing Gap, Paulson Institute, The Nature Conservancy and Cornell Atkinson Center for Sustainability, 2020, 14
2 New Nature Economy Report II, The Future of Nature and Business, World Economic Forum and AlphaBeta, 2020, 4

For investment professional use only. Not for inspection by, distribution or quotation to, the general public.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.


About the Authors

Sara Rosner is a Senior Vice President and AB’s Director of Responsible Investing Research. In this role, she collaborates with investors across the firm to lead thematic research on material ESG issues. She also manages the development of training and programming on issues related to responsible investing, focusing on enhancing investors’ ability to integrate material environmental, social and governance considerations into their decision-making and investment processes. Rosner has created and implemented AB’s Climate Transition Alignment Framework. She co-chaired the firm’s working groups on the energy transition, ESG research and biodiversity, managing firmwide initiatives on climate scenario analysis, carbon offsets and ESG education and training. Prior to joining the firm in 2018, Rosner performed research for the Columbia Center on Sustainable Investment, where she worked on projects related to the United Nations Sustainable Development Goals and renewable energy alternatives in the extractive industry. She spent most of her early career as a journalist covering energy and infrastructure finance in the Americas for Euromoney Institutional Investor. Rosner holds a BS in international studies (magna cum laude) from Pepperdine University and an MS in sustainability management from Columbia University. She is a global member of 100 Women in Finance and a financial literacy volunteer. Rosner was named one of Crain’s New York Business Notable Leaders in Sustainability 2023. Location: New York

Patrick O'Connell is a Senior Vice President and Director of Fixed Income Responsible Investing Research. In this role, he is part of the leadership team that develops responsible investment strategy across AB's Fixed Income business, particularly related to integrating environmental, social and governance considerations throughout the team's research and engagement. Previously, O'Connell served as a corporate credit research analyst, focusing on emerging-market corporates in Latin American and African countries. He joined the Emerging Markets research team in 2013 after working as a credit analyst covering US high-yield energy credits at AB. Prior to joining the firm in 2012, O'Connell was a desk analyst at UBS Investment Bank, where he helped to allocate capital on the trading desk. He holds a BS in accounting and finance (magna cum laude) from Villanova University and is a CFA charterholder. Location: New York

David Tsoupros is a Senior Research Analyst for Concentrated Growth. Before joining AB in 2013, he was an analyst on the US equity research and portfolio-management team at WPS Advisors. Prior to that, Tsoupros spent four years as a senior healthcare analyst at Roaring Brook Capital. He began his career with Merrill Lynch in 1998 and finished his tenure there as an equity research analyst specializing in the healthcare sector. Tsoupros holds a BA in history, with a minor in economics, from the University of Virginia. He is a CFA charterholder, a member of the CFA Institute and an SASB FSA (Fundamentals of Sustainability Accounting) Credential holder. Location: New York